Recently, due to the rampant "high FDV + low circulation" tokens and the generally weak market performance, the community has shown an anti-VC/value coin trend, which has further stimulated the controversy between MEME and VC/value coins. Investment institutions such as a16z and Dragonfly have all stepped up to participate in this heated debate.
As the controversy over the high FDV and low circulation gameplay intensifies, crypto exchanges Binance and OKX have successively adjusted their coin listing strategies, especially Binance's support for small and medium-sized projects, which has aroused heated discussions in the market.
Exchanges adjust listings, small and medium-sized projects become the focus of market attention
On the evening of May 20, Binance announced a public recruitment plan for coin listing projects. According to the announcement, launching tokens with high valuations and low circulation will lead to huge selling pressure when unlocked in the future. Such a market structure is not good for ordinary investors and loyal community members of the project. In order to cultivate a healthy industry ecosystem, Binance will take the lead in supporting small and medium-sized cryptocurrency projects. Binance sincerely invites high-quality teams and projects to apply for coin listing, including direct listing, launchpools and Megadrops. Binance hopes to promote the development of the blockchain ecosystem by supporting small and medium-sized projects with good fundamentals, organic community foundation, sustainable business model and industry responsibility.
Subsequently, OKX also released an update on the token listing process, stating in the announcement that all listings are subject to an extensive review process by the listing team and are subject to local legal restrictions. In the future, customer communication will be improved to inform users of listings in more detail.
In fact, the price of tokens under the low circulation and high FDV model is continuing to be sluggish, and a large number of retail investors have become the "victims" of liquidity withdrawal. The adjustment of the exchange's listing rules naturally triggered discussions from all parties.
Some people believe that application projects with technical capabilities and product execution will have more opportunities. For example, Allen Ding, founding partner of Nothing Research, tweeted, "At a time when European and American VCs have pricing power, the current low circulation and high FDV play has become one of the main reasons for the market's bleeding. Binance is paying attention to and launching a public recruitment plan for listing coins. Application layer projects may usher in spring, especially for entrepreneurs with Chinese backgrounds. I think it is a big boon. Because most Chinese entrepreneurial teams are product/technical teams, they have weak storytelling skills, but good technology + strong product execution. Application layer projects often rely on scenarios and economic models to win, and do not rely on fancy narratives and strong VC endorsements, and can also obtain good data and growth capabilities. The advent of the traffic era + the change in Binance listing aesthetics will be a huge opportunity."
Ignas, co-founder of Pink Brains, believes that Binanceâs move will be the beginning of a new trend. While identifying and rewarding real users, it will reduce the token share given to insiders/venture capitalists and allocate more to the community. Listing at a lower market value will also leave room for new buyers to rise.
Some people have also given more suggestions on the listing process. For example, Rui, the investment director of HashKey Capital, tweeted that there are too many stakeholders in each project listed on the exchange, and there are so many pitfalls. It is impossible to satisfy everyone, but there is an interesting mechanism that can be tried. The due diligence reports of 3-5 coins are published each period, and then a reporting channel is opened, giving a time window for everyone to report the bad deeds of the project party. Then, the project will be scored according to the reported project listing group, and the highest score will be announced. Let's see what will happen if PVP is taken to the extreme.
Because of the small and medium-sized projects directly "named" by Binance, the market believes that they can drive the rise of community-driven or small and beautiful projects, and even many community projects have begun to submit applications for coin listing.
However, some community members pointed out that adjustments such as those made by Binance are only temporary solutions and do not address the root cause. Ultimately, the reason why the market is not willing to take over is still insufficient liquidity, and a low market capitalization does not mean a good performance in the secondary market. In comparison, what retail investors need more is to pull up the market.
What is the reason for the trend of low circulation and high FDV issuance?
Low circulation and high FDV were once the means used by the bankrupt FTX/Alameda to build huge reserve assets, but now they are becoming the mainstream gameplay in the market.
According to PANews statistics, as of May 21, there are 7 projects with a circulation rate of less than 50% in the top 100 by market capitalization, among which JUP, STRK, ENA and WLD are all below 20%. According to research data from Coingecko in early May this year, low-circulation cryptocurrencies in the market account for 21.3% of the top 300 by market capitalization, which means that most of the token supply of 1 in 5 cryptocurrencies has not yet been unlocked, resulting in a market value to fully diluted valuation (FDV) ratio of less than 0.5. Most low-circulation cryptocurrencies are relatively new products in the market, and the oversupply caused by the upcoming token unlocking is expected to continue to put pressure on the crypto market.
