Author: Dr Daoist

Original source: https://t.co/AulNdP3eLd and https://t.co/WwTUFPDCP8

We advocate for Bitcoin because it saves the world economy from the disaster of excessive issuance of fiat currency. Unbeknownst to us, in Web3, we are still lifting stones to hit our own feet: unlocking tokens over time excessively.

‘Fair release’ issues VC coins in a meme-like fashion — perhaps the fairest and most sustainable token economic model for VC coins — and may even achieve a ‘only rise not fall’ flywheel.

‘Low circulation, high FDV’: a surface-level issue

Since a report released by Binance Research in May 2024 has put ‘low circulation high FDV’ at the forefront of industry discussions, discussions on this issue have remained superficial. The core of the real problem has not been addressed, nor has anyone questioned the fundamental reasons for its existence.

The question we should really be asking is:
Why is there a gap between market cap and FDV?
Why does ‘low circulation, high FDV’ cause problems?

Market cap vs FDV: a unique dilemma in the crypto industry

Why is there no ‘low circulation high FDV’ problem in traditional finance (TradFi)? Because this issue is unique to the crypto industry.

In traditional finance, market cap is calculated based on all issued circulating shares, including shares locked for 6 to 12 months post-IPO. Dilutive factors (such as options and restricted stock units) are minimal, so the gap between FDV (fully diluted valuation) and market cap is small. When new shares are issued, it is usually done through financing or stock splits, and these increases are immediately reflected in the stock price.

In the crypto industry, most projects follow Satoshi Nakamoto's token economic legacy: a limited total supply and low initial circulation. This leads to a fundamental difference between ‘crypto FDV’ and ‘traditional finance FDV’: the latter only considers the slight dilution of circulating shares when derivatives convert into shares, while the former includes all future potential tokens that may be issued into the system.
TradFi FDV vs Crypto FDV (by their definitions)
If the concept of ‘crypto FDV’ were applied to traditional finance, it would encompass all future potential shares that could be issued — although this can theoretically be calculated (since companies have what is called an ‘authorized share limit’), this number is basically unlimited because it can be easily increased through shareholder resolutions.
TradFi FDV vs Crypto FDV (by Crypto definition)
Now, when comparing in this fair manner, it is easy for people to start questioning (at least I would) the definition of FDV in the crypto industry: is it really reasonable to value a company/project based on the current spot price and all the shares/tokens it might issue in the future? The answer is obviously no. If tokens can be issued without limit like the U.S. Treasury printing money, then a company/project's valuation will become infinite.
So, why do we adopt such an absurd FDV metric in the crypto industry? The answer lies in the fact that financing may need to be benchmarked against it before TGE (token listing) — but after TGE, it is another story. Before TGE, VCs will invest a certain proportion of tokens, which is usually calculated based on a certain total supply. Once the tokens are listed, FDV becomes irrelevant, and market cap is the only meaningful metric. This is why no one talks about Bitcoin or Ethereum FDV — only their market cap matters. (Note: Ethereum has no upper limit on total supply, just like companies in traditional finance can issue unlimited stocks, making it impossible to calculate its FDV.)
So, if in the ‘low circulation, high FDV’ dilemma, FDV is actually irrelevant (or more like a ‘scapegoat’), then who is the real culprit?

Time-based unlocking: the real culprit

While most projects mimic Bitcoin's limited total supply and low initial circulation, they fail to grasp the essence of its token economics: demand-driven release, rather than time-based release.
Bitcoin's block generation is often misunderstood as purely time-based (thanks to the well-known ‘four-year halving cycle’), but in reality, it is demand-driven. The key mechanisms are as follows:
The release amount of BTC (block reward) is linked to the number of blocks mined;
If the rewards (essentially the price of BTC) are insufficient to incentivize miners, then new BTC will not be mined;
The price of BTC is ultimately driven by market demand because its supply mechanism is predetermined.
BTC halving: seemingly time-released, but actually demand-driven
This demand-driven release conforms to basic economic principles: new currency or tokens will only be issued when the system needs it. In stark contrast, most crypto projects (especially those that have raised funds) follow time-based release/unlocking — which is the real cause of the ‘low circulation, high FDV’ problem.
The most obvious flaw of time-based unlocking of tokens is the mismatch between supply and demand. Supply is strictly written into smart contracts, while demand fluctuates unpredictably. Projects often release seemingly reasonable roadmaps to justify the rationality of their release plans, but these plans rarely go as expected. As a result, the issuance of tokens is to meet an increment of demand that does not fundamentally exist — or even reduced demand (in fact, the peak of demand often occurs during airdrops before TGE). The consequence is that token prices continue to fall as they unlock.
Time-based release: programmable supply vs unprogrammable demand
But there is an even deeper problem: conflicts of interest. Most projects have different unlocking timelines for teams, VCs, communities, and treasuries. While this seems to prioritize certain ‘vulnerable groups’ (like the community) by unlocking their tokens first, it creates conflicts of interest — reflecting extremely poor mechanism design. A typical scenario is as follows:
Before unlocking, the community/retail investors expect the newly issued tokens to create selling pressure and exit in advance;
The project side anticipates unlocking, artificially raising the coin price by creating positive news and market-making to attract retail investors;
After unlocking, the project side has to compete with VCs to exit, and both sides often coordinate with market makers to sell at the same time.
This conflict of interest places the project side and VCs in opposition to the community, eroding trust and leading to poor performance of many VC coins post-TGE.
The vicious cycle caused by time-based unlocking
Demand-driven token release: the only viable solution

