The prevalence of tokens with high valuations and low initial circulating supply has been a topic of discussion among the crypto community in recent months. This stems from concerns that such a market structure leaves little sustainable upside for traders after the token generation event (“TGE”).
Data from CoinMarketCap and Token Unlocks confirm the growing trend of tokens launching with low circulating supply and high valuations. Notably, it is estimated that approximately US$155B worth of tokens will be unlocked from 2024 to 2030. Without a corresponding increase in buy-side demand and capital flows, the substantial amount of tokens coming onto the market poses selling pressure.
Factors such as an influx of private market capital, aggressive valuations, and upbeat market sentiment have contributed to the trend of tokens launching with high fully diluted valuations (“FDVs”).
The current market set-up makes it important for investors to be selective and discerning by considering fundamental aspects of a project, such as tokenomics, valuation, and product. Project teams may also need to consider the long-term implications of decisions made relating to tokenomics design.
VCs continue to play an important role in our industry and can work together with project teams to ensure equitable supply distributions and reasonable valuations.
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