The exchange's surge in VC system tokens is blamed for the market downturn, data reveals the truth

Author: Nan Zhi, Odaily Planet Daily

Recently, amidst a market-wide decline, the view that exchanges excessively listing "VC series tokens" has drained market liquidity has gained significant traction. Anti-VC sentiments have been evident since the inscription era, reaching a peak as a banner and slogan during the meme coin surge, and this latest downturn has intensified this contradiction to a new height.

Did VC coins drain the market? Did exchanges facilitate this process? What are users' demands regarding new listings? Odaily will interpret these questions in this article.

Do "VC series tokens" siphon market funds?

Regardless of the impact of exchanges listing "VC series tokens," the core pathway for users entering crypto remains the purchase of USDT or USDC. The total supply of stablecoins somewhat represents the total liquidity in the market. Therefore, we will conduct a preliminary comparison between "stablecoin increment" and "VC token market cap increment."

Where did the incremental funds go?

A year ago, the circulating market cap of USDT was 83.2 billion USD, and it is currently 112.7 billion USD, an increase of 29.5 billion USD. Meanwhile, USDC rose from 28.4 billion to 32.6 billion USD, with an increment of 4.2 billion USD, bringing the total increment of both to 33.7 billion USD over the year.

The ten VC tokens listed in the last six months are as follows, with a total circulating market cap of 5.47 billion (all amounts in USD): PYTH (1.1 billion), ENA (950 million), STRK (900 million), ZRO (670 million), ZK (600 million), ETHFI (360 million), DYM (270 million), ALT (270 million), ATH (250 million), EZ (100 million).

In the second half of 2023, there are also heavyweight tokens like TIA (1.17 billion) and SEI (1.05 billion). Moreover, this circulating market cap is calculated based on a recent decline of at least 20%-30%. Therefore, we can draw a preliminary conclusion that at least over 50% of the incremental funds have been captured by dozens of "VC tokens."

Existing tokens also siphoning

ARB was launched in March 2023, with an initial circulating supply of 1.275 billion tokens, calculated at a price of 1.25 USDT, giving it an initial circulating market cap of 1.02 billion. Currently, ARB's circulating market cap is 2.5 billion, yet the token price has dropped by about 40%. If we interpret the rise in circulating market cap as net inflow of funds, but holders are still continuously losing value, then the funds must be flowing towards the unlocked portion.

The role of exchanges

In the previous section, we concluded that "VC tokens" indeed have a significant siphoning effect on funds. So, did exchanges facilitate this process?

Regarding this issue, Binance co-founder He Yi expressed his views on the X platform: "The crypto market is a free market, and liquidity and trading volume are shared across various trading platforms. Even if Binance does not list new projects, these projects still exist, and funds will be diverted across the entire industry. Besides the unlocking of VC-invested projects, meme coins, on-chain tokens, and funding schemes will also divert funds. After the approval of ETFs, traditional financial markets will also divert funds directly into the crypto space."

In summary, his viewpoint can be translated to "tokens not listed on exchanges can still be dumped by VCs in other venues" and "fund diversion cannot solely be blamed on VC unlocks." We have already proven in the previous section who the main players in fund diversion are through data. As for the former viewpoint, Odaily Planet Daily believes it overlooks two important factors: "user attributes in different scenarios" and "leverage ratios in different scenarios."

In on-chain scenarios, aside from users focused on DeFi farming or yield farming, due to low risk-reward ratios and the ability to quickly offload through AMM characteristics, most traders exhibit an "aversion" to high market cap projects. If a project has a circulating market cap in the hundreds of millions, with an FDV even higher, in the eyes of on-chain users, it would not differ much from the 90% SCAM tokens, leading to a significant decline in willingness to buy.

On the other hand, exchanges provide leverage capabilities far exceeding those on-chain, with leverage reaching dozens of times, providing ample liquidity for "offloading." The on-chain absorption capacity is far inferior to that of centralized trading markets after leverage.

Thus, the "user attributes" and "leverage ratios" in different scenarios significantly affect the willingness and ability to absorb unlocked VC tokens. If trading occurs outside of CEX, prices are more likely to quickly return to reasonable ranges, rather than gradually decline with unlocks, and the situation where circulating market cap rises while token prices fall may not occur. It cannot be said that centralized exchanges have no impact during the VC unlocking process.

Can exchanges do better?

For exchanges, projects like ZKsync and LayerZero, as long as the project team does not run away and hackers do not exploit them, there is no possibility of not listing them. However, for other tokens, users have many demands, and exchanges still have many better options.

Give "value" projects opportunities

Some valuable projects can generate extremely high profits and cash flow, such as the recent popular project Pump.fun, which has an annual income of up to 219 million USD, and many users are looking forward to its token issuance and are willing to buy. Other projects like BananaGun and Whales Market have also reached market caps of 160 million USD and 40 million USD, respectively.

The data for these projects is not constructed by VC orchestrations or yield farming interactions but is genuinely needed by users, growing step by step from small market caps to large ones. In the last bull market, SOL and MATIC were able to develop after being listed on exchanges with market caps in the tens of millions; however, we have not seen these projects receive the same opportunities and treatment this time.

Compared to projects that vanish after issuing tokens, giving more opportunities to valuable projects is one of the fundamental demands of many users.

Establish clearer standards

How to determine valuable projects? Judging by financial data is a very direct and effective method. Here, financial data does not refer to easily manipulated metrics like address counts or interaction numbers, but rather more concrete data such as TVL and project revenues. Some users question whether this might lead to projects catering to exchanges, but traditional markets like the US stock market do not decline due to clear standards; instead, they allow truly valuable projects to gain more opportunities, rather than some superficial AI projects, orchestrated schemes, or volume-filling projects.

Furthermore, we could even establish delisting standards for these projects, ensuring "liquidity is left for those who need it," guiding the market towards healthy development.

More transparent information disclosure

How are token operating data and how much unlocking will be faced at what time? There are currently no querying avenues for this data in exchanges, and the prevailing market view is that this is not the exchanges' obligation.

The power to go long or short lies entirely with the traders, but if exchanges clearly notify users of declining operating data and impending large unlocks, yet they still choose to buy, then there is no way to "shift the blame."

Conclusion

Attributing the entire market decline to exchanges is certainly not a completely accurate assertion, but believing that one is entirely correct and educating users is also not the best approach. As the party with the most voice and traffic in the industry, exchanges still have many better choices in guiding the healthy and rapid development of the industry and projects.