Former BitMEX CEO Arthur Hayes has called the current crypto market cycle a “player versus player” in a new essay for PvP, where ordinary investors are losing out on the high FDV of new tokens while venture capital firms and crypto exchanges are getting rich.
The expert team tried to answer a number of questions:
Is it worth paying exchanges for listing so that the token has a better chance of being pumped?
Are the valuations of the projects being launched too high?
To do this, analysts formed a representative sample of 103 protocols whose tokens were listed on CEX this year.
Hayes emphasized that creating a useful product or service with a growing number of paying customers is the “secret sauce” for a successful Web3 project. Listing on centralized platforms is not the key, he added.
Data: Maelstrom
As the illustration shows, adding the token to the CEX list of tradable instruments did not bring any returns. Only VC investors benefited, as the median price increased by 31% compared to the FDV of the last private round (last column).
The table also points out that there are no guarantees of price growth given the listing on Binance. The former head of BitMEX noted that the latter only makes sense if the platform itself decides to take this step due to the popularity of the project and the community involved in it. In this scenario, the teams will need to transfer or sell some of the tokens to the exchange.
Analysts also compared the dynamics of assets relative to the change in the value of Bitcoin, Ethereum and Solana and received unsatisfactory results.
Data: Maelstrom
Based on the second table, Hayes concluded that projects need to lower their starting estimates by 40-50% to become attractive.
The expert blames venture capitalists for the current situation, who convince founders to conduct private rounds with ever-increasing FDV. In this way, they seek to recoup their investments in illiquid projects at early stages.
High FDVs allow venture firms to show more unrealized profits and raise money for the next fund, Hayes said.
After listing, reality sets in - the market shows that the teams haven't built a product or service that enough users will pay real money for to justify their "ridiculously high FDV".
For this reason, venture capital funds push founders to delay token launches as long as possible and continue to raise private rounds. As a result, when a project goes public, it “drops like a stone.”
In this scenario, venture investors generally don't lose out because the collapsed FDVs still exceed the amounts they paid, Hayes explained.
According to the expert, exchanges are also interested in inflated diluted value. Firstly, trading fees are charged as a percentage of the token's face value. Secondly, high FDV and low available leads to the transfer of undistributed assets to platforms. The median percentage for the sample was 18.6%.
The former BitMEX CEO also highlighted the exorbitant listing costs as a problem. They can reach 16% of the token supply and $5 million in BNB for Binance and up to $2,000,000 on other platforms.
As a solution, he sees either the founders refusing to pay commissions with a focus on attracting more users, or the exchanges reducing their appetites.
"The worse the project, the higher the fee. […] If it has few users, then you need CEX to dump your "dog shit" on the market. If there is a suitable product and a healthy growing ecosystem, listing on the exchange is not so necessary. The community will support the price of the token, wherever it is listed," the expert commented.
Hayes concluded by urging the founders to let investors get rich. To do this, he recommended holding a private seed round initially to build a product for a very limited number of users. And only then listing with a small FDV. A low price will allow for a loyal and engaged community.
Instead of CEX, the ex-CEO advised considering listing on DEX. In this case, you can do without additional costs. If there are interested users of the product, the growth of quotes will not take long, the expert assured.
“I want the projects we support at Maelstrom to stop worrying about which CEX will take them and start thinking about their ‘fuckin’ DAU count,” he concluded.
Recall that Hayes, who recently had a positive outlook on the meme coin market, suffered an unrealized loss of $47,000 as a result of trading two coins.
$DOGS $CATI $HMSTR #CEX #FDV #Binance #meme_coin
