Recently, the controversy over high FDV and low circulation tokens has been escalating. The prices of low circulation and high FDV tokens have continued to be sluggish, and a large number of retail investors have become "victims" of liquidity withdrawal. Since high FDV and low circulation tokens will lead to huge selling pressure when they are unlocked in the future, this is not good for the long-term development of the project and ordinary investors. How to rationally evaluate the value of high FDV and low circulation tokens is a much-troubled issue.
1. Overview of Circulation Volume, Market Capitalization, and FDV
Circulation volume, market capitalization and FDV are important indicators for evaluating the value of crypto project tokens. They are interrelated and together affect a project's performance and potential in the market.
1.1 Circulating Supply
Circulation refers to the amount of a crypto asset currently available for trading in the market. This concept is often used to measure the liquidity and market participation of a crypto asset. The calculation of circulation is usually based on the blockchain data of the project and the public information of the issuer. An accurate estimate of circulation is crucial for investors because it directly affects the supply and demand relationship and price fluctuations of the asset in the market.
The circulating supply can be regarded as the number of tokens that can actually flow freely in the market. The calculation method of circulating supply is generally to obtain the number of tokens that can be circulated from the total supply by subtracting the number of tokens that are locked or reserved. These locked or reserved tokens may include team holdings, fund lockups, etc.
1.2 Market Capitalization
Market capitalization refers to the current total market value of a crypto asset, and is often used to measure the size and importance of the asset in the market. Market capitalization is calculated by multiplying the circulation of the asset by the current price to get the total value of the asset in the market.
Market capitalization plays an important role in the crypto market because it reflects the overall market recognition and investment enthusiasm for the asset. A higher market capitalization usually means greater market recognition and higher investor confidence, but it may also indicate the existence of risks and bubbles.
1.3 Fully Diluted Valuation (FDV)
Fully diluted valuation refers to the total market value of a crypto project when considering all possible number of tokens issued. It includes the project's currently circulating tokens as well as all tokens that have not yet been issued but may be issued in the future.
FDV is calculated by multiplying the total supply of the project by the current price to get the total market value after taking into account all potential tokens issued. This indicator is often used to measure the potential market size and valuation ceiling of a project.
2. The impact of circulation, market value, and FDV on token value
By analyzing data such as circulation, market value and FDV, a certain degree of understanding of the current status and potential of the project is provided, which helps investors make rational investment decisions.
2.1 How does circulation affect token value?
Circulation directly affects the liquidity and market participation of a project. Projects with low circulation may be more susceptible to price fluctuations because the market trading volume is relatively small and more susceptible to a small number of large transactions. In addition, low circulation may also lead to an increased risk of market manipulation and price manipulation because a small number of transactions can have a greater impact on the market.
However, projects with lower circulation may also have greater growth potential. When a project has lower circulation, supply in the market is relatively scarce, which may lead to increased upward pressure on prices. Some investors will see low circulation as an opportunity for potential appreciation of the project, as prices may rise more significantly in the event of increased demand.
2.2 How does market capitalization affect token value?
Market capitalization is the total value of a project in the market, which is the product of the circulation and the current price. The size of the market capitalization reflects the overall market recognition and investment enthusiasm for the project. A higher market capitalization usually means greater market recognition and higher investor confidence, while a lower market capitalization may mean that the project has not been fully recognized by the market or has low market participation.
For investors, market capitalization provides an indicator of the size and importance of a project. However, investors should be aware that market capitalization does not necessarily reflect the true value of a project, as it is affected by many factors such as market supply and demand, investor sentiment, etc. Therefore, investors need to consider market capitalization and other indicators to evaluate the value of a project.
2.3 How does FDV affect the value of tokens?
FDV (fully diluted valuation) is the total market value after taking into account all possible number of tokens issued. It is the potential market size and valuation ceiling of a project. For investors, understanding the fully diluted valuation of a project helps them assess the potential growth space and investment value of the project.
Fully diluted valuation can help investors better understand the potential market size of a project. By comparing the current market value and fully diluted valuation, investors can judge the market recognition and growth space of the project. A lower market value relative to the fully diluted valuation may mean that the project has not been fully recognized yet and has greater growth potential.
However, investors should note that the fully diluted valuation is only a reference indicator, and the actual market performance may be affected by a variety of factors. Therefore, investors should consider the value of the project in combination with market capitalization, circulation and other factors.
3. Current status of high FDV and low circulation token market
According to Coingecko data, as of May 21, among the top 300 cryptocurrencies by market capitalization, 60, or 20%, have MC/FDV less than 0.5. This means that for every five cryptocurrencies with a higher market capitalization, one project has more than half of its token supply yet to be unlocked.