Binance Research Institute also pointed out in its latest report that data from CoinMarketCap and Token Unlocks confirms that the trend of token issuance with low circulation supply and high valuation is growing, and it is expected that tokens worth about $155 billion will be unlocked from 2024 to 2030. If buyer demand and capital flows do not increase accordingly, a large number of tokens entering the market will create selling pressure. In order for these tokens to maintain their current prices in the next few years, approximately $80 billion of incremental funds will flow into these tokens to match the shares to be released.
Regarding this phenomenon of high valuation and low circulation, analyst Chen Jian believes that there are two main reasons: first, there is a huge mismatch between the prosperity of the Web3 capital market and the scarcity of high-quality projects; second, there is a huge mismatch between the prosperity of the Web3 capital market and the value it actually creates.
Cobie pointed out in a post that in modern markets, "price discovery" of almost all assets is conducted outside the market, and these prices have been privately divided long before the tokens actually exist. Due to the dynamics of the private equity market, many price discoveries are actually exaggerated. At the same time, the high FDV is partly due to the natural growth of market demand. The current capital scale in the crypto field has increased 100 times, the supply of stablecoins has increased 100 times, and the demand for new high-quality cryptocurrency tokens has increased 100 times. New tokens will be issued at higher prices because market demand is now higher and the valuations of comparable projects are much higher. And low circulation itself is not a bad thing, and low circulation itself will not lead to an unhealthy market or represent a state of bad behavior.
Project owners and retail investors need to adjust their strategies
At a time when the crypto market is flooded with low-circulation and high-FDV tokens, many institutions have also given corresponding improvements and countermeasures.
Binance pointed out in the report that in terms of token economics, projects should carefully consider token distribution, unlocking and vesting time, and can increase circulation and reduce FDV by destroying some tokens. At the same time, viable products are the key to value creation, user retention and sustainable growth, and can also prove the rationality of high valuations, which will increase the intrinsic value of tokens and contribute to the price performance of tokens. In addition, VC plays a vital role in the industry and needs to do due diligence and work with projects to ensure fair token supply distribution and reasonable valuations.
Dragonfly also published a document giving suggestions for exchanges, project parties and retail investors respectively: for exchanges, tokens should be listed at a lower price, and the principle of "tokens need to have a lock-up period that follows market standards" and "tokens need to have a lock-up period that follows market standards" should be adhered to when listing tokens, and retail investors should be better presented with FDV charts (for example, Coingecko and DefiLlama both support FDV comparison functions) and education on token unlocking; for project teams, in addition to striving to release more tokens on the first day, they also need to conduct healthy airdrops and focus on building something to be proud of and moving forward; for VCs, they should listen to the voice of the market, maintain price discipline, and encourage founders to be realistic about valuations; for anonymous people, be careful of single-reason explanations and don't invest in anything you are unwilling to lose.
Analyst Chen Jian pointed out to retail investors that if it is a new coin, just go for it if it can double at most on Binance and don't dream of a bigger market; don't touch the ones with a market value of more than 1 billion on OKEx because the liquidity simply can't support it; use the projects that were issued in the previous round and have unlocked at least 50% as one of the screening criteria, and pay close attention to the large unlocking of the holdings list, and don't be superstitious about the argument that unlocking will pull the market; since the rules of the game are already like this and you can't be the maker of the rules of the game, then make yourself a participant and try to go to level one and become an NPC in this game instead of a monster used to level up and get gold coins.
"Blockchain Tokenomics is centered on how to 'create and distribute value' and needs to build an ecosystem that can encourage all parties to participate in common contributions and benefits." Independent researcher Haotian also gave his own opinions on the token economic model, First, external channels such as exchanges provide liquidity and are responsible for "value discovery", mining some tokens with sustained ecological growth and significant application scenarios, providing them with sufficient liquidity, and making certain leverage "anticipated" blessings. This The process will give a reasonable FDV growth curve based on the project development situation and market valuation, and it will never be listed, that is, the price of high FDV exhausting the "growth space" will appear; its own community ecology is responsible for the "value support" and allows the tokens to circulate internally. Efficient circulation in the economic system creates real value for DApp users (such as mining, interest generation, arbitrage, etc.), and by continuously expanding the scale of DApp and users, a positive growth flywheel is formed to support the price valuation system of the external market. Ensure benign linkage and avoid the disconnect between internal value and external price.
