Author: DeFi^2, Crypto Researcher

Compiled by: Felix, PANews

The price of Worldcoin (WLD) has risen sharply recently, up about 45.1% in the past week. However, according to a post by crypto researcher DeFi^2 on the X platform, this round of price increase was deliberately done by the Worldcoin team to sell at a high price. The following is the details.

Worldcoin is expected to start internal unlocking in 7 days, and it has one of the lowest circulation tokens in the history of the crypto industry, with only about 2.78% of the tokens in circulation. With this in mind, it is meaningful to have a deeper understanding of how the project achieves this state. This article reveals how the Worldcoin team secretly controls the price so that it still maintains a FDV of about $30 billion when the internal unlocking begins.

First some background. When Worldcoin first launched, the Foundation had a circulating supply of 1.4%, or 140 million WLD. While there were concerns that such a low circulating supply would cause it to launch with an extremely high FDV, the team has allocated 100 million of these WLD to market makers and provided them with call options that allow them to buy back a large number of tokens at a price slightly above $2 at the end of the contract, with the goal of preventing the price from surging too high. Allocating supply to market makers to create favorable prices is not uncommon in the industry.

The old Worldcoin whitepaper from 2023 describes the price suppression formula provided to market makers

As one would expect, WLD cannot significantly exceed the call price during the contract period because market makers “suppress” the price. Worldcoin CEO Alex Blania also published a video discussing the need for this contract in particular to prevent prices from disrupting the market:

Worldcoin CEO describes their technique to suppress the price to prevent WLD from surging to $10. Later that year, they refused to renew the contract and WLD surged to $10. (Source: The Scoop Podcast)

Note his language, where his goal is to prevent prices from “shooting to $10,” and he goes on to say such a scenario would be “terrible.”

Nonetheless, on December 16, with just 1.2% of the circulating supply, Worldcoin decided not to renew its market maker contracts, canceling the call options that were suppressing the price, and even further removed an additional 25 million WLD from circulation. With a market cap of just $98 million at the time and very low market maker participation, the price unsurprisingly surged 100% in a matter of hours, which was exactly what Blania claimed they were trying to avoid.

Apparently, the team realizes that it’s unwise to publicly describe how they control the price, so when asked at Token2049 in Dubai if they pay attention to the price, the Worldcoin CEO claimed that they have no control over the price and that it is driven by the market:

Worldcoin CEO claims they have little to do with price, despite actions they take to change policy and token economics that have a clear impact on price

But this is not the case. An 11-digit (tens of billions of dollars) valuation is only possible with the team’s token economics design, and the daily price movement of the token is in many cases influenced by the team as they proactively make changes to unlocking amounts, market maker contracts, and pre-unlocking announcements. This raises the question: Why do they act this way?

Back to where we started - at the time of insider unlocking, the circulating supply was just 2.7%, which is probably the lowest ratio ever seen at unlocking for a major VC backed token in crypto history. Mind you, this is also probably the only thing that keeps WLD alive at a staggering $30 billion FDV, and insiders will be able to sell at that price very quickly. But why is the circulating supply so low? According to Blania in 2023, they have to keep the circulating supply low because “releasing 10% of the supply all at once is completely unfair” for the sake of UBI:

Worldcoin CEO defends low circulation, claiming it’s for UBI. Confusingly, the team designed the token economics so that a year later most of the issuance went to insiders, not UBI. (Source: The Scoop Podcast)

But that is exactly what the team did with the unlocks, and those tokens went into the pockets of insiders instead of UBI recipients. Even with the new unlock schedule, over a year later, nearly 1 billion tokens will have been sent to the team/VCs, while only 600 million tokens have been allocated to UBI recipients, extrapolating from the current rate of UBI grants. This means that in a year, insiders are expected to receive more than 60% of the entire circulating supply of Worldcoin (note: 10 divided by 16, about 62.5%). 60% is a large proportion, and basically means that the ecosystem is purely for VC companies to sell. This seems to directly refute the current excuse of keeping the circulating supply low to benefit UBI.

There are many other sources that increase the circulating supply, and these supplies are not targeted to UBI recipients. Operators like Orb sometimes earn more than 20,000 WLD per week by collecting biometric data from vulnerable groups and sending it directly to Binance:

When WLD price surged to $12 in March, Orb operators sent nearly $150,000 of WLD to Binance every 3 days

With such low circulation, who are the victims who currently hold nearly $30 billion in FDV and maintain a high valuation when unlocked? Data shows that a large part of them are Korean retail investors, many of whom may not even understand English, let alone understand the situation. At the time of writing, Bithumb holds nearly 25% of the circulation:

As the internal unlocking approaches, the amount of WLD held by Korean retail investors on Bithumb continues to grow. Most of these assets have lost 70-80% of their value in recent months due to the Worldcoin Foundation's active selling of tokens (Source: Arkham Intelligence)

With this in mind, it’s probably no coincidence that Worldcoin waited until a week before the unlock to release positive news. While this was just a small change to release selling pressure, the news proved to be very effective, 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 took advantage of insider information and bought in before the announcement became public.

The chart shows that the price coincidentally spiked in the 24 hours before the unlock extension news was released

While such behavior is not uncommon in the crypto space, many market participants remain unaware of the underlying reasons. This article seeks to shed light on a project that appears to be intentionally propping up an otherwise low token price, listing many of the reasons why the author intends to short WLD in the months following the unlock.

Related reading: Worldcoin significantly extends the token unlocking time, can it reverse the huge selling pressure?