原文：《Why are all these low float / high FDV coins down bad?》
Author: Haseeb, Partner at Dragonfly Capital
Compiled by: Zombit
Is the market landscape broken? Are VCs too greedy? Is this an unfair game for retail investors?
Almost every theory I've seen seems to be wrong. But I'll let the data speak for itself.
Here’s a widely circulated table, courtesy of @tradetheflow_, showing that a bunch of coins recently listed on Binance are in terrible shape. Most of these are derided as “high FDV (fully diluted valuation), low float” tokens, meaning they have a small circulating supply on day one and a large fully diluted valuation.
I graphed all of this and removed the labels. Any related meme coins are excluded, as well as tokens that TGE long before Binance, such as RON and AXL. Here's what it looks like, with BTC (beta) in yellow:
Almost all of these "low circulation, high FDV" Binance-listed projects fell. What could possibly explain this? Everyone has a favorite theory about the disruption of market structure. The three most popular theories currently are:
Venture Capitalists/KOLs Sell to Retail Investors
Retail investors are abandoning these tokens and buying meme coins instead
Supply is too small to enable meaningful price discovery
It all makes sense! Let's see if they hold up. But to remain scientific, we need a null hypothesis to refute. Our null hypothesis should be: these assets have been repriced, but there is no deeper market structure problem. (Typical "more sellers than buyers, end.")
We will discuss each theory one by one.
1) Venture capitalists/KOLs are selling to retail investors
If there was a story here, what would it be like?
We should see tokens with shorter lock-up periods sell off faster than others, while projects with longer lock-up periods or without KOLs should perform well. (Highly liquid perpetual contracts may also be another vehicle for this sell-off.)
So what do we see in the data?
As you can see from the data in the chart above, the tokens actually performed well from listing to early April - some were higher than the listing price, some were lower, but most were concentrated around 0. Until then, there doesn’t appear to be any VC or KOL selling.
Then in mid-April, everything fell together. Will these items all unlock in mid-April and start selling off to retailers?
Let me share my perspective here. I'm a VC. There are definitely VCs who are selling in the secondary market - there are also VCs who do not lock their positions, hedge their positions on the sidelines, or even break locks, but these are low-level VC companies, and most of the teams working with these venture capital companies are not in For sale on first-line exchanges. Every top VC firm you think of has at least a one-year cliff and a multi-year vesting period before receiving tokens. In fact, under Rule 144a, the 1-year lockup period is mandatory for any SEC-regulated person or institution. Additionally, for a large VC firm like us, our positions are too large to be hedged off an exchange, and we are generally prohibited from doing so by our investment contracts.
So this story doesn’t make sense: these tokens are less than a year away from TGE, meaning VC holdings that are still one year locked are still locked!
Maybe some of these low-level VC projects sold off their tokens early, but all projects fell, even those that were still locked in with top VC investments.
Therefore, investor/KOL sell-off may be true for some tokens - there are always some projects that underperform. But if all coins fall at the same time, this theory cannot explain it.
On to the next theory.
2) Retail investors are abandoning these tokens and buying meme coins instead
If this is true, here’s what we should see: Prices for these new coin offerings drop, and the secondary market shift toward memecoins.
Instead, what we see is this:
I compared SHIB’s trading volume to this basket of coins. The time doesn't match up. Memecoin mania was in full swing in early March, but this basket of coins fell in mid-April, a month and a half early.
Solana DEX trading volumes tell the same story – meme coins exploded in early March, well before mid-April.
So that doesn't fit the data either. There has been no massive shift towards memecoin trading following the decline of this basket of tokens. People are trading meme coins, but they’re also trading new coins, and the volume doesn’t tell any clear story.
The problem isn't volume, it's asset prices.
Nonetheless, many have tried to sell the idea that retailers were disappointed with the real project and are now primarily interested in meme coins. I went to Binance's Coingecko page and looked at the top 50 coins with the highest trading volume, and roughly 14.3% of Binance's trading volume today was in the memecoin trading pair. Memecoin trading is a minority activity in cryptocurrencies. Yes, financial nihilism is a thing and is very prominent in CT, but most people in the world still buy tokens because they believe in certain technological stories, whether right or wrong.
So, okay, maybe retailers aren’t really switching from VC tokens to meme coins, but here’s a sub-theory: VCs own too many stakes in these projects, and that’s why retail investors are selling. They realized (in mid-April?) that these were scam VC coins and that the team and VCs collectively owned about 30-50% of the token supply. This may be the straw that breaks the camel's back.
It's a satisfying story.
But I’ve been doing cryptocurrency ventures for a while. Here is a snapshot of token distribution from 2017-2020:
Look at the parts shaded in red - that's the proportion of insiders (team + investors). SOL 48%, AVAX 42%, BNB 50%, STX 41%, NEAR 38%, etc. The situation is quite similar today. So if the theory is "the token wasn't a VC coin in the past, but it is now", that doesn't fit the data either. No matter which cycle it is, capital-intensive projects have a glut of teams and investors at launch, and these "VC coins" still achieve success after the tokens are fully unlocked.
