"High FDV + Low Circulation" Causes Discontent in the Community: Binance Takes the Lead in Adjusting Listing Strategy, What Should Project Teams and Retail Investors Do?
Recently, the controversy over high FDV and low circulation strategies has intensified. Cryptocurrency exchanges Binance and OKX have successively adjusted their listing strategies, particularly Binance's support for small and medium-sized projects, which has sparked heated discussions in the market.Author: Nancy, PANews
Recently, due to the prevalence of "high FDV + low circulation" tokens and the generally weak market performance, the community has seen a rise in anti-VC/value coin sentiment, further fueling the controversy between MEME and VC/value coins, with investment firms like a16z and Dragonfly actively participating in this heated debate.
As the controversy over high FDV and low circulation gameplay intensifies, cryptocurrency exchanges Binance and OKX have successively adjusted their listing strategies, particularly Binance's support for small and medium-sized projects, which has sparked heated discussions in the market.
Exchanges Adjust Listing Strategies, Small and Medium-Sized Projects Become Market Focus
On the evening of May 20, Binance announced a public recruitment plan for listing projects. According to the announcement, launching tokens with high valuations and low circulation will lead to significant selling pressure upon future unlocks, which is detrimental to ordinary investors and loyal community members of the projects. To cultivate a healthy industry ecosystem, Binance will take the lead in supporting small and medium-sized cryptocurrency projects. Binance invites quality teams and projects to apply for listings, including direct listings, Launchpools, and Megadrops. Binance hopes to promote the development of the blockchain ecosystem by supporting small and medium-sized projects with good fundamentals, organic community foundations, sustainable business models, and industry responsibility.
Subsequently, OKX also released an update on the token listing process, stating that all listings must undergo a thorough review process by the listing team and are subject to local legal restrictions. In the future, they will improve customer communication to provide users with more detailed information about listings.
In fact, the prices of tokens under the low circulation and high FDV model continue to languish, with many retail investors becoming "victims" of liquidity exits. The exchanges' adjustments to listing rules have naturally sparked discussions from various parties.
Some believe that application-based projects with technical capabilities and product execution will encounter more opportunities. For example, Allen Ding, founding partner of Nothing Research, tweeted, "In the current environment where European and American VCs hold pricing power, the low circulation combined with high FDV has become one of the main reasons for market bleeding. Binance's attention and launch of the public recruitment plan for listings may herald a spring for application-layer projects, especially for entrepreneurs with Chinese backgrounds, which I think is a great benefit. Most Chinese entrepreneurial teams are product-oriented/technical teams, with weak storytelling abilities but strong technology and product execution. Application-layer projects often win through scenarios and economic models, not relying on fancy narratives and strong VC endorsements, yet they can still achieve good data and growth capabilities. The arrival of the traffic era and the shift in Binance's listing aesthetics will present huge opportunities."
Ignas, co-founder of Pink Brains, believes that Binance's move will mark the beginning of a new trend, reducing token allocations to insiders/venture capitalists while recognizing and rewarding true users, and listing at lower market caps will leave room for new buyers to benefit from price increases.
Others have provided more suggestions regarding the listing process. For instance, Rui, head of investments at HashKey Capital, tweeted that every project listed on exchanges has too many stakeholders, and it's impossible to satisfy everyone. However, a fun mechanism could be tried. Each period, publicly release 3-5 due diligence reports on listed tokens and open a reporting channel, giving a time window for everyone to report the project's misconduct, then score the projects based on the reports, and publish the results to see what happens when PVP is taken to the extreme.
As Binance directly "named" small and medium-sized projects, the market believes this could drive the rise of community-driven or small yet beautiful projects, leading many community projects to begin submitting listing applications.
However, some community members pointed out that Binance's adjustments to listings are merely treating the symptoms rather than the root cause. Ultimately, the essence of the market's inability to absorb is still insufficient liquidity, and a low market cap does not necessarily mean good market performance in the secondary market; in contrast, retail investors need price increases more.
Why Has the Trend of Low Circulation and High FDV Issuance Emerged?
Low circulation and high FDV were once methods used by the bankrupt FTX/Alameda to build large reserve assets, but now they are becoming mainstream in the market.
According to PANews statistics, as of May 21, there are 7 projects in the top 100 by market cap with a circulation rate of less than 50%, among which JUP, STRK, ENA, and WLD are all below 20%. According to research data from CoinGecko in early May this year, cryptocurrencies with low circulation account for 21.3% of the top 300 by market cap, meaning that 1 in every 5 cryptocurrencies has most of its token supply yet to be unlocked, leading to a ratio of market cap to fully diluted valuation (FDV) of less than 0.5. Most low circulation cryptocurrencies are relatively new products in the market, and the upcoming token unlocks are expected to continue to exert pressure on the crypto market due to oversupply.
