Compiled & edited by TechFlow
Guests: Jose Macedo, Co-founder of Delphi Digital; Ari Paul, CIO of Blocktower Capital
Moderator: Laura Shin, Writer and Host of Unchained
Podcast source: Unchained
原标题：How to Figure Out Whether a Crypto Token Is Worth Its Trading Price
Air Date: July 3, 2024
Summary of key points
In this podcast Jose Macedo from Delphi Digital and Ari Paul from Blocktower Capital discuss why crypto assets are priced very differently in public and private markets, and how they’re trying to figure out its true value.
The problem of low float, high fully diluted valuation (FDV) coins is an often discussed issue in crypto. But there is another issue that investors need to understand the unrealized gains of these tokens to truly understand the price.
In this episode, Jose Macedo of Delphi Digital and Ari Paul of Blocktower Capital explain the various metrics that reveal the true value of a token, why the wave of token unlocks that will hit the crypto market in the next few years is not bullish, and whether there is a better way to design token unlocks for teams and insiders.
Additionally, they cover whether venture capitalists are milking cryptocurrencies, whether these games with circulating supply and FDV are causing investors to turn to meme coins, and why they think the ICO era was better for retail investors.
Why the upcoming token unlock is causing market nervousness
Laura mentioned that there are a large number of token unlocks coming soon, with 40 projects totaling about $750 million worth of tokens to be unlocked in July. However, the market demand for these tokens is far from enough, which has caused market tension.
She mentioned that there has been a lot of discussion on social media about this issue, with concerns that the market will not be able to absorb the unlocked tokens.
Jose explained how in a bull market, people tend to ignore fundamentals and fully diluted valuation (FDV) as “a joke.” Fully diluted valuation is the total number of tokens multiplied by the token price, while market cap is the number of tokens in circulation multiplied by the token price.
Jose further explained the impact of unrealized gains on the market. Unrealized gains refer to the potential gains of the team or early investors because their token cost base is very low. Some projects have a ratio of unrealized gains to market value as high as 4 to 8 times, which means that every three to six months, tokens equivalent to the entire market value are unlocked, and the market has difficulty absorbing these oversupply tokens.
He mentioned that secondary market transactions can alleviate this situation. For example, before Solana’s unlock in 2020, Multi Coin purchased a large number of Solana tokens in the secondary market, which reduced unrealized gains and stabilized the market.
Ari detailed Solana's unlocking case in January 2021, when the token supply increased by more than 200%. Through communication with holders, they learned that most holders were optimistic about Solana tokens and did not plan to sell, so the unlocking had less impact on the market.
He emphasized that the reason why the unrealized profit ratio is important is ultimately due to human nature and incentives. Investors usually want to make a quick profit, and high unrealized profits will prompt them to sell tokens quickly after unlocking.
He pointed out that the type of investor holding the token is also important. If the investor is a long-term holder, such as a16z, then even if the token is unlocked after 6 months, it will not have much impact on the market.
How the ratio of unrealized gains to market capitalization affects token price movements
Laura asked Jose to explain in detail the impact of unrealized gains to market cap ratio on token price movements. She mentioned that Jose had a good example on Twitter that could help the audience better understand this concept.
Jose illustrates this with two different projects, assuming both projects have a fully diluted valuation (FDV) of $10 billion, but with different financing and team allocations.
Token A: Project A raised $200 million, with a valuation of $1 billion, and the team was allocated 30%.
Token B: Project B raised $5 million, valued at $100 million, with the team allocated 20%.
Calculation of unrealized gains:
Token A: Investors’ unrealized gains are $480 million ($1 billion FDV minus $200 million in financing), and the team’s unrealized gains are $300 million, for a total of $780 million.
Token B: Investors’ unrealized gains are $45 million ($100 million FDV minus $5 million in financing), and the team’s unrealized gains are $20 million, for a total of $245 million.
Market capitalization and ratio: Assuming that the float of both projects is 10%, their market capitalization is $100 million.
Token A: Unrealized gain to market cap ratio is 7.8 ($780 million unrealized gain / $100 million market cap).
Token B: Unrealized gain to market cap ratio is 2.45 ($245 million unrealized gain / $100 million market cap).