Generally speaking, if what you are referring to also happened in a previous cycle, then it cannot explain the unique phenomena happening now.
So this “retail investors are abandoning these tokens and buying meme coins” story rings true and is a nice irony, but it doesn’t explain the data very well.
Moving on to the next theory.
3) Supply is too small to achieve price discovery
This is the most common approach I've seen. sounds good! It's less sensational, which is its advantage. Binance Research even published a good report addressing this issue:
It looks like the average is about 13%. That's obviously very low and lower than past coins, right?
Is this the correct value?
Credit to @0xdoug for extracting this data. You guessed it, the average circulation of these tokens on TGE in the last cycle─guess what─was also 13%
PS: There is an image from the same Binance Research article that has also been widely circulated, claiming that tokens launching in 2022 will have an average circulating supply of 41% at launch.
I’m sorry—WHAT? Bro, I am also in the market in 2022 and there are no projects released at 41% of the initial circulating supply.
I pulled Binance’s 2022 list: OSMO, MAGIC, APT, GMX, STG, OP, LDO, MOB, NEXO, GAL, BSW, APE, KDA, GMT, ASTR, ALPINE, WOO, ANC, ACA, API3, LOKA, GLMR, ACH, IMX.
Spot-checking a few of them, since they don’t all have TokenUnlocks data: IMX, OP, and APE are similar to the latest batch of tokens we’re comparing, where IMX had 10% of day one circulating supply and APE had 27% (But 10% of that is APE inventory, so I rounded that up to 17% in circulation), while the OP is 5% in circulation on the first day.
On the other hand, you also have LDO (55% unlocked) and OSMO (46% unlocked), but they went live over a year before Binance, so it would be foolish to compare those lists to the latest day one lists . If I had to guess, these non-day one tokens plus randomly issued company tokens like NEXO or ALPINE are the reason why they get such high values. I don’t think they are describing the true trend of the real TGE – they are rather describing the trend of the token after Binance’s annual listing.
Well, maybe you'll admit that 13% of circulating supply is similar to past cycles. But that's still too little to enable price discovery, right? The stock market does not have this problem.
After all, look at the average float on day one of a 2023 IPO. oh! Well… 12.8%.
But seriously – the extremely low circulating supply is definitely a problem. WLD is a particularly serious example as it barely has 2% of the circulating supply. FIL and ICP also launched with very low liquidity, resulting in very ugly price charts. But the majority of this batch of Binance tokens were within the historical normal range on day one.
Furthermore, if this theory is correct, you should see the coins with the lowest circulation being punished, while the coins with higher circulation should perform well. But we don't see a strong correlation. They are all falling.
So this lack of price discovery story sounds compelling, but after looking at the data, I'm not convinced.
solution
While everyone is complaining, a few are coming up with practical solutions. Before discussing the null hypothesis, let's review them.
Some people have suggested reintroducing ICOs. I'm sorry - don't we remember that ICOs were brutally dumped after listing and retailers were hurt? Also, ICOs are illegal almost everywhere, so I don't think this is a serious suggestion.
@KyleSamani believes that investors and teams should unlock 100% immediately - which is impossible for US investors due to Rule 144a (which will also exacerbate the problem of "VC dumping"). Additionally, I think we learned in 2017 why team ownership is a good idea.
@arca believes that tokens should have underwriters like traditional IPOs. I mean, maybe? Token launches are more similar to direct listings, they are listed on an exchange, there are some market makers, and that's it. I think that's fine, but I prefer a simpler market structure and fewer intermediaries.
@reganbozman suggested that projects should list their tokens at a lower price so retail investors can buy in earlier and win some upside. I got inspired, but I don't think it will work. Artificially lowering the price below the market clearing price means that whoever trades in the first minute of trading on Binance will catch the false underpricing. We’ve seen this happen multiple times with NFT mints and IDOs. Artificially low prices on your listings will only benefit the few traders who are filled with orders within the first 10 minutes. If the market thinks you are worth X, then in a free market you will be worth X at the end of the day.
Some have suggested we go back to fair distribution. Fair distribution sounds good in theory, but doesn't work well in practice because teams will just rush to get out of the way. Trust me, everyone tried this during the DeFi summer. There really aren’t a lot of success stories here – other than Yearn, what other non-meme coin fair launches have been successful in the past few years?
Many people suggested that the team conduct a larger airdrop. I think this statement makes sense! We generally encourage teams to try to get more supply on day one to improve decentralization and price discovery. That said, I don’t think doing ridiculously massive airdrops just for the sake of float is a smart move – for a protocol to be successful after day one, it needs to do a lot to process its tokens on listing day in order to get It’s not wise to hype huge floating returns because then you have to compete on token returns. You don’t want to be one of those coins that has to re-increase its token supply after a few years because your token vault is empty.