For projects that will issue or unlock tokens, the only solution that aligns with economic principles is demand-based release — this is especially applicable to VC coins that include unlocking mechanisms (but not including 100% fully circulated tokens that are meme coins).
The two core advantages of demand-based release directly address the fundamental flaws of time-based release:
Supply-demand balance: new tokens will only be released when there is additional demand (e.g., token consumption), thereby avoiding planned inflation;
Aligned interests: unlocking will only be triggered when the community/market has additional demand for tokens (e.g., protocol interactions), ensuring that the team, VCs, and community are on the same page.
However, this also introduces a new risk: the uncertainty of the unlocking cycle for the project side and VCs. If the community stops participating in interactions/usage, the demand for tokens will disappear, and no new tokens will be released/unlocked. But shouldn't this risk be borne by the project side and VCs? Without this risk, the Web3 industry will always be a zero-sum game between the organizers and the community — or worse, a financial scam.

Fair release: a brand new token economic paradigm

As discussed earlier, time-based unlocking not only violates basic economic principles but is also unfair. On the surface, it seems to prioritize the community by unlocking tokens (such as through airdrops), but in reality, it ensures that the project side and VCs can ‘exit on schedule’ during the unlocking, regardless of the actual market demand for the tokens — inevitably leading to selling pressure. Worse yet, often hidden under the guise of ‘prioritizing the community’ are the project side and VCs’ ulterior motives (such as mixed airdrops or selling treasury/ecosystem tokens), allowing them to exit cleverly and quietly at the moment of token issuance — far earlier than the first unlocking time. Under this play, the unlocking cycle has become a mere formality, and by the time the scheduled unlocking begins, the token price may have already plummeted.
This maneuver has become an open secret, and the community and retail investors have expressed their dissatisfaction through real actions — whether from the poor performance of VC coins after listing on centralized exchanges (CEX) or from meme coins overwhelmingly becoming the current market mainstream. Why do meme coins rise? Because they are fairly issued — at least at the moment of TGE, they are considered fairer than the ‘project side + venture capital + CEX alliance’ schemes. But we all know that fair issuance is impossible for VC coins, as VCs have already invested in the project at a lower price before TGE.
So, is there still a solution to this problem?
The answer is ‘fair release’: a brand new token economic paradigm — new tokens are only released when demand increases and are fairly distributed to all stakeholders in each release. Additionally, it has anti-inflation characteristics. Depending on whether the project generates positive externalities (like income), there are three versions of fair release:
Ponzi version (no income): Whenever circulating tokens are consumed and destroyed, an equal amount of new tokens is released (distributed proportionally to team/VC/community/treasury, etc.), keeping the circulation constant;
HODL version (with income): Similar to the Ponzi version, but new tokens are released in an inflationary manner, and the inflation portion is immediately repurchased and destroyed using income, thereby maintaining constant circulation;
Moonshot version (with income): Similar to the HODL version, but not all income is used to repurchase inflation-released tokens; some will also be used to pump the price, thereby creating a potential ‘only rise not fall’ effect.
Here are the analyses of the three models.

Fair release 1.0: Ponzi version (for projects without income)

Even two years after the ‘X-to-Earn’ narrative collapsed, the Web3 industry still faces a brutal reality: most projects still lack positive externalities — that is, these projects still do not generate income measured in foreign exchange. The token economics of these projects inevitably become ‘Ponzi’ — similar to how the Federal Reserve and the U.S. Treasury support the economy through printing money + ‘left hand to right hand’ — until the bubble bursts, the token credit is zeroed out, and the project side has no more seigniorage to collect.
Nevertheless, for these projects, the Ponzi version of fair release is still feasible — at least it can achieve relatively fair and anti-inflation objectives when the tokens unlock. The key to this version is that there is no inflationary release, and it operates as follows:
At time T₀: Assume the initial liquidity pool contains $TOKEN and $USDT, giving $TOKEN an initial price;
Between T₀ and T₁: A certain amount of $TOKEN is consumed (through community interactions) and destroyed, reducing circulation and pushing up the price;
At time T₂: An equal amount of $TOKEN is released to restore the destroyed supply, bringing $TOKEN price back to the initial pricing level, while distributing tokens proportionally to each party.
The net effect is that the circulation and price of the token remain unchanged while completing a round of fair token unlocking.
Fair release 1.0: Ponzi version (no income)
However, due to the nature of the Ponzi economy, this is actually a castrated version of fair release because each round of release dilutes the community's share in the circulating tokens. The main source of token consumption comes from the community, but only a portion of the newly unlocked tokens used to replenish these consumed tokens is allocated to the community. Although it is mechanistically more reasonable than time-based unlocking, this version still benefits the project side/VC at the expense of the community.
This is why we need fair release 2.0.

