The prevalence of high FDV and low circulating supply tokens: false prosperity or a promising future
The lack of liquidity in the market remains a key issue, and a low market capitalization does not imply good performance in the secondary market.Recent controversies regarding high FDV and low circulating supply tokens have escalated, with the prices of tokens with low circulation and high FDV remaining sluggish, causing many retail investors to become "victims" of liquidity exit. The high FDV and low circulation of tokens can lead to significant selling pressure when they are unlocked in the future, which is detrimental to the long-term development of projects and ordinary investors. How to rationally assess the value of high FDV and low circulating supply tokens is a troubling issue.
1. Overview of Circulating Supply, Market Capitalization, and FDV
Circulating supply, market capitalization, and FDV are important indicators for evaluating the value of cryptocurrency project tokens. They are interrelated and collectively influence a project's performance and potential in the market.
1.1 Circulating Supply
Circulating supply refers to the quantity of a cryptocurrency asset that is currently available for trading in the market. This concept is typically used to measure the liquidity and market participation of a cryptocurrency asset. The calculation of circulating supply is usually based on the project's blockchain data and the issuer's public information. Accurate estimation of circulating supply is crucial for investors, as it directly affects the supply-demand relationship and price volatility of the asset in the market.
Circulating supply can be viewed as the number of tokens that can actually flow freely in the market. The calculation method for circulating supply generally involves subtracting the number of tokens that are locked or reserved from the total supply to obtain the number of tokens that are circulating. These locked or reserved tokens may include those held by the team, locked in funds, etc.
1.2 Market Capitalization
Market capitalization refers to the current total market value of a cryptocurrency asset, usually used to measure the scale and importance of the asset in the market. The calculation method for market capitalization is to multiply the circulating supply of the asset by its current price to obtain the total market value of the asset.
Market capitalization plays an important role in the cryptocurrency market, as it reflects the overall recognition and investment enthusiasm for the asset. A higher market capitalization usually indicates greater market recognition and higher investor confidence, but it may also imply the presence of risks and bubbles.
1.3 Fully Diluted Valuation (FDV)
Fully diluted valuation refers to the total market value of a cryptocurrency project when considering all possible issued token quantities. It includes both the tokens currently in circulation and all tokens that have not yet been issued but may be issued in the future.
The calculation method for FDV is to multiply the total supply of the project by the current price to obtain the total market value considering all potential issued token quantities. This indicator is typically used to measure a project's potential market size and valuation ceiling.
2. The Impact of Circulating Supply, Market Capitalization, and FDV on Token Value
Analyzing data such as circulating supply, market capitalization, and FDV provides a certain degree of understanding of a project's current status and potential, helping investors make rational investment decisions.
2.1 How Circulating Supply Affects Token Value
Circulating supply directly affects a project's liquidity and market participation. Projects with lower circulating supply may be more susceptible to price fluctuations, as the market trading volume is relatively small and can be easily influenced by a few large transactions. Additionally, low circulating supply may also increase the risk of market manipulation and price manipulation, as a small number of transactions can have a significant impact on the market.
However, projects with lower circulating supply may also have greater growth potential. When a project's circulating supply is low, the supply in the market is relatively scarce, which may increase upward price pressure. Some investors view low circulating supply as an opportunity for potential appreciation of the project, as prices may rise significantly in the event of increased demand.
2.2 How Market Capitalization Affects Token Value
Market capitalization is the total value of a project in the market, calculated as the product of circulating supply and current price. The size of market capitalization reflects the overall recognition and investment enthusiasm for the project. A higher market capitalization usually indicates greater market recognition and higher investor confidence, while a lower market capitalization may suggest that the project has not been fully recognized by the market or that market participation is low.
For investors, market capitalization provides a measure of a project's scale and importance. However, investors need to be aware that market capitalization does not necessarily reflect the true value of a project, as it is influenced by various factors such as market supply and demand, investor sentiment, etc. Therefore, investors need to consider market capitalization along with other indicators to assess a project's value.
2.3 How FDV Affects Token Value
FDV (Fully Diluted Valuation) is the total market value considering all possible issued token quantities and represents a project's potential market size and valuation ceiling. For investors, understanding a project's fully diluted valuation helps them assess the potential growth space and investment value of the project.
Fully diluted valuation can help investors better understand a project's potential market size. By comparing current market capitalization with fully diluted valuation, investors can gauge the project's market recognition and growth potential. A lower market capitalization relative to fully diluted valuation may indicate that the project has not been fully recognized and has significant growth potential.
However, investors need to note that fully diluted valuation is only a reference indicator, and actual market performance may be influenced by various factors. Therefore, investors should consider market capitalization, circulating supply, and other factors comprehensively when assessing a project's value.
