Note: The WLD tokens allocated by Worldcoin to the contributor Tools for Humanity were originally scheduled to be unlocked linearly every day starting on July 24, 2024. However, on July 16, Worldcoin announced that the unlocking schedule for 80% of the WLD held by Tools for Humanity team members and investors would be extended from 3 years to 5 years. Influenced by this "good" news, the price of WLD tokens soared by more than 50%.

WLD, which is known for its low circulation and high FDV, has long been criticized by the encryption community. This incident has once again aroused community attention. Cryptocurrency trader DeFi Squared once again issued an article to refute Worldcoin, saying that Worldcoin’s internal team controls the price through token circulation, extremely low circulation rate, high FDV, and releasing good news in order to maintain extremely high FDV when unlocked internally. It's a money grabbing scheme.

Compiled by Golden Finance 0xxz. Before reading, take a look at the historical trend of WLD prices:

The following is the original text of DeFi Squared:

Worldcoin is expected to begin internal unlocking in 7 days, with one of the lowest circulating supplies ever seen in the industry at just 2.7%. With this in mind, it makes sense to delve deeper into how the project got to this point.

This research article reveals how the Worldcoin team manipulated the price to maintain a $30 billion FDV when internal unlocks began, while lying about not having any involvement. All in sync with the latest vesting schedule changes.

First, some background. When Worldcoin first launched, the Foundation had a circulating supply of 1.4% or 140 million WLD. Despite concerns that this circulation ratio would result in it launching at an extremely high FDV, the team has allocated 100 million of these tokens to market makers and provided them with a call option that allows them to buy back a large number of tokens at the end of the contract at a price slightly above $2, with the goal of preventing the price from surging too high. Allocating supply to market makers to create favorable price conditions 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 was unable to significantly exceed the call price during the life of this contract as market makers would simply “suppress” the price. Worldcoin CEO Alex Blania discussed here how this contract was specifically needed to prevent the price from squeezing their low float:

Worldcoin CEO describes their price suppression techniques to prevent WLD from surging to $10, which they refused to renew later that year (Source: Scoop Podcast)

Note that he states that the goal is to prevent prices from “shooting up to $10,” and goes on to say that such a scenario would be “pretty scary.”

Nonetheless, on December 16th, with just 1.2% of the supply in circulation, Worldcoin decided not to renew existing market maker contracts, canceling the call options that were suppressing the price, and even further removing another 25 million WLD from circulation. Now, with a market cap of just $98 million with minimal market maker participation, the price unsurprisingly surged 100% in a matter of hours - exactly what Blania claimed they were trying to avoid. In a month, the Worldcoin price has been squeezed to nearly $12, with a FDV of $120 billion.

Apparently, the team later realized that it would be unwise for an American team to publicly describe how they control the price, so when asked at Token2049 Dubai if they pay attention to the price, Worldcoin’s CEO claimed that they have no control over the price and that it is simply driven by the market:

Worldcoin CEO claims they have nothing to do with price, despite their changes to policy and token economics having a clear impact on price

This is not the case. The fact is that the 11-figure valuation is only possible due to the team’s token economics design, and the token’s daily price movement is influenced by the team on many occasions by actively changing issuance, market maker contracts, and making announcements just in time for unlocks. This raises the question of why they don’t want the public to believe this is the case.

So let’s go back to where we started — we go back to when insiders unlocked, when the circulating supply was just 2.7%, which is probably the lowest rate ever seen by a major VC-backed project in the history of crypto when it unlocks. As a reminder, this is 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 in order to achieve UBI, “releasing 10% of the supply in one go is completely unfair”:

Worldcoin CEO defends low circulation, saying it is necessary to achieve universal basic income (UBI). However, confusingly, the token economics arrangement designed by the team will result in most of the token issuance next year going to insiders rather than UBI grants. (Source: The Scoop podcast)

But that’s exactly what the team plans to do with the unlocked tokens, except that they go into the pockets of insiders instead of UBI recipients. Even with the new unlocking schedule, in a little over a year, the team/VCs will have issued nearly 1 billion tokens, while extrapolating the current UBI grant rate, only 600 million tokens will have been distributed to UBI recipients by the same time. This means that in a year, WLD issued by insiders is expected to account for more than 60% of the entire circulating supply of Worldcoin. 60% is a large percentage - it basically means that most of the ecosystem is purely for VCs to sell. This seems to directly refute the current rationale for keeping the circulation rate low to benefit UBI recipients.

There are multiple other sources that add to the circulating supply that do not go directly to UBI recipients. My previous research article discusses the large amount of supply from the “community fund” being sold to trading desks at a discount; additionally, it’s worth looking at orb operators like this one (verified from public orb operator emission wallets) who sometimes make an inexplicable 20,000+ WLD per week by collecting biometric data from vulnerable people and sending it directly to Binance:

When the WLD price surged to $12 in March, the Orb operator sent close to $150,000 of WLD to Binance every 3 days.

But the question remains - even with such a low circulation rate, who are the unfortunate victims who are currently holding nearly $30 billion of WLD FDV and maintaining a high valuation when it unlocks? It turns out that a large portion is actually Korean retail investors, many of whom probably can't even read English and understand the situation. At the time of writing, nearly 25% of circulating WLD is held on Bithumb, and continues to rise despite the upcoming unlocking:

As the insider unlock approaches, South Korean retail investors’ WLD holdings on Bithumb continue to grow.

In recent months, these holdings have lost 70-80% of their value as the Worldcoin Foundation actively sells tokens to exchanges.

(Balance historical data from 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 is only a small change to release selling pressure, the news has proven to be very effective so far, 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 used insider information to buy the news first, even before it was publicly announced:

Chart showing coincidental price spike in the 24 hours before unlock extension announcement

Unfortunately, while project behavior like this is not new to crypto, it is surprising that many market participants remain unaware of the downside to the investment they are making. This article seeks to shed light on a project that appears to be intentionally propping up an otherwise low token price, and many of the reasons listed are why I intend to short WLD in the months following the unlock.