This forecast underscores the growing trend of tokens launching with high valuations and low initial circulating supplies, a topic that has sparked considerable discussion within the crypto community.
Recent data from Token Unlocks confirm a significant trend in the crypto industry. Many tokens are entering the market with low circulating supplies but high valuations. This market structure raises concerns about the sustainable upside for traders after Token Generation Events (TGE). A report by Binance Research revealed that up to $155 billion worth of tokens is expected to be unlocked from 2024 to 2030, highlighting the risk of substantial selling pressure unless there is a corresponding increase in buy-side demand and capital flows.
Understanding the Market Dynamics
Looking at market capitalization to Fully Diluted Valuation (FDV) ratios, tokens launched in 2024 have a huge portion of their supply yet to be released. Many recently launched tokens have low circulating supplies, often below 20%. This low float, combined with high FDVs, explains why many new tokens have such high valuations comparable to established Layer-1 or DeFi tokens, despite lacking proven user traction.
For these tokens to keep their prices stable over the next few years, about $80 billion in new investments would be needed to balance the increased supply. This is a tough challenge, especially with market fluctuations.
Several factors have contributed to this trend. An influx of private capital has driven aggressive valuations, and optimistic market sentiment has supported these high valuations.
Implications For Investors and Project Teams
The current market conditions require investors to be more selective. To navigate this environment, investors should focus on a few key areas. It’s important to analyze unlock schedules and vesting schedules to understand potential increases in supply and the resulting selling pressures.
Comparing valuation ratios, like FDV/revenue and FDV/Total Value Locked, to those of competitors and past data can provide better insights than looking at FDV alone. Assessing the project’s stage of development and signs of market fit, such as daily active users and transaction volume, is also crucial. In addition, the skills of the project team and the level of community involvement are important factors in determining future success.
Project teams, on the other hand, need to be mindful of their tokenomics design. Balancing the initial supply with future unlock schedules is crucial to avoid sudden selling pressure. Transparency in how tokens will be released can help build trust with investors.
Focusing on the fundamentals is also key. Projects should ensure their products are well-developed and meet market needs. Strong user engagement and a solid team can attract and maintain investor interest.
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