3. Current Market Status of High FDV and Low Circulating Supply Tokens
According to CoinGecko data, as of May 21, among the top 300 cryptocurrencies by market capitalization, there are 60 tokens with an MC/FDV of less than 0.5, accounting for 20%. This means that for every 5 high market capitalization cryptocurrencies, 1 project has more than half of its token supply yet to be unlocked.
Among the top 300 cryptocurrencies, there are 15 tokens with an MC/FDV of less than 0.2, including 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), and Wormhole (W). The circulating supply of the top 4 tokens is even less than 10%, which will be highlighted below:
Worldcoin: Worldcoin is an emerging global cryptocurrency aimed at becoming the largest and most inclusive cryptocurrency network in the world. The project has built a device called Orb that captures an individual's eye image and converts it into a short digital code to verify their identity. Users who have not yet registered will receive Worldcoin shares for free, and the original image does not need to be stored or uploaded. Some believe that WLD's FDV has reached an outrageous level, making it unsustainable, viewing it as a bubble riding on AI hype. Others argue that WLD's low circulating supply restricts its value based on the willingness of market makers.
According to the white paper, WLD's maximum circulating supply is 143 million tokens, of which 100 million tokens are loaned to overseas market makers, and 43 million tokens are allocated to users verified through Orb. Since the official launch of World App, a single user can receive a total of 77 WLD allowances. However, in some countries like France and Hong Kong, WorldCoin faces regulatory pressure, causing some users' tokens to be unable to be withdrawn. Therefore, the current circulating tokens of WLD in 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 them, and the other is the 10 million tokens held by market makers. This circulating supply only accounts for about 1.33% of WLD's total supply. Additionally, considering that WLD has a 150-day unlocking period, the FDV of WLD is not referenceable in the short term, and the claim of exceeding OpenAI's market capitalization seems more like an AI meme.
Cheelee: Cheelee is a short video platform with a Watch to Earn mechanism, which pays all users who watch content. Its mission is to enable all users to earn money on social networks. Cheelee aims to drive Web3 and cryptocurrency adoption through the gaming community, allowing users to watch and generate game video content through its "NFT glasses," which can monitor video watching time and convert it into corresponding points that can be redeemed for token rewards.
Cheelee is currently the closest socialFi project to TikTok, with gameplay almost akin to TikTok, combined with the watch to earn concept and gaming elements, finally achieving what is currently the hottest application in Web2 within Web3. For such projects, the best approach is to watch to earn rather than engage in the secondary market, as future growth potential depends on the strength of promotion.
Ethena: Ethena is building a derivatives infrastructure that enables Ethereum to transform into a global internet bond through Delta neutral positions on stETH, thereby creating the first crypto-native, yield-bearing stablecoin, USDe. EthenaLabs is inspired by Arthur Hayes' "Dust to Crust" article and is committed to creating a derivatives-backed stablecoin to address the significant issue of cryptocurrency dependence on traditional banks. Their goal is to provide a decentralized, permissionless savings product for a broad audience. EthenaLabs' synthetic dollar, USDe, aims to become the first crypto-native, censorship-resistant, scalable, and stable financial solution achieved through Delta hedging of collateralized Ethereum.
Saga: Saga is a modular Layer 1 platform tailored for the gaming industry. The Saga protocol simplifies the deployment process through Chainlet, a dedicated blockchain that developers can easily launch like deploying smart contracts, integrating key elements such as data availability, consensus, execution, and settlement to create a seamless product experience. The Saga protocol operates 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 validator set. In less than two years, Saga has successfully attracted 350 projects, with 80% focused on the gaming industry.
The Top 10 projects with the lowest MC/FDV in the top 100 by market capitalization include:
4. Reasons and Impacts of the Prevalence of High FDV and Low Circulating Supply Tokens
The prevalence of high FDV and low circulating supply tokens is driven by multiple factors. The influx of private market capital, aggressive valuations, and optimistic market sentiment have collectively propelled the rise of high FDV and low circulating supply tokens. However, this trend has also brought about negative impacts such as increased selling pressure and challenges in project selection, requiring careful evaluation and handling by investors and project teams.
4.1 Reasons for the Prevalence of High FDV and Low Circulating Supply Tokens
4.1.1 Influx of Private Market Capital: Venture capital (VC) funds are increasingly solidifying their position in the crypto space, making private market financing an important avenue for projects to secure funding. As capital flows in, the influence of VCs also increases, leading to higher valuations and an expansion of private market financing scales.
4.1.2 Aggressive Valuations: Optimistic sentiment in the market drives investors' preference for overvalued tokens, as they are willing to invest at higher prices. This sentiment also encourages venture capital firms to pay higher valuations in private financing, thereby pushing up the FDV of tokens.
4.1.3 Optimistic Market Sentiment: In a context of positive market sentiment, project teams find it easier to raise funds at high valuations. This market sentiment makes investors more willing to participate in projects at high valuations, while also providing more fundraising opportunities for projects.
