Market Trend of Low Float, High FDV Tokens
The crypto market is seeing a trend of launching tokens with low circulation and high valuations. This makes it unprofitable to invest in major crypto projects.
Evolution of Crypto Market Standards
The young and complex crypto market borrows from traditional finance but also creates new tools. The ICO boom of 2017-2018 led to a surge in token launches and investments, prompting the community to establish investment standards.
Importance of Tokenomics
Tokenomics, including mechanisms like vesting, has become fundamental in crypto startup analysis. In traditional markets, economic or financial metrics are key. In crypto, the time factor is crucial. Early investors might have a one-year vesting period, for example.
Simplifying Tokenomics
Initially, ICO tokenomics were simple. However, as the discipline evolved, the success of the crypto market exposed the pitfalls of ICO popularity. Many projects vanished. CoinGecko data shows that over 50% of tracked cryptocurrencies ceased to exist between 2014 and 2023.
Surge in New Tokens
The influx of new tokens is unlikely to slow down. From April to May 2024, over 1 million new tokens were created across networks like Ethereum and Optimism. This number doubles the total tokens ever created on Ethereum from 2015 to 2023, as reported by Coinbase’s Conor Grogan.
Challenges of Investing in New Launches
Noted crypto trader Jordan Fish, known as Cobie, highlights the problem. Most new launches are not worth investing in, and participants often lack understanding.
Low Float, High FDV Explained
According to Binance’s May 2024 analysis, the trend of low float, high FDV (Fully Diluted Valuation) raises concerns about token price sustainability post-launch. Tokens worth about $155 billion will unlock from 2024 to 2030. Without increased buyer demand, this creates selling pressure.
Examples of Low Float, High FDV Tokens
Several high-profile crypto projects exemplify this trend. Projects like Wormhole and Worldcoin received significant venture investments and high valuations. These statups have secured at least $100 million from investors and achieved valuations exceeding $1 billion, earning them “unicorn” status even before their assets hit the market.
Then, Worldcoin (WLD) launched with 1% of tokens in circulation, valued at $22.8 billion FDV. Despite an initial price rise, WLD’s price dropped 77% by June 2024.
Market Impact and Adjustments
Projects like Starknet (STRK) also show the low float, high FDV trend. Starknet launched with 7% of tokens in circulation, a $1.4 billion market cap, and $20 billion FDV. However, projects like zkSync and LayerZero have adjusted their tokenomics, offering higher circulating supplies.
Future of Tokenomics
Binance Research emphasizes the importance of discerning investors and thoughtful project teams. Tokenomics, valuation, and product fundamentals are crucial. Low circulating supply alone isn’t negative but should be considered alongside demand and distribution plans.
Addressing Market Transparency
One major issue is the lack of transparency in actual trading volumes. Investors struggle to gauge real market size and capital movements in over-the-counter (OTC) markets. Cobie notes that problems with low float or high FDV often stem from manipulated or illusory private market pricing.
Adapting to Market Needs
The crypto market will adapt to participant needs and opportunities. Projects operating under natural market conditions will achieve fair pricing, benefiting the ecosystem as a whole.