Jose pointed out that although the fundamentals of the project need to be considered, investors are more willing to choose Token B, all other things being equal, because its unrealized earnings to market value ratio is lower, which means less selling pressure in the market.
He emphasized that when projects with higher unrealized returns unlock tokens, it is difficult for the market to absorb the large amount of tokens sold, resulting in a greater risk of price decline.
How some token projects manipulate their reported circulating supply
Jose points out that teams may report a higher float to make their market cap appear higher, thereby lowering the ratio of unrealized gains to market cap. For example, a team may claim that the float is 10%, but in reality it is only 1%.
Jose said market makers may control more than 50% of the circulating supply on the first day of a token listing, making it easier to manipulate prices, especially right before an unlock.
He noted that some projects include their Treasury tokens in the circulating supply, but these tokens are not actually circulating and are still controlled by multi-sig wallets or DAOs.
Jose said that investors should check the raw data on blockchain browsers such as Etherscan to check the actual holdings of tokens. Higher-quality projects usually provide transparent data, and investors can obtain real information by checking the project's smart contract and asking the team.
Ari noted that simple indicators are prone to manipulation and investors should not rely solely on them.
For example, in the stock market, relying solely on the price-to-earnings (P/E Ratio) or price-to-book (P/B Ratio) does not guarantee success, as these indicators can be manipulated or misleading.
He believes that investors should read analysis reports in depth and understand the logic behind them, rather than just focusing on the conclusions.
Ari pointed out that over time, projects will find new ways to manipulate indicators, and investors need to constantly update their knowledge and analysis methods.
Airdrop mechanism: The airdrop mechanism has also undergone a similar evolution. Early airdrops were less vulnerable to attacks, but over time, projects must constantly adjust their strategies to prevent abuse.
Ari explains how projects use complex legal and economic structures to mislead Etherscan data.
Jose said that the project may disperse the founder's tokens into multiple wallets to make it look like multiple team members hold them to hide the actual holdings. Therefore, investors should investigate the on-chain data in depth and ask the team to obtain real information.
Ari believes it is also important to communicate with the team and trust the information they provide, but this requires due diligence on the team to ensure their credibility.
Whether and how everyday investors can uncover the truth about token projects
Laura asked if it was possible to uncover the truth about token projects as an everyday investor, especially without a venture capital background like Jose and Ari.
Jose thinks it’s possible, but it will take some strategy and resources.
Jose recommends that investors join an investment group chat to exchange information with other people who are also interested in cryptocurrencies. High-quality project teams will answer investors' questions on platforms such as Discord and maintain transparency.
Jose believes that using tools such as Etherscan to view on-chain data, combined with the team’s answers, can help investors get closer to the truth.
Ari believes that uncovering the truth about a token project requires a certain amount of wisdom and experience, especially the ability to match patterns.
Ari mentioned the case of FTX, where even top VCs could be misled because they lacked sufficient experience in pattern matching.
He pointed out that real due diligence requires a lot of work and in-depth background checks, such as communicating with the founder’s former colleagues, other investors, etc.
Ari does not recommend investing casually. He uses the analogy of becoming a world-class tennis player or neurosurgeon, emphasizing that it takes years of training and the best education. Without this preparation, it is not advisable to casually attempt these difficult jobs. Investing in cryptocurrencies requires a lot of work and learning, otherwise it is likely to fail.
What is the potential impact of secondary market trading on the upcoming token unlock?
Laura mentioned Jose’s discussion on Twitter about unlocking tokens and wanted to dive deeper into this issue and what’s happening with OTC and secondary markets.
Jose will further discuss the possible direction of the cryptocurrency market in the next few years, especially regarding the impact of unlocking tokens and over-the-counter trading.
Jose pointed out that the trading volume of most tokens in the secondary market is not enough to significantly affect the increase in supply caused by unlocking. For example, Tia and Layer 0 have larger transaction volumes, but still not enough to significantly change the impact of unlocking.
Jose believes that most projects will experience market pressure brought by unlocking, but a few high-quality projects will be able to maintain or increase their value after unlocking.
He believes that the cryptocurrency market is different from traditional venture capital, as many projects gain liquidity at an early stage and there is a derivatives market even before the project is launched, which makes the market more complex and volatile.
