Original author: Kaori

Original source: BlockBeats

WLD’s rise from as high as $2 to $9 in a week sent excitement both inside and outside the AI ​​sector, but the crypto market was divided over WLD’s FDV.

FDV (Fully Diluted Valuation) refers to the fully diluted value of a token, which corresponds to the market cap (Market Cap) obtained by multiplying the current currency price by the current token circulation. FDV is the current currency price multiplied by the total supply of the token. an indicator of.

This is a very familiar term to Degen, but don’t worry if you have just heard of it. This article will use WLD as an example to explain the meaning of FDV to you. Should we still use FDV as a currency speculation in the new cycle? Reference indicators, and what new perspectives FDV reflects on understanding the market.

Is WLD’s FDV of reference value?

The current circulating supply of WLD is approximately 130 million, with a market value of US$1.1 billion at the time of writing, ranking 76th; while its total supply is 10 billion, FDV has reached US$85.6 billion, surpassing first-tier public chains such as SOL and BNB. , even the market value of OpenAI, the world leader in AI concepts.

This is where the market differences appear. Some people think that WLD’s FDV has been ridiculously high and that this price is completely unsustainable and is just a bubble riding on the popularity of AI. Others think that WLD’s circulation is ridiculously low and it needs to be considered. No matter how far market players are willing to go, FDV is just a bluff.

The Worldcoin white paper shows that the maximum circulating supply of WLD at launch is 143 million, of which 100 million WLD will be loaned to market makers outside the United States, and 43 million WLD will be distributed to users who pass Orb verification during the test launch phase. Since the official launch of World App, a single user can receive a total of 77 WLD subsidies. However, in France, Hong Kong and other places, WorldCoin faces great regulatory pressure. Offline iris scanning equipment and sites are subject to certain restrictions, and a large part of the tokens in the hands of users cannot be withdrawn.

On the other hand, five WLD market makers returned 25 million WLD at the end of October last year, and the remaining 75 million WLD was returned to the Worldcoin project on December 15. Subsequently, Worldcoin said it had finalized a new loan agreement with these five market makers, which will take effect on December 16, 2023. This time, the total loan amount is 10 million WLD with a term of 6 months.

Therefore, the WLD circulating tokens currently on the market only include two parts. One is the part of tokens in the hands of users who have received daily allowances through the APP and have withdrawn cash, and the other is the 10 million in the hands of market makers. This part of the circulation The amount only accounts for 1.33% of the total supply of WLD. In addition, the unlocking period of WLD is after 150 days. Therefore, the FDV of WLD is not referenceable in the short term, and the statement that it exceeds the market value of OpenAI is more like an AI meme.

If you don’t pay attention to FDV, what should you pay attention to?

Who should watch FDV when speculating in currencies?

For those who need to hold a certain currency for a long time, such as institutions or stable investors, they need to use FDV for post-investment management or position management. At this time, FDV combined with market capitalization is an effective indicator for monitoring the prospects of tokens, allowing investors to better judge whether the value of a project deviates extremely from the standard. But for ordinary retail investors, the main considerations when trading short-term should be the supply and demand relationship of tokens, as well as narrative and sentiment. And if you pay attention to FDV, you also need to combine the token issuance schedule.

The fact that FDV has become less important actually reflects some changes in the encryption industry, and it is these changes that require us to pay attention to things other than FDV.

Supply and demand

First of all, the number of people in the entire crypto industry is increasing. In the past, there were only ICOs and retail investors, but now there are more and more buyers and more stakeholders. A large project requires several rounds of financing, selling coins, airdrops, market makers, CEX and many other aspects that affect the supply and demand relationship of tokens. In such an industry development context, the FDV reflected in the total supply of tokens will not have reference value within a certain period of time.

The demand is increasing, so the total amount of tokens is getting larger and larger, and the linear unlocking time period is getting longer and longer. Looking at the good side of the project and hoping that new people can buy their own coins when they come in is a manifestation of some kind of long-termism. If you want to reduce the impact of FDV on token prices, the project team needs to continue to work hard on unlocking opportunities and creating demand.

Left: FTT unlocking timeline; Middle: OP unlocking timeline; Right: STRK unlocking timeline (not updated to the latest version)

The impact of the unlocking timeline on currency prices can be taken as an example of the king project Starknet, which has recently completed an airdrop. StarkWare announced that it will adjust the STRK token unlocking plan for its early contributors and investors, from releasing 1.3 billion tokens at once on April 15. Only 64 million tokens will be unlocked and then released linearly in a more gradual manner. Following the news, STRK price surpassed $2, up 14% from its previous price. STRK FDV is still large at this time, but the market reaction has clearly digested this benefit.

