How did Web3 become the current market structure with low circulation and high FDV❓丨The material and part of the data in this article come from the research report of #BinanceResearch

This article is based on the current phenomenon and attaches a part of the data to extend the perspective. It is not a translation, but more an extension of the perspective based on the research report~

First of all, the circulation is controlled at around 10%, and the FDV can easily reach several billions. This is a distinctive feature of the so-called "VC project" that has been hotly discussed recently.

On this basis, it triggered a discussion in the industry on whether the current market liquidity can sustain such a high market value.

In the longer term, there is also the fear of the value of future tokens being released into the market: If I buy it now, is it likely that future unlocking will impact the currency price?

Current data shows (Figure 1) that the initial circulating market capitalization ratio averages around 12.3%, which is the lowest level in the past three years, while FDV is almost the same as last year.

Quoting the original report: "In order for these tokens to maintain their current market prices in the next few years, approximately 80 billion in incremental funds will be needed to flow into these tokens to match the shares to be released. Although the market cycle has been changing, this It may not be an easy task.”

At the same time, the report also specifically lists 15 representative projects (Figure 2), most of which have been listed on first-tier exchanges.

Is this data decisive? I don’t think so, but this data does reflect a group consensus reached between investment institutions and project teams in the development stages of previous projects.

There is even the same institution behind some projects, and their risk preferences have converged in the past 2-3 years, so that this consensus of small initial circulation has spread widely in the primary market.

Coupled with the exchange's possible requirements for projects and institutions, I have the impression that #Binance once said that it would require the investment institutions behind the LaunchPool project to lock up their positions for at least one year to protect the early interests of investors.

Facts have also proven that in every Launchpool project in the past, any institution that participated in it would basically have a one-year dead period token locking mechanism for the institution.

Whether this motivation is good, I think it is optimistic. Objectively speaking, if institutions participate in market circulation during the online stage, then the wholesale withdrawal of institutions may cause an even more exaggerated market effect than the current one.

Therefore, under the pattern of low circulation and high FDV, the market has further attracted attention to#MEMEtokens. From BASE to Solana to TON, it can be said that it is a migration of attention between liquidity and Meme.

Most meme coins have 100% circulation in the TGE stage, which eliminates the selling pressure caused by future dilution. This indicates that holders will not suffer further dilution of their holding value due to token release.

This structure is initially attributed to one of the main reasons for the market's attraction to Meme in this round, especially as the market's awareness of the impact of the "VC token" unlocking event continues to increase (but in fact, unlocking does not completely mean that the market price will be affected, and it does not even mean that the unlocking will be sold).

An interesting data (Figure 3) at the end of the above chart shows that L1's performance this year is not very outstanding, but in the context of the past few rounds of bull markets, the rise of emerging L1s has always been one of the main themes of the market. Therefore, there are currently two inferences based on this result:

(1) The liquidity of the market is over-diluted, and the bull market expectations are overdrawn in advance by various "pseudo" application narratives.

(2) The real bull market is far from coming. The current bull market may be more than halfway through, but the real climax still requires some conditions.

This brings us back to the main topic of this article: high FDV. This high FDV phenomenon is fixed in the primary market.

On the one hand, VC has gradually occupied the dominant position in the upstream market, although the scale of net capital inflows into the crypto field has been steadily increasing. Since 2017, the total venture capital for crypto projects has exceeded US$91 billion

Especially in the last cycle, the overly optimistic sentiment in the secondary market has not only spawned many investment institutions during that period, but also brought a more positive financing environment to the primary market

We can notice that in the figure below (Figure 4), from the first quarter of 21 to the third quarter of 22, the bulk of the primary funds that have poured in during the development stage of the crypto industry have accumulated

At the same time, it may also be this positive financing environment that has kept the valuation level of the financing stage of the projects during this period at a relatively high level, so that the projects that were financed in the last round have a relatively large amount of FDV in the secondary market in this round

This is still done in the context of most projects not having a long-term profit model, but only some "narrative correctness"

So that the primary valuation is based on some data environment that is not helpful for profitable business

Therefore, some KOLs in the Chinese market have pointed out that the current so-called "value coins" are actually no different from the zero-sum game of the Meme market, because both of them are basically profitable businesses without agreements

At the end of this article, I would like to add some views on FDV: It is true that FDV provides scale statistics in a general sense, but I think it is not very meaningful in itself

In the early stage of the launch of new coins in the market, why do I often use the release curve of tokens as an important reference factor? The core reason is that there is a general law in the cyclicality of the crypto market: a bull and bear cycle every 4 years

Based on this principle, we can be sure that we have entered a new market cycle as early as the end of last year. The bull cycle to be completed in the next two years is basically an inevitable trajectory under historical laws. So in this cycle, is it beneficial to our investment return to be overly anxious that it will take at least 3 years for the full circulation of FDV?