The prevalence of high FDV and low circulation tokens: False prosperity or a promising future?

Recently, the controversy over high FDV and low circulation tokens has been escalating. The prices of low circulation and high FDV tokens have continued to slump, and a large number of retail investors have become "victims" of liquidity withdrawal. Since tokens with high FDV and low circulation will lead to huge selling pressure when unlocked in the future, this will be detrimental to the long-term development of the project and ordinary investors. How to rationally evaluate the value of high FDV and low circulation tokens is a troubled issue.

1. Overview of circulation volume, market value, and FDV

Circulation volume, market value, and FDV are important indicators for evaluating the value of crypto project tokens. They are interrelated and jointly influence a project's performance and potential in the market.

1.1 Circulating Supply

Circulating Supply refers to the current availability of a crypto asset in the market The quantity available for trading. This concept is often used to measure a cryptoasset’s liquidity and market participation. The calculation of circulation is usually based on the project’s blockchain data and the issuer’s public information. Accurate estimation of circulating volume is crucial for investors because it directly affects the supply and demand relationship and price fluctuations of the asset in the market.

Circulation volume can be thought of as the number of tokens that can actually flow freely in the market. Circulation is generally calculated by subtracting the number of locked or reserved tokens to obtain the number of circulating tokens in the total supply. These locked or reserved tokens may include team holdings, fund locks, etc.

1.2 Market Capitalization

Market capitalization refers to the current total market value of a crypto asset, usually used Used to measure the size and importance of the asset in the market. Market capitalization is calculated by multiplying the asset's circulating volume by its current price to obtain the total value of the asset in the market.

Market capitalization plays an important role in the crypto market because it can reflect the overall market recognition and investment enthusiasm for the asset. A higher market capitalization usually means greater market recognition and higher investor confidence, but it may also imply the existence of risks and bubbles.

1.3 Fully Diluted Valuation (FDV)

##Fully diluted valuation refers to a crypto The total market capitalization of a project taking into account all possible issuances of tokens. It includes the project’s currently circulating tokens as well as all tokens that have not yet been issued but may be issued in the future.

FDV is calculated by multiplying the project’s total supply by the current price, resulting in a total market capitalization that takes into account all potential issuances of tokens. This metric is often used to measure a project’s potential market size and valuation ceiling.

2. The impact of circulation volume, market capitalization and FDV on the value of tokens

is provided by analyzing data such as circulation volume, market capitalization and FDV A certain level of understanding of the current status and potential of a project can help investors make rational investment decisions.

2.1 How does circulation affect the value of tokens

Circulation volume directly affects the liquidity and market participation of the project Projects with lower liquidity may be more susceptible to price fluctuations because the market trading volume is relatively small and more susceptible to a small number of large transactions. In addition, low liquidity may also lead to increased risks of market manipulation and price manipulation, because a small number of transactions can have a large impact on the market.

However, projects with lower circulation may also have greater growth potential. When an item’s circulation is low, the supply on the market is relatively scarce, which can lead to increased pressure on prices. Some investors will view low circulation as an opportunity for a project to potentially add value, as prices may rise significantly if demand increases.

2.2 How does market value affect the value of tokens

Market value is the total value of a project in the market and is the circulation The product of volume and current price. The size of the market capitalization reflects the overall market recognition and investment enthusiasm for the project. A higher market value usually means greater market recognition and higher investor confidence, while a lower market value may mean that the project has not been fully recognized by the market or has low market participation.

For investors, market capitalization provides a measure of the size and importance of a project. However, investors need to note that market value does not necessarily reflect the true value of a project, as it is affected by various factors such as market supply and demand, investor sentiment, etc. Therefore, investors need to consider market capitalization and other indicators to evaluate the value of the project.

2.3 How FDV affects token value

FDV (fully diluted valuation) takes into account all possible issuances The total market value after the number of tokens is the potential market size and valuation upper limit of a project. For investors, knowing a project’s fully diluted valuation helps them evaluate the project’s potential growth space and investment value.

Fully diluted valuations can help investors better understand a project’s potential market size. By comparing current market capitalization and fully diluted valuation, investors can judge a project's market recognition and room for growth. A lower market cap relative to a fully diluted valuation may mean that the project is not yet fully recognized and has greater growth potential.

However, investors need to note that the fully diluted valuation is only a reference indicator, and actual market performance may be affected by a variety of factors. Therefore, investors should comprehensively consider the value of the project based on market capitalization, circulation and other factors.

3. Current status of high FDV and low circulation token market

According to CoinGecko data, as of May 21, among the top 300 cryptocurrencies by market capitalization, MC/FDV There are 60 cases that are less than 0.5, accounting for 20%. This means that for every 5 cryptocurrencies with higher market capitalization, 1 project has more than half of its token supply yet to be unlocked.