STRK 24-hour price chart

The launch of STRK can provide a glimpse into the short-term price impact of supply and demand on a large project token. Why did Starknet become a stand-alone currency when it was listed on Binance? Because the airdrop claim on the chain was blocked at that time, large investors were unable to sell, and several major market makers deposited coins into CEX, resulting in relatively high short-term demand and supply exceeding demand. As for the long-term supply and demand relationship, the project party needs to balance the interests of all parties, but FDV is no longer a necessary factor to consider for such large projects with a long unlocking time.

Let’s take WLD as an example again. We roughly calculated in the previous article that the current circulating supply in the market only accounts for 1.3% of the total supply, of which market makers hold 1%. From the perspective of pulling the market, WLD’s FDV at this time has no Reference value. Because there are very few Orbs decided to be released by WLD, there are very few people who can actually withdraw coins from the APP.

In short-term operations, emotion is king

In addition to supply and demand, the logic of WLD’s rise also needs to consider the power of narrative. A week ago, OpenAI launched Sora, a large Vincent video model. WorldCoin, as an encryption project dubbed Sam Altman since its launch, also benefited from this wave of sentiment in the AI ​​sector. After a slight decline yesterday, WLD's price remained in the $8 range thanks to an increase in Nvidia's earnings report.

Arthur Hayes once said, “I would rather invest in a token with a perceived probability of success of 0.01% and a narrative in the viral growth stage than in a token with a perceived probability of success of 50%, but with a narrative that has reached the common sense stage. If the probability of success Go from 0.01% to 1%, because this narrative quickly affects a lot of people, and my money will increase 100 times.”

Qiangzhuang's market control meets the boom of the AI ​​industry. The logic of WLD's rise is actually very easy to understand. On the contrary, people who talk about FDV today are reminiscent of the somewhat humorous saying "When you want to FUD, say FDV, when you want to order, say MC."

real money

The market is good because there is sufficient liquidity. BTC’s February market can be verified through the inflow and outflow of funds in ETFs. On February 14, CoinShares head of research James Butterfill said that since the launch of the Bitcoin spot ETF, net inflows have totaled more than $4 billion. A week later, the cumulative net inflow of Bitcoin spot ETF exceeded US$5 billion, reaching US$5.052 billion.

Yesterday, according to BitMEX Research data, there was a net outflow of US$35.7 million from all U.S. spot Bitcoin ETFs on February 21, which was the first net outflow since January 25 (a total of 17 trading days).

Due to the popularity of re-staking, a large part of ETH has been invested in this popular project on the track. From the beginning of Blast's lock-up and staking to the rise of LRT driven by Pendle's pull, and the continued attraction of leading projects such as EigenLayer, the circulation of ETH decreased during this period, which was also reflected in the price level.

We can’t accurately predict the price performance of the token market, but we can pay attention to money, which can provide more timely feedback on the market situation than looking at the ratio of market capitalization divided by FDV.

Is FDV still valuable?

This market is becoming more and more professional, and its price discovery capabilities are becoming stronger. So does FDV have any value? We are still seeing the impact of FDV on pricing, at least on some large flagship projects.

For example, the price of OP Mainnet and Arbitrum, the two leading players in Layer 2, has basically remained at twice that of ARB. The price difference between the two is because OP’s FDV used to be half of ARB, although the circulation volume of OP was only higher than that of ARB. ARB is about 300 million less.

The picture on the left shows the price trend of OP, and the picture on the right shows ARB;

The widespread adoption of OP Stack has laid a certain foundation for the demand for OP, but as Arbitrum Orbit continues to work hard to improve its technology stack and decentralized governance, this marathon race on Layer 2 is far from over. As competition intensifies, if the future transaction demand for ARB exceeds OP, even if ARB's FDV is still higher than OP, it will be reflected in the price that ARB will exceed OP.

It can be seen that market logic and standards are also changing, and the substantial gap between ARB and OP can be regarded as a bellwether for the success or failure of FDV theory. If the market value of ARB gradually exceeds that of OP in the future, investors who insist on the supremacy of FDV may have to rethink the market logic. But no matter what, you won’t be able to move forward by focusing on a single indicator in the crypto market.