By Joel John
Compiled by: TechFlow
I believe the most important thing a founder can offer the community and VCs is substantial market traction.
You can sell hopes and dreams at listing, but if people have no reason to hold, they will sell. At that point, no matter how you design the token economics, people will leave. When they leave in large numbers, the numbers will only go one way - down. No matter what the interest rates are, or the price of Bitcoin, or the TPS (transactions per second) of Ethereum, it can't change that.
Prices will fall significantly.
A lot of times, well-meaning founders do put in the effort to get press attention by getting a lot of partner badges and all kinds of metrics. That makes sense because this is a narrative-driven market. You want to show people that you’re working hard, but at the end of the day, we’re in the capital markets and we need to fulfill an economic function.
If all this press, sign collection, and community engagement doesn’t translate into value capture or real meaning to holding these tokens, eventually people will exit. We are in the era of low circulation, high FDV games because many founders believe that initial liquidity is all their tokens will ever get. After about 18 months, the token may be trading at a 90% drop in price.
I see this especially true in DeFi — the power law is pretty brutal here. The first two or three lending platforms get high valuations due to high TVL (value locked). But as the market saturates, by the seventh or eighth platform, TVL or fees are no longer relevant, and the market only recognizes the major leaders (like Aave and Compound). But when new ways of lending emerge (like Pendle, Ondo, etc.), the market adjusts.
The same is true in the perps market. In the early days, you may be the first perps platform on a chain, so you get a valuation premium. But eventually, the market will consolidate based on trading volume (like GMX), asset type (like Aevo), and user experience (like Hyperliquid).
In other words, the market we’re seeing is one that works quickly and brutally efficiently. In the late 90s, you could be popular for being “online.” In the early 2020s, you could be popular for being “on-chain.” But as markets evolve, capital and attention focus on things that are useful, desirable, and engaging.
A lot of details are lost in the "low float high FDV" discussion, and many projects lack actual traction or core metrics. In other words, we are (most likely) just seeing the market repricing the protocol/venture. Unfortunately, a lot of retail investors bought these tokens at extremely high prices and lost money as a result. BTW, I think regulatory measures (implemented on exchanges) are steadily addressing this issue.
In 2018, if you invested in 10 seed-stage projects, you might see 7-8 of them listed on exchanges if you were smart. By 2021, that number has dropped to 3-4. I think in 2024, it will drop to 1-2. Why? Because exchanges require traction, key performance indicators (KPIs), supporters, standardized token economic models, and community participation before listing a token. For capital-intensive products (like staking), you can rely on rich VCs and some hedge funds to show TVL. But for consumer-facing applications, this is not easy to operate.
Finally, the same rules that apply to startups also apply to entrepreneurs in the cryptocurrency space.
A token is a force multiplier. If you have market traction, it amplifies your advantage. If not, it drags you down.
The regulatory oversight of exchanges means founders need to think more carefully before launching a token.
What kills you is not FDV or circulation, but spending 18 months making noise with no real results.
Another way to think about it is - do users of the product want to own a stake? If I use Hyperliquid (which I do), I probably don't want to sell my stake. My stake should make me more willing to participate in governance and management.
In my opinion, even in 2024, the potential of using tokens as a retention and governance tool remains largely unexplored.