Among the top 300 cryptocurrencies by market capitalization, 15 have MC/FDV less than 0.2, namely Worldcoin (WLD), Cheelee (CHEEL), Saga (SAGA), Ethena (ENA) ), Starknet (STRK), Jito (JTO), Ether.fi (ETHFI), ZetaChain (ZETA), Jupiter (JUP), Ondo (ONDO), AltLayer (ALT), Pixels (PIXEL), Dymension (DYM), Celestia (TIA), Wormhole (W). The circulation of the first 4 tokens does not even exceed 10%. The following will focus on them:

Worldcoin: Worldcoin is An emerging global cryptocurrency that aims to become the largest and most inclusive cryptocurrency network in the world. The project built a device called the Orb that captures an image of a person's eyes and converts it into a short digital code to verify their identity. If not yet registered, users will receive Worldcoin shares for free, and the original image does not need to be stored or uploaded. Some people believe that WLD’s FDV is already ridiculously high and this price cannot be maintained. It is just a bubble riding on the popularity of AI. Others believe that WLD’s circulation is too low and its value is still subject to the wishes of market makers.

According to the white paper, the maximum circulating supply of WLD is 143 million, of which 100 million are loaned to overseas market makers and 43 million are allocated to Orb verified user. Since the official launch of World App, a single user can receive a total of 77 WLD subsidies. However, in some countries such as France and Hong Kong, WorldCoin faces regulatory pressure, resulting in the inability of some users to withdraw their tokens. Therefore, the WLD circulating tokens currently on the market only include two parts: one is the tokens in the hands of users who have received daily allowances through the APP and have withdrawn cash, and the other is the 10 million tokens in the hands of market makers. This part of the circulation only accounts for about 1.33% of the total supply of WLD. In addition, considering that the unlocking period of WLD is 150 days, the FDV of WLD is not referenceable in the short term, and the statement that it exceeds the market value of OpenAI is more like an AI meme.

Cheelee: Cheelee is a short video platform with a Watch to Earn mechanism, which pays all users who watch the content. Its mission is to enable all users to make money on social networks. Cheelee aims to drive Web3 and cryptocurrency adoption through the gamer community. Users can watch and generate game video content through its "NFT glasses", which can monitor the video viewing time and convert it into corresponding points based on the length of time, which can then be redeemed for tokens. award.

Cheelee is currently the socialFi project closest to Douyin. The gameplay is almost the same as Douyin, and then adds the concept of watch to earn, and also adds The gameplay of the game is finally implemented in web3 and is currently the most popular application in web2. For this kind of project, the best way is to watch to earn instead of picking it up on the secondary market. The future upside depends on the intensity of promotion.

Ethena: Ethena is building the derivatives infrastructure that will enable Ethereum to transform into a global internet bond via delta neutral positions on stETH, creating the first A crypto-native, profitable stablecoin USDe. Taking inspiration from Arthur Hayes’ “Dust to Crust” article, EthenaLabs is committed to creating a derivatives-backed stablecoin that solves the major problem of cryptocurrency’s dependence on traditional banks. Their goal is to provide a decentralized, permissionless savings product to a broad audience. EthenaLabs’ synthetic U.S. dollar, USDe, aims to be the first crypto-native, censorship-resistant, scalable, and stable financial solution enabled by delta hedging of collateralized Ethereum.

Saga: Saga is a modular Layer1 platform tailored for the gaming industry. Saga Protocol simplifies the deployment process through Chainlet, a purpose-built blockchain that developers can launch as easily as deploying smart contracts, integrating key elements such as data availability, consensus, execution and settlement to create a seamless product experience . The Saga protocol runs on a fully decentralized proof-of-stake model, ensuring that each chainlet maintains the same high security standards as the Saga mainnet and uses the same set of validators. Saga has successfully attracted 350 projects in less than two years, 80% of which are focused on the gaming industry.

The Top 10 projects with the lowest MC/FDV among the top 100 by market capitalization include:

4. The reasons and impacts of the prevalence of high FDV and low circulation tokens

The reasons and impacts of the prevalence of high FDV and low circulation tokens are multifaceted. . The prevalence of high FDV low-circulation tokens is driven by a combination of factors such as the influx of private market capital, aggressive valuations, and optimistic market sentiment. However, this trend has also brought negative impacts such as increased selling pressure and project selection challenges, which require careful evaluation and handling by investors and project teams.

4.1 Reasons for the prevalence of high FDV and low circulation tokens

4.1.1 Private market capital influx: Venture capital (VC) funds are increasingly consolidating their position in the crypto field, making private market financing an important way for projects to obtain funds. As capital flows in, VC influence increases, leading to higher valuations and an expansion of private market financing.

4.1.2 Aggressive Valuation: Optimism in the market drives investors’ preference for highly valued tokens, and they are willing to invest at higher prices. This sentiment has also prompted venture capital firms to be willing to pay higher valuations in private financings, thus pushing up the FDV of the token.

4.1.3 Optimistic market sentiment: In the context of positive market sentiment, it is easier for project teams to raise funds at high valuations. This market sentiment makes investors more willing to participate in projects at high valuations, while also providing projects with more funding opportunities.

