A top trader's love-hate relationship with Worldcoin

Author: Siwei Guai Guai, BlockBeats

Since its launch, Worldcoin has been daunting with its extremely high FDV, even sparking a prolonged debate about whether "FDV is a Meme."

After experiencing various high FDV/low circulating market cap tokens in the first half of this year, we now know that FDV is not a Meme. High FDV means a big cut!

But a big cut has its own means. Just as internal unlocks were about to begin, Worldcoin suddenly announced on July 16 at 9 PM that the unlock period for tokens allocated to the development company Tools for Humanity team members and investors would be extended from 3 years to 5 years.

With this simple announcement, WLD surged from 2.1 to a peak of 3.2 within 24 hours, an increase of over 50%. Some felt this was an epic good news, believing WLD still had room to grow; others thought it was just a ploy by the market makers to facilitate unloading after the unlock.

While opinions were divided, a top trader @DefiSquared (hereinafter referred to as Brother D) took action. At 5:30 PM on July 17, he released the most comprehensive research report on Worldcoin to date, titled “Worldcoin's Money-Making Scheme Part Two: Price Manipulation, Misleading Promotion, and Unwitting Victims.”

This was not his first research post about Worldcoin. Since Worldcoin's launch on July 24, 2023, he has been continuously investigating this project. Each time he released his findings, it was just before a significant price fluctuation of WLD. He has witnessed Worldcoin's rise to glory and anticipated that the project's inherent flaws would inevitably lead to its downfall. What he intends to do now is to personally push this project into the abyss.

In the following text, we will combine his various research reports to tell you about this top trader's love-hate relationship with Worldcoin.

First Investigation: The Enigmatic Token Economics

On July 24, 2023, the Worldcoin protocol officially launched on the OP (formerly Optimism) mainnet, and WLD was immediately listed on top CEXs like Binance and OKX, stabilizing above $2.

From day one, the enigmatic economics of Worldcoin's tokens left top trader Brother D perplexed. He asked on social media: "Worldcoin distributed about 25 WLD tokens to 90,000 participants, totaling 2.25 million tokens. So, who is selling a single order of 400,000 WLD, which is 20% of the entire global community supply? Can anyone provide more information about today's token distribution or where this supply comes from?"

The image attached by Brother D shows that someone placed a sell order of 397,400 WLD at $2.83.

In the comments, Blue Fox and Wintermute CEO Evgeny Gaevoy provided the answer: these are the tokens that Worldcoin lent to "financially experienced participants." The aforementioned 400,000 WLD order was the market maker of Worldcoin "making a market." And how many tokens do market makers have in total? According to a report by CoinDesk that day, Worldcoin stated that the maximum circulating supply of WLD at launch was 143 million tokens. Of these, 43 million would be allocated to users who completed verification before the launch, and another 100 million would be provided to non-U.S. market makers in the form of loans maturing in three months.

Interestingly, however, according to data from the Optimism browser checked by BlockBeats that day, the maximum supply of WLD - Optimism at launch reached 175,500,064 tokens, which is 32 million more than the official figure. It can be said that from day one, Worldcoin's token economics has been filled with various doubts.

Moreover, Brother D specifically quoted a comment from a netizen about the "market maker agreement," indicating that it piqued his interest. It turns out that the market maker agreement for WLD tokens allows them to repurchase the tokens they sold at a slightly higher price than $2 when the contract ends in three months, enabling them to sell tokens above $2 to lock in profits. This is also why WLD's price on CEXs can consistently remain above $2. This discovery allowed Brother D to accurately predict WLD's first price surge in mid-December 2023.

Second Investigation: The First High FDV / Low Circulation Token of 2023

As mentioned earlier, the market maker agreement of Worldcoin caught Brother D's interest. However, later in late October, Worldcoin issued an announcement regarding the extension of the market maker agreement, which did not attract his attention, so we will supplement it here.

In short, Worldcoin extended the original three-month market maker agreement by another two months, allowing five market makers to repay only 25 million WLD on October 24, while the remaining 75 million would be extended until December 15.

By December 16, the above agreement officially ended. Brother D excitedly stated on social media that there were reports that Worldcoin was updating its agreements with market makers, and this updated Worldcoin market maker agreement was one of the most favorable news he had ever seen.

What specific benefits did he analyze? First, according to the new market maker agreement, WLD market makers could no longer sell WLD risk-free as they did before, because they could no longer repurchase the WLD they sold from the foundation at about $2 each. In other words, WLD's price finally had a chance to rise without the suppression of market makers.

Secondly, the loan scale for market makers was reduced from 75 million to 10 million WLD, removing 65 million WLD from circulation. Due to these changes, Worldcoin's market cap dropped to only $190 million, which is severely undervalued considering its current AI narrative and associations.

In summary, WLD became a typical high FDV / low circulation token. At this time in 2023, retail investors had not seen such a situation, and seeing a low market cap AI concept coin related to OpenAI's Sam Altman, how could they not be tempted?

On that day, WLD surged 54%, rising from 2.4 to 4.6. However, this increase was not sustained, as it quickly fell back to 2.4. Many who were unaware of the inside story mistakenly took this surge as a news-driven rally because Worldcoin released an update on the World ID 2.0 protocol on December 13.