Moreover, the Binance Research Institute's latest report indicates that data from CoinMarketCap and Token Unlocks confirms that the trend of tokens being issued with low circulation supply and high valuations is on the rise, with approximately $155 billion worth of tokens expected to be unlocked from 2024 to 2030. If buyer demand and capital flow do not increase correspondingly, a large number of tokens entering the market will create selling pressure. To maintain the current prices of these tokens in the coming years, approximately $80 billion in incremental capital inflow will be needed to match the shares to be released.
Regarding this phenomenon of high valuation and low circulation, analyst Chen Jian believes there are two main reasons: first, there is a significant mismatch between the prosperity of the Web3 capital market and the scarcity of quality projects; second, there is a significant mismatch between the prosperity of the Web3 capital market and its actual value creation.
Cobie pointed out that in modern markets, almost all asset "price discovery" occurs outside the market, with these prices being privately divided long before the tokens actually exist. Due to the dynamics of the private placement market, many price discoveries are actually exaggerated. At the same time, the high FDV part is due to the natural growth of market demand; the current capital scale in the crypto field has increased 100 times, the supply of stablecoins has increased 100 times, and the demand for new quality cryptocurrency tokens has also increased 100 times. New tokens will be issued at higher prices because market demand is now higher, and the valuations of comparable projects are also much higher. Furthermore, low circulation itself is not necessarily a bad thing; it does not lead to an unhealthy market or represent a state of bad behavior.
Projects and Retail Investors Need to Adjust Strategies
In the current crypto market filled with low circulation and high FDV tokens, several institutions have provided corresponding improvements and response measures.
Binance pointed out in its report that in terms of token economics, projects should carefully consider token distribution, unlocking, and vesting timelines, and can increase circulation and reduce FDV by burning some tokens. Additionally, viable products are key to value creation, user retention, and sustainable growth, which can also demonstrate the reasonableness of high valuations, increasing the intrinsic value of tokens and aiding their price performance. Furthermore, VCs play a crucial role in the industry and need to conduct thorough due diligence and work with projects to ensure fair token supply distribution and reasonable valuations.
Dragonfly also published recommendations for exchanges, project teams, and retail investors: for exchanges, tokens should be listed at lower prices, adhering to the principles that "tokens need to have market-standard lock-up periods" and "tokens need to have market-standard lock-up periods," and better showcase FDV charts (for example, CoinGecko and DefiLlama both support FDV comparison features) and educate on token unlocks to retail investors; for project teams, they should not only strive to release more tokens on the first day but also conduct healthy airdrops and focus on creating something to be proud of and continue moving forward; for VCs, they should listen to market voices, maintain price discipline, and encourage founders to keep a realistic attitude towards valuations; for anonymous investors, they should be cautious of single-cause explanations and avoid investing in anything they are not willing to lose.
Analyst Chen Jian pointed out to retail investors that if it’s a new coin, they should take profits at most 2 times on Binance and not fantasize about larger gains, and avoid touching projects with a market cap over 1 billion on OKX as liquidity cannot support them; they should use projects that have already released at least 50% of their tokens in the previous round as one of the screening criteria and strictly monitor large unlocks in the holding list, not to be misled by the narrative that unlocks will drive prices up; since the rules of the game are already set, if one cannot become a rule-maker, they should aim to be a participant, trying to move towards the primary market and become an NPC in this game rather than a small monster used for leveling up and farming gold coins.
"Blockchain tokenomics centers on how to 'create and distribute value,' requiring the construction of an ecosystem that incentivizes all parties to participate, contribute, and benefit together," independent researcher Haotian also provided his insights on token economic models, stating that external channels like exchanges should provide liquidity, responsible for "value discovery," identifying tokens with sustainable growth and significant application scenarios to provide ample liquidity, and applying some leverage for "expectation" support. This process will yield a reasonable FDV growth curve based on project development, rather than a high FDV that exhausts "growth space" immediately upon listing; the community ecosystem itself should be responsible for "value support," allowing tokens to circulate efficiently within an internal economic system, creating real value for DApp users (such as mining, earning interest, arbitrage, etc.), and continuously expanding the DApp and user base to form a positive growth flywheel, supporting the external market's price valuation system, ensuring healthy interaction, and avoiding disconnection between internal value and external prices.
