Recently issued new tokens generally have high valuations and low initial circulation. Binance Research pointed out that this unhealthy structure will have a negative impact on token prices and protocol development. You need to be more cautious when choosing investment targets in the future.

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(This article is not investment advice)

New token structure with low initial circulation and high valuation

Low circulation: indirectly leads to high valuation

The tokens of recent new projects include key new coins such as STRK, ALT, JUP, and W. Token economics have something in common: most of them are issued with a low initial circulation and allocate a large part of the locked amount to the future. Unlocked.

Most of the tokens issued in 2024 will have low initial circulation

This phenomenon is becoming more and more common, especially for tokens launched in 2024. The ratio of market capitalization (MC) to fully diluted market capitalization (FDV) is only 12.3% on average, which is the lowest ratio in the past years. lowest.

The market value/FDV ratio of tokens issued this year is a new low in recent years.

This phenomenon has gradually made some people worried. Although a low initial circulation volume can better hype the market and increase the token price, in the long run because the unlocked share is very large, it is not easy to see significant price growth, and there is even a high chance that the price will drop in the long term.

If it wants to maintain its current price in the next few years, the demand side will need to provide approximately $80 billion in liquidity to absorb these unlocked tokens, which is not easy under the current situation.

Recommended reading: What is the impact of token unlocking on price? 1% rule: Exceeding 1% will cause the price to fall. Reason for recommendation: This article systematically verifies the relationship between token unlocking events and tokens. Basically, a single settlement ratio of more than 1% will have a negative impact on the price. It is recommended. Read in conjunction with this article.

It’s no wonder that meme coins have become more popular recently. Many meme coins focus on fair sales and issuance, and usually have a high or even 100% initial circulation, and are less likely to suffer from price selling pressure caused by unlocking.

On the other hand, for the same demand, scarcity of liquidity results in a higher initial token price, which in turn pushes up FDV.

High valuation: difficult to attract investors

The recently launched tokens not only have low initial circulation, but also have high valuations, even very high.

For example, Celestia and Jupiter's token market capitalization ranks 62nd and 63rd respectively. They have already beaten many established public chains or dapps with a group of fixed users. For example, Lido's LDO token ranks only 65th and Aave ranks 65th. The AAVE token is even ranked 76th. You must know that the TVL of these two protocols are the first and third largest products in the entire blockchain industry.

This is not to say that new agreements will not be competitive, but that existing old agreements can better prove their ability and value for sustainable operations. Therefore, it is clear that these new tokens are overvalued.

Tokens have high valuations right after they are launched, just like a new startup raising its market value to US$1 billion in the seed round. Without strong growth or other advantages, it will be difficult to attract investors for the next round. of fundraising. In the blockchain market, it means that basically no one is willing to take over these tokens.

There are concerns that such a market structure leaves little room for traders to sustainably rise after a token generation event (TGE). Because the valuation is already very high, and the low circulation means that more tokens will be unlocked in the future, which will bring more selling pressure.

Why is the token structure unhealthy this year?

Large inflows of venture capital

VCs are increasingly cementing their position as key players in the crypto space. The amount of assets flowing into the crypto industry has been rising steadily. Cryptocurrency projects have raised more than $91 billion from venture capital since 2017.

Comparison table of cumulative amount of venture capital investment in crypto space and different times

As more and more funds flow into the field, coupled with the enthusiastic participation of venture capital, it will essentially push up the valuation of most projects.

Much of the upside and easy money may have already been made by early private market investors.

Market speculation is strong

The strong performance of the crypto industry this year has stimulated market sentiment and driven more and more active trading activities, resulting in some investors becoming increasingly willing to purchase tokens at higher valuations, once again pushing up token valuations.

I am a general user, what should I do?

Understand the impact

For ordinary users, the most important thing is to have a clear understanding: "Long-term holding of tokens with low circulation and high valuation in the future may cause asset damage."

A large amount of token supply is expected to be released in the next few years. Binance researchers predict that approximately $155 billion worth of tokens will be unlocked between 2024 and 2030. Without corresponding capital inflows, many tokens will face huge selling pressure , the investment portfolio should be adjusted appropriately.

Recommended reading: Diamond players can’t make money anymore? Venture Capital: The prices of recently issued tokens will inevitably fall. Recommended reason: This article points out the same problem from a different perspective - recent token issuances are all issued in a high valuation, low circulation model, which is different from the past public chain tokens. There are significant differences in coin economics that could put long-term holders of these tokens into the red. At the same time, the article also proposes corresponding solutions.

Find investment opportunities smarter

This kind of market makes investors’ ability to choose and discern more and more important. Considering that many projects have high valuations from the beginning, it is difficult for their tokens to obtain sustainable returns through imitation without innovation. The chances are even lower, or finding new projects with more innovative models could improve the odds of winning.

The most obvious recent example is the LRT project. Because most of them have no obvious differences and innovations, their tokens may be less likely to gain market favor in the long term. As an investor, you must be diligent in looking for more truly innovative projects.

(This article is not investment advice)

This article: New tokens this year generally have low circulation and high valuations, which may make long-term prices difficult to maintain? First appeared in Chain News ABMedia.