Fair release 2.0: HODL version (for projects with income)

The version that can truly achieve fair release must unlock through ‘inflationary release’ and then offset that inflation through repurchase and destruction. This requires the project to generate income measured in foreign exchange.
I refer to this as the ‘HODL version’ of fair release because the ability to generate income supports sustainable token prices. It operates as follows:
At time T₀: Assume the initial liquidity pool contains $TOKEN and $USDT, giving $TOKEN an initial pricing (same as the Ponzi version);
Between T₀ and T₁: A certain amount of $TOKEN is consumed and destroyed, reducing circulation and pushing up the price, while the project generates income measured in $USDT;
At time T₂: A certain amount of $TOKEN is released in an inflationary manner, exceeding the previously consumed and destroyed circulation — the inflation portion is used for unlocking distributed to each party — causing the $TOKEN price to fall below the initial pricing level;
At time T₃: All income is used to repurchase and destroy the inflationary issued portion of $TOKEN, restoring circulation and token price to the initial level.
In this version, the net impact on the token supply and price after each round of fair unlocking and distribution is zero.
Fair release 2.0: HODL version (with income)
Fair release 2.0 solves the problem present in the Ponzi version because token unlocking only occurs within the inflation portion of each release. The community is essentially able to retain its share of circulation during each token consumption - release process, thereby continuously being incentivized and participating without worrying about dilution. This also maintains the stability of the proportion of all stakeholders' shares throughout the token's lifecycle.
But the story doesn't end here... If a project can generate income, why not use a part of the income to repurchase the released tokens and use another part to pump the price? This is entirely feasible — which is why we have fair release 3.0, a magical ‘only rise not fall’ model.

Fair release 3.0: Moonshot version (for income-generating projects seeking ‘only rise not fall’)

Although the HODL version has achieved our core goals — demand-based unlocking of tokens and fair distribution — its impact on token prices remains neutral. The advanced version of fair release introduces a positive feedback loop, driving the continuous increase of token prices: in each round of fair release, a portion of the income is used to raise the token price, further incentivizing the community to hold and participate. I call this the ‘Moonshot version’ of fair release because once the flywheel turns, it snowballs larger and larger!
The specific operation is as follows:
At time T₀: Assume the initial liquidity pool contains $TOKEN and $USDT, giving $TOKEN an initial pricing (same as the Ponzi version and HODL version);
Between T₀ and T₁: A certain amount of $TOKEN is consumed and destroyed, reducing circulation and pushing up the price, while the project generates income measured in $USDT (same as HODL version);
At time T₂: A certain amount of $TOKEN is released in an inflationary manner, exceeding the previously consumed and destroyed circulation — the inflation portion is used for unlocking distributed to each party — causing the $TOKEN price to fall below the initial pricing level (same as HODL version);
At time T₃: A portion of the income is used to repurchase and destroy the inflationary issued portion of $TOKEN, restoring circulation and token price to the initial level, while the remaining income is used to pump the price, increasing $TOKEN price.
Through this model, each round of fair release will have a net positive impact on the token price. The more tokens are unlocked, the higher the token price — doesn’t that sound magical?
Fair release 3.0: Moonshot version (with income)
Compared to the HODL version, the Moonshot version only requires more precise mathematical calculations: setting the optimal release inflation rate and determining the ideal distribution ratio of income — ensuring that a portion of the income covers inflation repurchase while another portion is effectively used for price pumping. Besides that, the rest comes down to execution.

Final thoughts

Many attribute the poor performance of the crypto market to insufficient liquidity, stagnation of innovation, or narrative fatigue, but few realize that the real problem lies in unfair wealth redistribution — it exacerbates the divide between grassroots (community/retail) and institutions (project side/VC).
The ideology of decentralization aims to achieve a fairer distribution of power and wealth. If we cannot break through the centralized shackles of traditional finance in production relations, even with sufficient liquidity, technological breakthroughs, or narrative hype, Web3 cannot truly thrive.
The simplest step towards fairer wealth redistribution is to correct the token economic model.
Fair release is the simplest solution to the current widespread problem of time-based unlocking. It follows basic economic principles and addresses the root cause of the ‘low circulation high FDV’ problem. It is not a high-level science, but a completely practical solution. Through liquidity pools as leverage, it can create a flywheel effect for projects that generate positive externalities.
It may be the fairest and most sustainable token economic model for VC coins.
Join this paradigm shift and be part of this revolution!

#BTC