Note: Worldcoin was originally scheduled to unlock the WLD tokens allocated to the contributor Tools for Humanity in a linear manner every day starting from July 24, 2024. However, on July 16, Worldcoin announced that the unlocking schedule for 80% of the WLD tokens held by team members and investors would be extended from 3 years to 5 years. This "good" news caused the price of WLD tokens to soar by more than 50%.
WLD's low circulation rate and high FDV (fully diluted market value) have always been criticized by the crypto community, and this incident has once again attracted attention. Crypto trader DeFi Squared once again criticized Worldcoin, saying that its internal team manipulated prices by controlling the token economy, maintaining extremely low circulation rates, high FDV, and releasing positive news so that the FDV remains extremely high when unlocked internally, which is a "money grabbing plan."
The following is the original text of DeFi Squared:
Worldcoin is expected to start internal unlocking in 7 days, and its circulation is only 2.7%, the lowest in the industry. It is meaningful to explore how the project reached this state.
This article reveals how the Worldcoin team manipulated the price to maintain a FDV of $30 billion when internal unlocking began, while lying about not having any involvement. All in sync with the latest vesting schedule changes.
background
When Worldcoin was first launched, the Foundation had a circulating supply of 1.4%, or 140 million WLD. While there were concerns that this low circulation rate would result in it launching with an extremely high FDV, the team has allocated 100 million tokens to market makers and provided call options that allow them to buy back a large number of tokens at the end of the contract at a price slightly above $2, with the goal of preventing the price from surging too high. Allocating supply to market makers to create favorable price conditions is not uncommon in the industry.
As expected, during the life of the contract, WLD was unable to significantly exceed the call price because market makers “suppressed” the price. Worldcoin CEO Alex Blania discussed here how the contract was specifically needed to prevent price spikes:
Note that he states that the goal is to avoid a price “surge to $10,” a scenario he says would be “pretty scary.”
Market Reaction
However, on December 16, with only 1.2% of the circulation, Worldcoin decided not to renew the existing market maker contract, canceled the call option, and removed 25 million WLD from circulation. With very low market maker participation, its market capitalization was only $98 million, and the price soared 100% in a few hours. Within a month, the price of Worldcoin has been squeezed to nearly $12, with a FDV of $120 billion.
Apparently, the team later realized that it was unwise to publicly describe controlling the price, so when asked at Token2049 Dubai if they were concerned about the price, the Worldcoin CEO claimed that they could not control the price and that it was market-driven:
The fact that the 11-digit valuation is only possible due to the team’s token economics design, and the token’s daily price movement is influenced multiple times by the team, who actively change the issuance, market maker contracts, and release announcements before unlocking, raises the question of why the public is not aware of this fact.
Reasons for low circulation rate
Back to the beginning - the circulating supply was only 2.7% when unlocked by insiders, which is probably the lowest rate unlocked by major VC-backed projects in the history of crypto. As a reminder, this is probably the only thing that keeps WLD alive at a staggering $30 billion FDV, and insiders can quickly sell at this price. But why is the circulation rate so low? According to Blania in 2023, they have to keep the circulation rate low because in order to achieve UBI, "it would be unfair to release 10% of the supply at once":
Worldcoin CEO defends low circulation as necessary to achieve UBI. However, confusingly, the token economics arrangement designed by the team will result in the majority of tokens going to insiders over the next year, rather than UBI recipients. Extrapolating from the current UBI grant rate, over a year later, the team/VCs will have issued nearly 1 billion tokens, while UBI recipients will only receive 600 million tokens. That is, in a year, insiders will hold over 60% of Worldcoin's entire circulating supply of WLD. 60% is a large percentage, and basically means that most tokens in the ecosystem are for VCs to sell, which directly refutes the argument that the current low circulation rate favors UBI recipients.
Other sources of supply
There are multiple other sources that increase the circulating supply, but these supply do not go directly to UBI recipients. My previous research article discussed how a large amount of the supply from the "community fund" is sold to trading desks at a discount; in addition, some Orb operators earn a large amount of WLD each week by collecting biometric data from vulnerable groups and sending it directly to exchanges:
Despite such a low circulation rate, who are the unfortunate victims currently holding nearly $30 billion of FDV WLD and maintaining a high valuation when it is unlocked? It turns out that a large portion are Korean retail investors, many of whom may not even understand the situation. As of this writing, nearly 25% of the circulating WLD is held on Bithumb, and despite the upcoming unlocking, it continues to rise:
It’s probably no coincidence that Worldcoin released positive news a week before the unlock. While this is just a small change to release selling pressure, the news has been very effective so far, forcing retail investors to unknowingly provide higher prices and more liquidity, allowing insiders to exit within a week. Worse, it seems possible (but unconfirmed) that someone on the team or VC used insider information to buy the news first, even before it was publicly announced:
While this type of project behavior is not new in crypto, it is surprising that many market participants still do not understand the potential risks of their investment. This article aims to shed light on how a project can intentionally prop up an otherwise low token price, and many of the reasons listed are why I intend to short WLD in the months following the unlock.
