Research Summary
The report discusses the rising trend of tokens launching with high fully diluted valuations (FDVs) and low initial circulating supplies. It highlights the potential risks and implications of this trend, including the potential for significant selling pressure and inflated valuations. The report also explores the role of venture capitalists and the importance of tokenomics in the crypto industry.
Key Takeaways
Increasing Trend of High FDVs and Low Circulating Supplies
- High FDVs and Low Supplies: The report identifies a growing trend of tokens launching with high fully diluted valuations (FDVs) and low initial circulating supplies. This trend is raising concerns within the crypto community about the sustainability of price growth post-token generation event (TGE).
- Estimated Token Unlocks: Data reveals that an estimated US$155B worth of tokens are scheduled to unlock from 2024 to 2030. This substantial number of tokens entering the market could exert significant selling pressure unless matched by an equivalent rise in buy-side demand and capital inflows.
Role of Venture Capitalists in Crypto Industry
- VC Influence: Venture capitalists (VCs) remain influential in the crypto industry. They are urged to collaborate with project teams to promote equitable supply distributions and reasonable valuations. Cumulative VC funding in crypto projects since 2017 has surpassed $91 billion, indicating a steady rise in VC investment and influence on market valuations.
- High Initial Valuations: The influx of private market capital has led to higher initial valuations for tokens, often resulting in multi-billion dollar valuations at launch. This can make it difficult for public market investors to profit from future growth.
Importance of Tokenomics and Valuation Metrics
- Tokenomics and Valuation: Investors are advised to focus on fundamental aspects such as tokenomics, valuation, and product to navigate the current market setup effectively. Tokenomics design choices can have long-term effects on sustainable growth and value distribution.
- Unlock Schedules: The report emphasizes the importance of unlock schedules and vesting periods in tokenomics, as they can significantly impact token supply and prices if not aligned with demand.
Popularity of Meme Coins
- Meme Coins Performance: Meme coins have outperformed other narratives year-to-date, partly due to their token supply structures. All tokens are typically unlocked at Token Generation Event (TGE), eliminating future dilution selling pressure. This has attracted significant interest from retail investors.
- Market Cap/FDV Ratio: Meme coins often have a Market Cap/FDV ratio of 1 at launch, indicating no further dilution from token emissions, contributing to their appeal despite potential lack of utility.
Challenges of High Valuations
- Justifying High Valuations: Raising funds at high valuations can lead to challenges for projects, as they must justify the premium in future funding rounds or face potential declines in token prices towards their true value.
- Investor Losses: Overvalued fundraising can result in investor losses and difficulty for project teams to improve community sentiment if token prices fall.
Actionable Insights
- Consider Tokenomics: Investors should consider the tokenomics of a project before investing. This includes understanding the token allocation, unlock schedules, and the potential impact on token supply and prices.
- Research the Potential: Investors should research the potential of meme coins. Despite their lack of utility, these coins have shown significant performance due to their token supply structures and appeal to retail investors.
- Understand the Role of VCs: Understanding the role of venture capitalists in the crypto industry can provide insights into market valuations and the potential for future growth.
- Be Aware of High Valuations: Investors should be aware of the challenges associated with high valuations. High initial valuations can make it difficult for public market investors to profit from future growth, and overvalued fundraising can lead to investor losses.