In perpetual swaps, the funding rate mechanism can lead to some strange market dynamics. For example, even if there are no buyers in the OTC market, the funding rate of some tokens on centralized exchanges is still positive, which means that short sellers can obtain funding rates.
Jose noted that project teams and investors are often reluctant to sell or short their tokens, likely because a large portion of their net worth is in those tokens and they lack the expertise and resources to do so.
Ari believes that hedging these tokens is very complex and risky for venture capital funds. They need to hedge on high-risk exchanges, may face legal and compliance issues, and high funding rates.
He noted that the valuation gap between the OTC market and the public market can be very large, causing ordinary investors to pay too high prices in the public market.
Ari pointed out that venture investors may make wrong investment decisions based on high valuations in the public market, leading to investments in overvalued projects. Borrowing based on incorrect asset valuations can lead to huge wealth losses, which is one of the main reasons for many crashes in the cryptocurrency market.
Laura concluded that many numbers in the market do not have practical meaning and investors need to analyze and understand these data more carefully.
The current token launch strategy is flawed, but still favored by insiders and is unlikely to change anytime soon
Laura mentioned some new proposals and strategies for token issuance, such as Liquidity Adjusted Vesting and Liquid Vesting, and asked Jose and Ari to share their thoughts.
Jose believes that current token launch strategies, despite their flaws, work for teams and insiders, which is why they are unlikely to change anytime soon.
Jose pointed out that projects often release tokens with a low circulating supply, which causes the market to have a psychological anchor on its price, and even if the price is overvalued, investors will think it is reasonable.
Jose said that highly valued tokens can be used to pay employees and team members, attract better talents, and improve team retention. Highly valued projects are also more likely to gain market recognition, and it is easier for teams and investors to realize partial benefits.
Jose believes that projects that adopt this strategy have a more competitive advantage in the market because they can provide a higher annualized rate of return (APR) and a higher market impact. Projects that try different release strategies often face greater challenges and risks of failure.
Jose mentioned that Friend Tech tried a fully diluted launch and a fully on-chain launch, but the results were not good.
Ari pointed out that the strategy Jose described works in the short term, but can be problematic in the long term. Similar to the saying “choose your hardship,” easy choices in the short term can lead to hardship in the long term, while hard choices in the short term can lead to gains in the long term.
Jose agreed with Ari but stressed that projects need to survive into the long term first to enjoy these long-term benefits.
Why do some projects favor decisions that are more likely to result in short-term gains rather than long-term success?
Laura mentioned some of Carlson’s points, that in order for the token to be successful, it needs to be distributed to as many people as possible, which means that early teams and investors will have less allocations. But the current setup favors these people, so they have no motivation to change.
Ari believes that many entrepreneurs and venture capitalists are actually playing the game of "pump and dump", and their decisions are all for short-term gains. Even if some founders have long-term visions, they will face pressure from team members and investors who want to get liquidity and returns as soon as possible.
Ari believes that founders need to clarify their optimization goals and reach agreement with investors as early as possible. If investors continue to pressure for liquidity, founders need to have enough determination and ability to cope with this pressure.
He believes that in a highly competitive market, projects need to quickly establish network effects, which makes it difficult for a "quietly build" strategy to work.
Ari gave the example that the leading decentralized exchange (DEX) on Solana needs to quickly build network effects, which usually requires a lot of capital and marketing. Although there are some new proposals and strategies, there is no clear solution yet.
Ari advises founders to keep their strategies simple and be humble in their experiments. Instead of implementing new mechanisms across the entire project at once, test them on a small scale first and then scale up gradually.
Jose agreed with Ari, stressing that projects need to survive in the short term to enjoy the long-term benefits.
Laura mentioned some other proposals, such as extending the vesting period (from 1-4 years to 2-7 years or longer), and price-based unlocking mechanisms.
How do crypto projects balance funding with realistic metrics of success?
Jose believes that time-based token unlocking is often more effective than relying on complex success metrics, because in the early stages of a startup, it is difficult to define a stable success metric that may change over time (e.g. TVL, number of users, transaction volume growth, liquidity, etc.).
Jose believes that complex indicators are easy to manipulate and may sacrifice actual success in order to achieve specific indicators. For example, locking in a large number of LPs to increase liquidity does not necessarily actually help the success of the project.
