By Ethan Luc, CoinDesk
Compiled by: BitpushNews
A major barrier to widespread mainstream blockchain adoption remains the widespread feeling that the space is still too focused on speculation. In order to build a sustainable ecosystem and attract more users, protocols must fundamentally rethink the way tokens are distributed. The focus must shift from inflated valuations and speculative price action to long-term utility and transparency.
This year, the cryptocurrency market has witnessed a resurgence in token issuance, many of which have adopted the “low circulation, high fully diluted value (FDV)” strategy. The plan is simple: launch at a high price, lead with a multi-billion dollar valuation, and create hype around the project’s potential. This script, while widely criticized, is irresistible to many attention-seeking projects. So what’s the problem? Such a script is completely artificial hype.
The "low circulation, high FDV" model involves releasing a small portion of the total token supply (circulating supply) to the market while pricing each token very high. This creates a falsely inflated FDV for the project, while many token holders fail to take into account the remaining token supply that has not yet entered circulation.
While this approach can generate significant initial interest from users, many projects that adopt this model see short-term gains that unravel in the long term. This is not a sustainable approach and takes attention away from the real focus of all crypto projects – long-term utility and protocol adoption. Bitcoin took years to build a user base—now, projects can do it with one big launch.
Cryptocurrencies must make bolder changes to refocus the industry on distribution and utility while avoiding price speculation.
There is a better way to manage token issuance — one that prioritizes long-term utility and organic growth over speculative gains. Protocols are beginning to experiment with alternative models. For example, the blockchain-based social platform FRIEND launched with 100% of circulating supply, distributing all tokens to the community from day one. After Lava Network took a radically different approach, I firmly believe the industry must adopt a new standard for how blockchain projects should manage token distribution and valuation.
A market-derived approach
By sharing the lessons learned at Lava, an access layer for blockchains, I hope we can inspire a shift toward more responsible and sustainable token issuance practices. Together, we can build a stronger, more resilient blockchain ecosystem that benefits all participants.
This alternative token issuance strategy is centered around decentralized exchange (DEX) trading and aims to reduce speculation and organically cultivate a group of believers and long-term network participants through market-derived FDV (fully diluted valuation). By ensuring a high initial circulation and capped supply, this approach puts the focus more on the intrinsic utility of the token and the project's potential in the real world, rather than speculative pricing.
This strategy provides several benefits:
1. Reduced speculation: With a higher initial circulation, the market can more accurately price tokens based on their utility and demand, rather than based on speculative hype.
2. Organic Growth: Market-derived FDVs foster a community focused on the long-term success and utility of the project.
3. Transparency and Trust: By avoiding the pitfalls of inflated valuations, this approach builds greater trust with the community and stakeholders, ensuring a more stable and predictable path forward.
While one could argue that a market-derived FDV approach could result in slower initial growth or undervaluation risks, the long-term benefits of a stable, sustainable protocol far outweigh these short-term concerns.
Recent commentary in the blockchain space has also highlighted the need for change. For example, an article in CoinDesk by Azeem Khan correctly argues for the need to move away from inflated valuations to attract retail investors and revitalize the venture capital token market. While this view recognizes the flaws of high FDV, it focuses primarily on attracting retail investors by keeping valuations low and creating market hype. However, this is not enough. A long-term sustainable approach should not focus solely on reducing valuations, but on creating value and utility that truly resonates with retail investors and the broader community. The focus should be on transparency, realistic valuations, and promoting organic growth, not just the immediate excitement of the market.
Building a sustainable blockchain ecosystem
The blockchain industry is still in its infancy, and how token issuance is managed today will shape the future of the ecosystem. The market-derived FDV approach is a call to action for other projects to prioritize transparency, long-term utility, and community trust over short-term gains.
The blockchain industry is at a crossroads. Continuing down the path of low circulation, high FDV issuance will only lead to more market instability and investor disillusionment. By taking a market-derived FDV approach, projects can build stronger, more resilient ecosystems that benefit all participants. It’s time for the industry to focus on building real products — not on the next shiny new token.