So as VCs, what do we want to see happen? Believe it or not, token prices reflect reality in the first year. We don’t make money by markup, we make money by DPI, which means we must eventually monetize our tokens. We can't live off paper markups, nor will we mark our unlocked tokens at market price (I think anyone who does that is crazy). Valuations that skyrocket and then collapse once we unlock are actually a bad image for VC funds. This can lead LPs to believe that the asset class is fake—that it looks good, but is actually terrible. We don't want this. We would rather have asset prices rise gradually and steadily over time, which is what most people want.
So, are these high FDVs sustainable? I have no idea. These numbers are obviously eye-popping compared to the numbers that projects such as ETH, SOL, NEAR, and AVAX had when they first launched. But cryptocurrencies are indeed larger now, and the market potential for successful crypto protocols is significantly greater than in the past.
@0xdoug makes a good point - if you normalize past altcoin token FDV by today's ETH price, you get a number that's pretty close to the FDV we see now. @Cobie echoed this in his recent article. We're not going back to the old days of $40M FDV for L1s because everyone sees how big the market is. But when SOL and AVAX launched, the prices retail investors paid were comparable in ETH-based prices.
All these setbacks really come down to this: Cryptocurrencies have rallied dramatically over the past five years. Pricing for new startups is based on comparable data, so the numbers will be larger. That's the truth.
Well, it's easy to criticize other people's solutions. But what is my smart solution?
Honest answer?
Nothing. Leave it all to the market.
The free market will take care of itself. If the token goes down, then other tokens will be repriced lower, the exchange will push the team to launch with a lower FDV, hurt traders will just be willing to buy at a lower price, and the VC will pass this message on To founders. Series B will be priced lower due to open market comparisons, which will ultimately alarm Series A investors and ultimately trickle down to seed investors. Price signals always propagate eventually.
When there is a real market failure, you may need some kind of clever market intervention. But the free market knows how to fix pricing errors—just change the price. Those who are losing money, whether VC firms or retail investors, don’t need people like me to opine or debate on Twitter. They have internalized this lesson and are simply willing to pay less for these tokens. This is why all of these tokens are trading at a lower FDV and future token trades will be priced accordingly.
This has happened many times. It's just that we still need a little time.
null hypothesis
Now let’s unveil Scooby Doo. What happened to cause all coins to drop in April?
The culprit: the Middle East.
The tokens mostly traded smoothly from their listing prices in the first few months until mid-April. Suddenly, Iran and Israel started threatening World War III, and the markets collapsed. Bitcoin recovered, but these coins did not.
So, what’s the best explanation for these coins still falling? My explanation is: these new projects are psychologically classified as "VC tokens". Interest in “VC tokens” dropped in April and has not recovered since. The market decided they didn't want to re-buy them.
Why?
I have no idea. Markets can be fickle at times. But if this basket of “risky new coins” rose 50% during this period, instead of falling 50%, would you still argue about how the token market structure was broken? This would also be a mispricing, just in the opposite direction.
A mispricing is a mispricing, and the market will eventually fix it. If you want to help - sell stuff for crazy prices and buy stuff for better prices. If the market is wrong, it will fix itself. No need to do anything else.
what to do?
When people lose money, everyone wants to know who to blame. Is he the founder? VC? KOL? Dealers? Market maker? Traders?
I think the best answer is there isn't anyone or everyone. But thinking about market mispricing in terms of blame is not a productive framework. Therefore, I will elaborate in terms of how people can do better in this new market system.
VC: Listen to the market and slow down. Demonstrate pricing discipline. Encourage founders to be realistic about valuations. Don’t peg your locked tokens to the market (as far as I know, almost all top VC firms hold locked tokens at a significant discount to the market price). If you find yourself thinking "I can't lose money on this trade," you may regret the trade.
Exchanges: List tokens at lower prices. You already know this. Consider using a public auction instead of determining day one token pricing based on the last venture capital round. Don’t list a token unless everyone, including opinion leaders, has market standard hedging, and maybe don’t even list a token unless all investors/teams are contractually obligated not to hedge. Better to show retail the FDV Decrease chart we all know and love and educate them more about unlocking.
Team: Try to circulate more tokens on day one! Less than 10% of the token supply is too low.
Of course, have healthy airdrops and don’t be too afraid of low FDV on day one. The best price chart for building a healthy community is a gradual upward move.
Don’t worry if your team’s tokens have dropped. You have a good precedent to refer to. remember:
AVAX’s stock price fell by approximately 24% 2 months after its listing;
SOL fell about 35% 2 months after listing;
NEAR fell about 47% after 2 months on the market.
You will be fine. Focus on building content to be proud of and delivering it consistently. The market will eventually figure this out.
For your part, please note that single-causal explanations are often not very accurate. Markets are complex and sometimes they go down. Be suspicious of anyone who claims to confidently know why. DYOR and don't invest in anything you're not willing to lose.
at last:
Thank you @EvgenyGaevoy for reviewing a draft of this post.
This article Dragonfly Capital partner: "VC coins" are like rats crossing the street. Who should be blamed for the continuous decline of new tokens? First appeared in Zombit.