Using a simple time-unlock mechanism, investors can evaluate at any point in time whether the project has met their defined success criteria and decide whether to sell tokens.
Jose pointed out that many projects raise far more money than they actually need, especially software projects, which can develop their own business through token economic incentives.
He believes that excessive financing has resulted in a high ratio of unrealized earnings to market value, and funds have not been effectively used to promote project success.
Jose proposed that increasing the market float is also a solution, but it is not reasonable to achieve this by increasing airdrops. Modern airdrops are often used by "farmers" and high-end speculators, who will quickly sell tokens, causing the distribution mechanism to fail.
Jose believes that ICO (initial coin offering) is a better mechanism because it allows earlier public participation, enabling ordinary investors to share in the success of the project.
Since the SEC banned ICOs, the profits of the projects have been mainly captured by venture investors, and ordinary investors have fewer opportunities to participate.
Jose mentioned that they are incubating a project that aims to reintroduce ICOs in a compliant manner. This will allow for larger-scale token distributions and, because there is a cost basis, better identification of investors who truly value the project.
SEC's investigation into VCs acting as securities dealers may be justified
Ari believes that the SEC's investigation into certain venture capital firms (VCs) acting as securities dealers is justified. These VCs engage in conversations with project teams before tokens are unlocked, promising to receive tokens at a discount and promote them when the tokens are publicly traded.
This behavior actually makes VCs act as securities dealers because they make high profits by distributing tokens. Ari believes that from a legal and ethical perspective, this behavior is equivalent to "pump and dump", that is, making profits by artificially manipulating market prices.
Ari pointed out that many early-stage crypto projects have been financialized before their fundamentals (such as product-market fit, user adoption, etc.) are mature. This has led to middlemen making high profits through early liquidity, while the projects themselves have no real progress.
This financialization phenomenon has led to a market full of speculation, with the prices of project tokens artificially pushed up far beyond their actual value.
Ari proposed two possible solutions:
1. Postpone the issuance of tokens until the project has actual products and user base. This can reduce early speculation and prevent excessive market hype.
2. Since the market is already highly financialized, it is better to directly cancel the token unlocking mechanism to prevent middlemen and VCs from making high profits by manipulating the market. This can reduce unnecessary value transfer and make the market fairer.
Ari emphasized that the current market mechanism has led to a large amount of value transfer to middlemen, such as market makers and certain VCs. He believes that canceling the unlocking mechanism can reduce the interests of these middlemen and prevent them from profiting by manipulating the market.
The unlocking of many tokens is imminent, and the project prospects are bearish. What challenges are faced in alleviating potential sell-offs?
Ari believes that many existing projects will face challenges brought by token unlocking, especially those VCs that invested in 2017 and 2018, whose funds are about to expire and need to realize investment returns.
As there are not enough buyers in the market to absorb these unlocked tokens, the market is expected to face downward pressure. Ari believes that individual projects may successfully cope with this situation, but the overall market outlook is bearish.
Ari emphasized that what will ultimately help a project successfully overcome difficulties is to build an excellent product and accumulate basic value and network effects. If a project can establish a real user base and product-market fit, these short-term market fluctuations will be insignificant in the long run.
Some projects may work with OTC trading platforms to buy back tokens from early investors and redistribute them in a more orderly manner to avoid a market crash.
Ari believes that project teams can ease the pressure by allowing and encouraging secondary market transactions. This would allow early investors to sell their tokens on the secondary market, thereby reducing unrealized gains in the market.
Ari believes that extending the token unlocking period is a reasonable solution for new projects. An unlocking period of 2 to 7 years is reasonable for start-ups, which ensures that the team and investors maintain alignment of interests in the long run.
However, for projects that have already issued tokens, extending the unlocking period may only prolong the pain. It is better to allow those who want to sell to sell as soon as possible and solve the problem quickly.
Jose agreed with Ari that the market value of many projects is inflated. As tokens are unlocked, the market will have to face reality and the market value will fall back to a more reasonable level.
He mentioned that allowing secondary market transactions can help ease this pressure, especially after a project has completed financing, encouraging secondary market transactions can reduce the pressure of unrealized gains.
Jose emphasized that the long-term success of a project depends on building a great product and accumulating foundational value. Although the market may experience fluctuations in the short term, these problems will be solved in the long run if the project can establish a real user base and product-market fit.