4.1.4 Incentive Programs: Recently popular incentive programs attract users to participate in projects by offering point rewards, with a large number of users earning points through active participation in on-chain activities to receive airdropped tokens. This model leads to inflated FDV at the time of token listing, but as many users sell their tokens after the airdrop ends, market performance deteriorates.
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 circulating supply tokens leads to a large number of tokens entering the market after unlocking, increasing selling pressure. According to Binance research reports, approximately $155 billion worth of tokens are expected to be unlocked from 2024 to 2030, which may negatively impact market prices.
4.2.2 Increased Price Volatility: High FDV and low circulating supply tokens typically have lower circulating volumes and a large number of unlocked tokens, requiring market participants to pay closer attention to the supply and unlocking schedule of the tokens. When market circulation experiences fluctuations, price volatility may intensify.
4.2.3 Increased Risk of Market Manipulation: The limited circulating supply of high FDV and low circulating supply tokens increases the risk of market manipulation. A small number of transactions can significantly impact the market, providing more opportunities for manipulators. Manipulators can influence token prices through large transactions or market manipulation tactics to profit.
4.2.4 Risk of Value Bubbles: For high-quality projects with high demand, high FDV is seen as an opportunity for potential appreciation, as prices may rise significantly with increased demand. However, if the growth in token demand does not keep pace with the rate of token inflation, high FDV may also indicate the presence of risks and bubbles.
5. How to Properly Assess the Value of High FDV and Low Circulating Supply Tokens
After discussing the phenomenon and driving factors of high FDV and low circulating supply tokens, we need to delve into 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, avoiding blind following or being swayed by market sentiment.
Team Background and Strength: First, examine the project team's background and strength. A team composed of experienced developers and industry experts may be more capable of achieving the project's vision and goals, thereby increasing the long-term value of the token.
Project Vision and Technical Implementation: Assess whether the project's vision is practically feasible and whether its technical implementation can solve real-world problems. Innovative and forward-looking projects typically have higher growth potential.
Community and User Base: Observe the project's community and user base, including activity on social media, user engagement, and the quality of community building. An active and loyal community may increase the liquidity and market demand for the token.
Actual Application and Adoption: Understand the project's actual application scenarios and adoption, as well as its partnerships with real-world entities. Whether the project has already been applied in real scenarios and whether it has partner support will impact the token's value.
Competitive Advantage and Differentiation: Analyze the project's advantages and differentiation in competition within the industry, as well as whether it possesses sustainable competitive advantages. Projects with unique technologies, business models, or market positioning may be more attractive.
Financial Status and Fund Management: Review the project's financial status and fund management, including token distribution, fund operations, and project development plans. Good fund management and transparent financial reporting can increase investor trust and the project's sustainability.
Risks and Uncertainties: Identify the project's risk and uncertainty factors, including technical risks, market risks, and legal risks. Understanding and assessing these risk factors' impact on token value can help formulate reasonable investment decisions.
Assessing the value of high FDV and low circulating supply tokens requires a comprehensive consideration of multiple factors and an analytical and objective approach. Investors should choose appropriate investment strategies based on their risk tolerance and investment goals, closely monitor project developments and market performance, and adjust their investment portfolios in a timely manner.
6. Responses and Prospects for High FDV and Low Circulating Supply Tokens
Recently, in response to the prevalence of high FDV and low circulating supply tokens, cryptocurrency exchanges Binance and OKX have adjusted their listing strategies, attracting widespread attention in the market. Binance stated that it will first support small and medium-sized cryptocurrency projects, inviting quality teams and projects to apply for Binance listing projects, including: Direct Listing, Launchpools, Megadrops, etc. The goal is to strengthen support for small and medium-sized cryptocurrency projects with good fundamentals, organic community foundations, sustainable business models, and industry responsibility to promote the development of the blockchain ecosystem.
However, some voices point out that the listing adjustments by exchanges like Binance are only a temporary fix. The lack of liquidity in the market remains a key issue, and low market capitalization does not necessarily mean good performance in the secondary market. Therefore, retail investors need to pay attention to investment strategies and avoid over-reliance on market hype and short-term fluctuations.
For high FDV and low circulating supply tokens, exchanges should consider lowering the listing price of tokens and adhere to reasonable lock-up period principles; project teams need to focus on token distribution and unlocking timelines, and strive to create valuable products and healthy community ecosystems; VCs should maintain price discipline and encourage founders to keep a realistic attitude; while retail investors need to carefully select projects, paying attention to token unlocking situations and the degree of alignment between internal and external value.
In summary, high FDV and low circulating supply tokens not only affect the development and market performance of the projects themselves but also influence the operation and development of the entire cryptocurrency ecosystem. Project teams of high FDV and low circulating supply tokens need to build an ecosystem that incentivizes all parties to contribute and benefit together to ensure the stable development and continuous growth of the tokens.