4.1.4 Promotion of points program: The recently popular points program attracts users to participate in projects by providing point rewards, and a large number of users actively participate in on-chain activities. Earning points and thereby receiving airdrop tokens led to an artificially high FDV when the tokens were listed, but as a large number of users sold their tokens after the airdrop ended, market performance deteriorated.

4.2 Analysis of the impact of high FDV and low circulation on tokens

4.2.1 Increased selling pressure : The prevalence of high FDV and low circulation tokens has led to a large number of unlocked tokens entering the market, increasing selling pressure. Binance Research estimates that approximately $155 billion in tokens will be unlocked from 2024 to 2030, which may have a negative impact on market prices.

4.2.2 Increased price volatility: High FDV low circulation tokens usually have lower circulation volume, there are a large number of unlocked tokens, market participants More attention must be paid to the supply and unlocking schedule of the tokens. When market liquidity fluctuates, price fluctuations may intensify.

4.2.3 Increased risk of market manipulation: High FDV low circulation tokens have limited circulation, which increases the risk of market manipulation. A small number of transactions can have a large impact on the market, thus providing more opportunities for manipulators. Manipulators can influence the price of tokens through large transactions or market manipulation, thereby making profits.

4.2.4 Value bubble risk: For high-quality projects with higher demand, high FDV is regarded as an opportunity for potential value-added of the project, because in the case of increased demand Below, prices may rise significantly. However, high FDV may also indicate risks and the existence of a bubble if the growth in token demand does not keep up with token inflation.

5. How to correctly evaluate the value of high FDV and low circulation tokens

After discussing the phenomenon and driving factors of high FDV and low circulation tokens, we need to delve deeper How to properly assess the value of these tokens. Although these tokens may enjoy high valuations in the market, investors still need to rationally evaluate their potential value and long-term prospects and avoid blindly following the trend or being swayed by market sentiment.

1. Team background and strength: First, we must examine the team background and strength of the project. A team of experienced developers and industry experts may be better equipped to realize the project’s vision and goals, thereby increasing the long-term value of the token.

2. Project vision and technical implementation: Evaluate whether the project’s vision is practical and feasible, and whether its technical implementation can solve real-world problems. Projects that are innovative and forward-looking usually have higher growth potential.

3. Community and user base: Observe the community and user base of the project, including activity on social media, user participation, and the quality of community building. An active, loyal community may increase the liquidity and market demand for a token.

4. Actual application and adoption : Understand the actual application scenarios and adoption of the project, as well as real-world partnerships. Whether the project has been applied in actual scenarios and whether it has partner support will have an impact on the value of the token.

5. Competitive advantages and differentiation: Analyze the advantages and differentiation of the project in the competition in the same industry, and whether it has a sustainable competitive advantage. Projects with unique technology, business models or market positioning may be more attractive.

6. Financial status and fund management: Review the financial status and fund management of the project, including token allocation, fund operations and project development planning. Good fund management and transparent financial reporting can increase investor trust and project sustainability.

7. Risks and uncertainties: Identify the risks and uncertainties of the project, including technical risks, market risks, legal risks, etc. Understanding and evaluating the impact of these risk factors on the value of tokens can help make sound investment decisions.

Evaluating the value of high FDV and low circulation tokens requires comprehensive consideration of multiple factors and a rational and objective attitude for analysis and judgment. Investors should choose appropriate investment strategies based on their own risk tolerance and investment goals, pay close attention to project development dynamics and market performance, and adjust investment portfolios in a timely manner.

6. Response and Prospects for High FDV and Low Circulation Tokens

In response to the recent prevalence of high FDV and low circulation tokens, Crypto exchanges Binance and OKX have successively adjusted their currency listing strategies, which has attracted widespread market attention. Binance stated that it will be the first to support small and medium-sized cryptocurrency projects and sincerely invites high-quality teams and projects to apply for Binance currency listing projects, including: Direct Listing, Launchpools, Megadrops, etc. We hope to promote the development of the blockchain ecosystem by strengthening support for small and medium-sized cryptocurrency projects with good fundamentals, organic community foundations, sustainable business models, and industry responsibility.

However, there are also voices pointing out that the currency listing adjustments of exchanges such as Binance only treat the symptoms but not the root cause. Lack of liquidity in the market remains a key issue, and low market capitalization does not mean good performance in the secondary market. Therefore, retail investors need to pay attention to investment strategies and avoid over-reliance on market enthusiasm and short-term fluctuations.

For high FDV and low circulation tokens, exchanges should consider lowering the token listing price and adhere to the principle of a reasonable lock-up period; project parties need to pay attention to token allocation and unlocking time, and Committed to creating valuable products and a healthy community ecology; VCs need to maintain price discipline and encourage founders to maintain a realistic attitude; while retail investors need to choose projects carefully and pay attention to the unlocking of tokens and the matching of internal and external values.

In general, high FDV and low circulation tokens not only affect the development and market performance of the project itself, but also affect the operation and development of the entire crypto ecosystem. High FDV and low circulation token projects need to build an ecosystem that can encourage all parties to contribute and benefit together to ensure the steady development and continued growth of the token.

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