Third Investigation: "Hidden" Emissions Sound the Shorting Alarm

On February 16, 2024, OpenAI released the video generation model Sora. Compared to the update from ChatGPT 3.5 to 4, this video model attracted more attention both inside and outside the industry. Thanks to the OpenAI concept, WLD, LPT, and ARKM saw a frenzied rise in February. WLD surged directly from $2 to a peak of $12, nearly a fivefold increase in a month.

While everyone was going crazy over WLD, Brother D issued a warning — the extremely low circulation of WLD and its Meme status were being broken. He pointed out that new "hidden" emissions had begun to increase exponentially. Starting from the last week of February, Worldcoin would directly distribute over 10 million WLD to retail wallets (approximately $92 million at the time), and would continue to distribute at an even faster rate every two weeks.

At the same time, the Worldcoin Foundation had completely mastered the liquidity of the unlocked foundation treasury. Considering that Worldcoin's co-founder had bluntly stated last August that the original intention of the market maker agreement was to "prevent the price from skyrocketing to around $10," it is highly likely that the foundation would conduct over-the-counter (OTC) trading at the currently inflated price, thus forming a permanent top in an instant.

Brother D reminded that based on past bull market data, about 97% of the top 200 altcoins ultimately experienced a decline of 90% or more. WLD, as a Meme coin valued higher than OpenAI, would not be an exception.

Although he said this was a generational shorting opportunity, he also emphasized that such coins often rise to prices beyond expectations, and most people may not have the patience, margin, or willpower to withstand the pressure of shorting. Indeed, as he said, the market's madness can sometimes overwhelm everyone's rationality. After he released this investigation, WLD continued to rise from $8 to $12.

Fourth Investigation: Take Advantage of Your Illness to Take Your Life

On May 14, two and a half months after he released the last investigation, WLD's price had already dropped over 50% from its peak.

However, Brother D might not be too satisfied with his shorting results and seized on a new opportunity to strike Worldcoin hard.

On April 24, Worldcoin released an announcement stating that it expected to sell WLD tokens from the Worldcoin Foundation's subsidiary treasury over the next six months to meet the growing demand for World ID verified by Orb around the world.

Although Worldcoin emphasized that it would sell an average of 500,000 to 1.5 million WLD per week, which is less than 0.1% to 0.4% of the current weekly trading volume, Brother D calculated that over these six months, Worldcoin would sell tokens worth $200 million to trading firms, equivalent to 18% of the existing circulating supply. This portion of funds clearly belongs to the "community" part of the WLD token supply but is being used to sell to counterparties for the benefit of the foundation.

More importantly, after 70 days, the tokens for VCs and the team would begin to unlock, increasing WLD's supply by 4% daily. Based on a $60 billion FDV, this equates to nearly $50 million of continuous selling pressure every day. Brother D lamented that WLD was designed from the beginning with predatory token economics solely to make the team and early investors wealthy. He also reminded that if any strategic announcements are seen in the coming months, remember that this is just to ensure insiders can obtain exit liquidity at inflated valuations.

Fifth Investigation: Worldcoin's Declaration of War

As Brother D expected, on the occasion of the early contributor token unlock on July 24, Worldcoin indeed released a strategic announcement to pump the price: extending the unlock period for tokens allocated to the development company Tools for Humanity team members and investors from 3 years to 5 years. Everything seemed to be scripted in advance.

Brother D also unveiled his most comprehensive WLD short report ever, a true culmination of his work. In addition to reviewing how Worldcoin manipulated the price of WLD tokens through various means, he pointed out that Worldcoin would begin internal unlocks with the lowest circulating supply in industry history at 2.7%. This is the only factor that allows WLD to maintain a $30 billion FDV, and all of this is not for the purpose of achieving Universal Basic Income (UBI) as the team claims.

In fact, the token economics designed by the team will lead to most of the issuance next year flowing to insiders rather than UBI beneficiaries. Brother D calculated that even with the latest unlock schedule (reducing the daily unlock amount from 3.3 million to 2 million), nearly 1 billion tokens would flow to the team/VC in a year, while according to the current UBI distribution rate forecast, only 600 million tokens would be distributed to UBI beneficiaries by then. This means that within a year, the WLD issued to insiders is expected to account for over 60% of Worldcoin's total circulating supply.

Additionally, several other sources have increased the circulating supply, including the previously mentioned tokens sold at a discount to trading firms and rewards obtained by Orb operators. These "fat mice" are robbing the rights that originally belonged to UBI beneficiaries.

So the question arises: who are the retail investors in the eyes of the market makers under this high FDV feast? Brother D said it was the Koreans (he also dissed their poor English skills, saying they couldn't understand English to grasp the actual situation). Nearly 25% of the circulating WLD exists on Bithumb, and the holdings continue to grow.

Brother D concluded that Worldcoin's choice to release good news a week before the unlock was intentional, aimed at influencing the market at a critical moment. Only by having retail investors provide higher prices and more liquidity can insiders smoothly exit during the unlock. Even more outrageous, there are also insider trading activities using internal information to buy in advance before the announcement.

The chart provided by Brother D shows a coincidental surge in WLD prices in the 24 hours before the announcement.

Brother D stated that all of the above are his reasons for shorting WLD in the coming months. Having loved and hated, now let me personally send you to zero.

After sorting out Brother D's love-hate relationship with WLD, we can find that there is nothing new under the sun; high FDV is never a Meme. Trading tokens without considering FDV is like talking about feelings without material support. Young people, be realistic in relationships, and the same goes for trading tokens!