Why many crypto investors may end up holding bags in the current cycle despite plans to sell early and avoid losses
Ari emphasized that the token economics of different projects are different, some projects' tokens represent usage fees on the protocol (such as Bitcoin and Ethereum), and some represent rights to future services. However, some projects' tokens do not have a clear economic value, which makes it difficult to maintain the token price.
He believes that if the fundamental value of a project is much lower than its market value (such as a $10 million project with a $1 billion market value), then no mechanism can solve this problem. The only solution is to build a truly valuable product.
Ari reviewed the evolution of the ICO craze, from organic growth in early 2017 to the subsequent rampant speculation. He pointed out that early ICO investors were mainly people interested in the technology, while later everyone started speculating and each ICO was quickly snapped up.
As time goes by, investors’ games get earlier and earlier, from publicly traded to private placements to seed rounds and advisor tokens. Many investors think they can get out before the music stops, but this mentality often means it’s too late.
Ari believes that in the current cycle, many cryptocurrency investors may end up holding "bags" (i.e. tokens that cannot be liquidated), despite their plans to sell in advance and avoid losses. This is because there are too many speculators in the market, all of whom want to withdraw before the market crashes, but few actually succeed.
He noted that the smartest money has already been selling tokens at a discount through OTC transactions before liquidity or exchange listing, and most investors will end up as “bag holders.”
Jose believes that many cryptocurrency investors have an implicit belief that the market is a zero-sum game and that to make money you must withdraw before others lose money. This mentality was validated in the 2022 market crash, as high-risk investors mostly suffered huge losses.
He pointed out that although there are many bad projects in the market, he believes that there are still some truly valuable projects in the cryptocurrency field that will become important financial computing infrastructure worldwide.
Jose emphasized that although it may seem tempting to get a 2x return through speculation in the short term, finding those truly valuable projects and holding them for the long term will ultimately yield returns that far exceed short-term speculative gains.
He believes that successful projects will generate huge value globally, and investors should focus on the long-term potential of these projects rather than just short-term market fluctuations.
What is the future role of VC in crypto, and how the influx of token unlocks and the rise of meme coins can shape bull cycles
Ari emphasized that despite his previous negative views, he still believes in the huge potential of cryptocurrency technology and underlying value. He believes that there are many excellent VC investment opportunities in the market, especially in the tokenization and social fields of real world assets (RWA).
He pointed out that while some projects are indeed speculative, there are also many projects that are seriously building valuable products. The role of VC is to find these high-quality projects and invest in them early to help them grow.
Ari believes that one of the problems in the current market is high valuations. Excellent VC funds, such as Paradigm and a16z, tend to push up the valuations of excellent projects, which can cause originally excellent investments to become mediocre or even bad.
He stressed that the key to investment lies in price. Even if it is an excellent project, if the valuation at the time of investment is too high, the final return may not be ideal.
Ari mentioned that the rise of meme coins is because they represent a pure form of financial nihilism and speculation. For some scattered ordinary investors, speculating on meme coins may be more suitable than trying to make fundamental investments in cryptocurrencies.
He warned that most meme coin investors would eventually lose their funds, but at least they knew they were gambling.
Jose believes that the role of VC has not changed, and it is still to find high-quality projects and invest in them early to help them grow. He pointed out that VC is often criticized for high FDV (Fully Diluted Valuation) and low circulation, but in fact these are not entirely the fault of VC.
He explained that VCs often have to wait a long time for a return on their investments, and even if many projects are listed, VCs are unable to sell their tokens immediately.
Jose emphasized that in the bear market, VCs took great risks and continued to invest to support the construction of the next generation of infrastructure. He believed that despite the jealousy and misunderstanding of VCs in the market, VCs played an important role in promoting the development of the industry.
He pointed out that although there are not enough practical applications in the market yet, some successful projects (such as Uniswap) have shown great potential.
Jose believes that meme coins are a pure exposure to the cryptocurrency market and their rise reflects the market's demand for speculation. He believes that although meme coins may attract a lot of money in the short term, in the long run, truly valuable projects will stand out.
He predicts that if ICOs rise again in the future, it may have an impact on the VC industry because ICOs can attract capital more widely and may provide lower valuations than VCs.
