What Is an Endogenous Variable?

An endogenous variable is a variable whose value is determined within an economic or financial model. Its behavior depends on the interactions and relationships between other internal variables. In simple terms, an endogenous variable changes because something inside the model changes — not due to outside forces.

How Endogenous Variables Work

In a supply and demand model, price and quantity are classic endogenous variables.

• If demand increases and supply stays the same, prices rise.

• If supply increases with stable demand, prices fall.

In a business model, endogenous variables may include:

• Output

• Revenue

• Profit
  These depend on internal factors such as production capacity, cost of inputs, or pricing decisions. For example, if a company adopts more efficient technology, output and profits may increase as a direct internal consequence.

Endogenous Variables in Crypto

Cryptocurrency markets also contain important endogenous variables.

• Price: Influenced by trading volume, investor sentiment, and market demand within the ecosystem.

• Hash rate: Determined by how many miners are participating and the difficulty of mining new blocks.

These values shift based on internal blockchain and market dynamics rather than outside shocks alone.

Benefits and Use Cases

1. Better Modeling Accuracy: Helps analysts understand how internal system changes affect outcomes.
2. Market Insight: Allows traders to track internal signals such as price, demand, and network activity.
3. Crypto Analysis: Variables like hash rate and on-chain activity serve as indicators of network health and miner participation.

Conclusion

Endogenous variables reflect the internal workings of economic and crypto models. In traditional economics, they include price, quantity, and output. In crypto, they include market-driven values like token price and blockchain hash rate. Understanding endogenous variables helps analysts and traders interpret how internal dynamics shape broader market behavior.