Token unlocks are closely watched for their potential to further pressure the altcoin market. In July, a new batch of high-profile tokens will have various types of unlocks.
The unlocks narrative follows the recent trend of launching VC-backed crypto projects. In those cases, in addition to a team allocation, each token was distributed to early investors. Some token projects have also created whales. In those cases, the biggest worry is that the early buyers will sell with no regard for the community.
Also Read: Crowd money sentiment remains bullish, expecting a recovery after the July dip
Tokens with big pending unlocks are the opposite of meme assets, which have all of their supply released immediately. Tokens with a low float have varied unlock schedules, from linear daily unlocks to cliff unlocks.
High-profile platforms pressure market with cliff unlocks
Some of the most major token inflows in the coming week belong to top DeFi projects like Ethena and Pendle. Ethena has also unlocked just 8.5% of its supply, highlighting the potential price pressure in the coming months.
Token Unlocks for this week pic.twitter.com/v42Ul6JVlm
— Crypto Pragmatist (@cryptoprag) July 8, 2024
Other high-profile platforms with cliff unlocks in the coming days include Aptos, Arbitrum, and Immutable. In the past month, the most new token inflows were absorbed from Chainlink, Arbitrum, and Optimism. Notable recent token unlocks included Worldcoin, SUI and Ethereum Name Service. In the case of Worldcoin, the unlocks will continue at an accelerated pace in the next two years.
For the entire month of July, the estimated value of unlocks is around $600M. The unlocks of the topmost projects and big platforms are evaluated at around $300M. Unlocks can affect different types of token vaults, and may include tokens set aside for rewards or community purposes.
The unlocks may affect all assets differently, depending on the prevalence of whales and the potential to sell. The biggest unlock already happened, introducing new tokens valued at more than $84M.
Also Read: Can Worldcoin (WLD) rise despite pressure by daily token unlocks?
The XAI unlock was the equivalent of 72% of existing tokens in circulation. Most unlocks are capped at about 2.5% of the supply, with XAI being a big outlier.
In 2024, most of the highly active L1 and L2 tokens have roughly 30% of their supply unlocked, with more remaining to enter the market over the coming years. For some analysts, the prevalence of low-float tokens is also preventing the launch of a highly active altcoin bull market, as during previous cycles.
Unlocks raise new concerns about low-float tokens
The latest series of unlocks are raising renewed concerns about tokens with low floats and high valuations. The big conflict for traders is that high-profile platforms like ARB, APT and OP offer some utility. However, their price reflects the presence of unlocks and potential selling from early investors.
Low-float tokens may also affect the wider DeFi ecosystem, where platform tokens can be used as collateral and in lending protocols. Low-float tokens with unlocks can survive easily during a bull market, but can take a sharper downturn with bearish sentiment.
In the case of smaller platforms with a low float, some projects are seen as deliberate attempts to use the market for exit liquidity.
In 2021 sbf discovered the game theory of releasing a fake project with no users and low float, high fdv thanks to supply control and taking loans against it ($maps)
Now everyone using his tactics yet being invited to talk at panels how their billion dollar company is…
— Adam (@surfcoderepeat) July 7, 2024
This July, the Altlayer project is also in the list of high-profile unlocks. The case of ALT reveals how much selling pressure a token could create. Even star tokens from the 2024 bull cycle erased all of their gains due to selling pressure.
During the July unlock, ALT will increase its supply by more than 42%. Altlayer will also distribute the allocations for the first investors, which include Binance, Polychain, and Hack VC. The unlock already set expectations for ALT, which slid to $0.13 in the past month.
Fears of tokens with high unlocks help to shift the focus toward Ethereum (ETH), which remains more transparent and has incentives to lock more of the supply for staking. Additionally, investors may turn to meme tokens or fair launches. Whale selling is still a risk, but a predictable cliff unlock may have a deeper effect on market prices.
Cryptopolitan reporting by Hristina Vasileva
