Author: dingalingts Compiler: Block unicorn
After reading many posts about high FDV/low circulation projects, I feel like they are missing a core part of the root cause. The phenomenon of only tokens falling after the fact is not only happening on Binance, but also on OKX and Bybit. We have always had high FDV (high valuation) and low circulation issuance in the past, but this time it is different. Here is my take on what happened/is happening:
1. At some point in the past few years, the top exchanges started to enforce strict requirements, like: "Hey, project, we want you to have crazy user numbers (500k+ MAU) or huge TVL (1B+ USD) before you are even considered for listing. We only list projects at TGE (token generation event) now, so you only have one chance, good luck."
2. For top-tier projects like Arbitrum and Optimism, this wasn’t a big deal before, as the mere speculation of a token airdrop was enough to get these users to start using their chain. The expected value for the effort required was very high, and if they decided to issue a token, they could be guaranteed to be listed on Binance or Coinbase on the first day, which was not possible before.
3. On the other hand, how can other projects without similar venture capital backing or well-known founders come close to these requirements? They don’t have a liquid token to incentivize activity, and the mere hint of an airdrop after the fact doesn’t seem worth anything for users (users just come for the airdrop, won’t do anything, and won’t stay in its ecosystem for 1 second).
To address this, some projects have started to roll out points programs that reward specific behaviors around on-chain activity, TVL (total locked value), and/or NFT holdings over time. It is almost certain that users will get a token at some point, and they will be rewarded in the future through airdrops.
If you are new, you may not believe it, but in the past, many projects would hold a Token Generation Event (TGE) on the same day as the product launch, and then use the token to incentivize dapp activity and trade token liquidity on decentralized exchanges. Without product market fit (PMF), the project and the token will die. If the project gains traction, then exchanges will monitor and list the token because users have shown natural demand.
The above is one of the main reasons why I believe things have gotten bad recently - points issued by projects are being allocated and valued in advance, far beyond the expected FDV in the months before the tokens are liquid.
Why is this a problem? This means that retail investors actually participate in highly valued projects with very little upside. Everyone's expected valuation of the project is basically similar, so their profit space is only to get a higher airdrop ratio better than other participants, which becomes a situation of players against players.
Do they really care about the protocols themselves? Most likely not. Will they stay with the project after the airdrop? Not likely, either, as high-productivity participation is often very exhausting.
4. Back to the project itself, with high incentives, any random project can gather "millions" of users and transaction data and show them to exchanges, even though most of the time these data are subject to great machine interference (sorry, but if you believe that a financial game project suddenly gained a million new users in a week, I don't know how to convince you).
5. What’s the worst part about this? Top exchanges didn’t seem to care about the quality of data presented to them, and still decided to launch some really questionable projects (such as Binance’s Ponzi scheme AI project TAO). I think they probably only saw the “heat” and “demand” of the project at the time (I think they realize it now, but it has already caused some impact).
5. This led to a ton of new projects popping up and targeting the points element directly to drive activity and total locked value. These projects often did the exact same thing, but each had a different token to mine. We started getting tweets every day about people making crazy amounts of money from these TGE airdrops.
6. But don’t get me wrong, I think points are great for attracting users to try your dapp/chain. If there weren’t any points given away, I might not try some projects at all, for better or worse.
7. However, the salient issue is that now that every project has some form of credits airdrop, the opportunity cost and lack of liquidity in the market has reached an all-time high. For example, users must choose between bridging ETH to Blast and mining for 6 months, or putting their liquidity into a re-staking protocol. In this kind of market, why would anyone buy a newly released token in the hope that it appreciates when you can use those funds to jump between different protocols and earn 100% APY in the form of an airdrop while keeping your capital?
For example, you put $10,000 into the protocol, did tasks every day for 3 months, and got a nice $5,000 airdrop at the TGE. Great, you find that the FDV at launch is $1 billion. Everyone is grinding points in anticipation of the $500 million FDV launch.
For a sane person, you would never hold onto this airdrop in the current market situation. You know that without the token, the protocol would have almost no users. You know that there is no need for a token at all, and you and all your mining friends have already quit. You sell all your tokens, wish the project well, and you sell the airdrop and move the funds you received to another protocol or chain, never looking back at the previous project.
How did a token get issued at a billion dollar valuation? Exchanges and VCs probably thought it was the way of the future of finance because of all the impressive numbers you and all your friends created together.
Imagine you take a construction job, work hard for months, and even spend money on tools, and finally get paid. You probably won’t say, “Okay, boss, I’m glad you’re holding my money for me, and we can move on to the next project.” More likely, you’ll lock up the money and pay the bills. In fact, now that your boss has told you how much you’ll be paying, you might take your tools elsewhere and look for a job that offers a bigger potential reward and doesn’t require you to share with other workers.
9. Now imagine you got the same airdrop value, but all you did was keep tweeting a ticker symbol every day for two months, and for some reason the exchanges really liked this (?). You mined gold despite being blocked by all your friends. You wonder how this fundamentally helped the project, you conclude it didn’t, and you sell .
10. To summarize, we have reached a point where market participants expect all projects to pay you for all your efforts on their protocols before the TGE, and the compensation should be generous.
Additionally, if a project offers a poor airdrop (price only drops/small amount allocated to the airdrop), you can be sure they will not attract high-quality users to stay in Q2 after the TGE.
All it takes is a few projects screwing up (which has already happened) for more people to sell their airdropped tokens on day one. The more people sell, the worse the charts will be for new tokens listed, which destroys any organic demand these tokens may have had previously. It’s an endless cycle, which then affects other projects with planned airdrops going on at the same time.
So how do we solve this problem?
First of all, I don't think VCs are to blame. Yes, they push up FDV, but they usually have a one-year lockup period, and we need to think why FDV is pushed up in the first place? Top VCs look for strong teams, good user traction/TVL, and good narratives. How does a project get user traction/TVL in the current market? Points, why are points important? It allows projects to show top exchanges why they are suitable for being listed/launched (I'm generalizing, by the way, there is a handful of top projects that don't care about exchanges at all).
I also don’t think we can blame project founders or users, who always show up and hold hands whenever there is an opportunity to make money. ICO, DeFi, NFT issuance, etc. This has become a feature of cryptocurrency, not a flaw.
So I guess this brings us to the point that CEXs currently have a lot of power. Even if that makes you uncomfortable, you have to acknowledge that in the current market, if a token is listed on Binance, its base valuation at the time of the TGE will be significantly higher than if it were not listed.
Here are a few things I would like top exchanges to do:
1. Start adding more projects that demonstrate high organic user demand to the tokens traded on the secondary market. Yes, self-hosted listings can be great business, but you are actually hurting the entire industry by forcing all projects to adopt a point system to meet your standards before the TGE.
2. Look for projects with real organic user and market fit where tokens are naturally integrated into the incentive chain.
3. Avoid listing tokens with extremely low circulation (<5%).
4. Don’t be fooled by air coin projects with fictitious data.
5. Reward teams that build real, loyal communities, not just those that come for the airdrop.
6. Actually hire analysts who understand what a “good” token should look like at the TGE, including plans for how the token will be used post-TGE.
7. Ask yourself if the airdrop recipient will sell or hold the tokens, if the answer is the former, use that as a criterion for listing rejection. This is just the tip of the iceberg for this question, there are many other factors that have been discussed in depth by others, so I will stop here.