Among the top 300 cryptocurrencies by market capitalization, 15 have MC/FDV less than 0.2, including Worldcoin (WLD), Cheelee (CHEEL), Saga (SAGA), Ethena (ENA), Starknet (STRK), Jito (JTO), Ether.fi (ETHFI), ZetaChain (ZETA), Jupiter (JUP), Ondo (ONDO), AltLayer (ALT), Pixels (PIXEL), Dymension (DYM), Celestia (TIA), and Wormhole (W). The circulation of the first four tokens does not even exceed 10%, and they will be reviewed in detail below:
Worldcoin: Worldcoin is an emerging global cryptocurrency that aims to become the world's largest and most inclusive cryptocurrency network. The project has built a device called Orb that captures an image of a person's eyes and converts it into a short digital code to verify their identity. If not yet registered, users will receive a share of Worldcoin for free, and the original image does not need to be stored or uploaded. Some people believe that the FDV of WLD is already ridiculously high, and this price cannot be maintained. It is just a bubble that is riding on the popularity of AI. Others believe that the circulation of WLD is too low and its value is still subject to the willingness of market makers.
According to the white paper, the maximum circulating supply of WLD is 143 million, of which 100 million are loaned to overseas market makers and 43 million are allocated to users verified by Orb. Since the official launch of World App, a single user can receive a total of 77 WLD allowances. However, in some countries such as France and Hong Kong, WorldCoin faces regulatory pressure, which makes it impossible for some users to withdraw tokens. Therefore, the current WLD circulating tokens on the market include only two parts: one is the tokens in the hands of users who receive daily allowances through the APP and have withdrawn them, and the other is 10 million in the hands of market makers. This part of the circulation accounts for only about 1.33% of the total supply of WLD. In addition, considering that the unlocking period of WLD is 150 days, the FDV of WLD is not referenceable in the short term, and the claim that it exceeds the market value of OpenAI is more like an AI meme.
Cheelee: Cheelee is a short video platform with a Watch to Earn mechanism, which pays all users who watch content. Its mission is to allow all users to make money on social networks. Cheelee aims to promote Web3 and cryptocurrency adoption through the gaming community. Users can watch and generate gaming video content through their "NFT glasses", which can monitor video viewing time and convert it into corresponding points based on the length of time, which can then be exchanged for token rewards.
Cheelee It is the socialFi project that is closest to TikTok. The gameplay is almost the same as TikTok, and then the concept of watch to earn is added. It also adds the gameplay of the game, and finally realizes the most popular application in web2 in web3. For this kind of project, the best way is to watch to earn, rather than to take it in the secondary market. The future growth space depends on the strength of promotion.
Ethena: Ethena is building a derivatives infrastructure that enables Ethereum to transform into a global internet bond through a Delta-neutral position on stETH, creating the first crypto-native, yield-bearing stablecoin, USDe. Inspired by Arthur Hayes' "Dust to Crust" article, EthenaLabs is committed to creating a derivatives-backed stablecoin that solves the major problem of cryptocurrency's dependence on traditional banks. Their goal is to provide a decentralized, permissionless savings product to a wide audience. EthenaLabs' synthetic dollar USDe aims to be the first crypto-native, censorship-resistant, scalable and stable financial solution, achieved through Delta hedging of collateralized Ethereum.
Saga: Saga is a modular Layer1 platform tailored for the gaming industry. The Saga protocol simplifies the deployment process through Chainlet, a dedicated blockchain that developers can launch as easily as deploying smart contracts, integrating key elements such as data availability, consensus, execution, and settlement to create a seamless product experience. The Saga protocol runs on a fully decentralized proof-of-stake model, ensuring that each Chainlet maintains the same high security standards as the Saga mainnet and uses the same set of validators. In less than two years, Saga has successfully attracted 350 projects, 80% of which are focused on the gaming industry.
The top 10 projects with the lowest MC/FDV among the top 100 in market capitalization include:
4. Reasons and impacts of the prevalence of high FDV and low circulation tokens
The reasons and impacts of the prevalence of high FDV low circulation tokens are multifaceted. The prevalence of high FDV low circulation tokens is driven by factors such as the influx of private market capital, aggressive valuations, and optimistic market sentiment. However, this trend also brings negative effects such as increased selling pressure and project selection challenges, which require investors and project teams to carefully evaluate and deal with.
4.1 Reasons for the prevalence of high FDV and low circulation tokens
4.1.1 Capital influx from private markets : Venture capital (VC) funds are increasingly consolidating their position in the crypto space, making private market financing an important way for projects to obtain funding. As capital flows in, VC influence also increases, leading to higher valuations and an expansion in private market financing.
4.1.2 Aggressive Valuation : The optimistic sentiment in the market has driven investors’ preference for highly valued tokens, and they are willing to participate in the investment at a higher price. This sentiment has also prompted venture capital firms to be willing to pay higher valuations in private financing, thereby pushing up the FDV of tokens.
4.1.3 Optimistic market sentiment : In the context of positive market sentiment, it is easier for project teams to raise funds at high valuations. This market sentiment makes investors more willing to participate in projects at high valuations, while also providing projects with more fundraising opportunities.
4.1.4 Promotion of the points plan : The recently popular points plan attracts users to participate in the project by providing points rewards. A large number of users win points by actively participating in on-chain activities and thus obtain airdropped tokens. This model leads to an inflated FDV when the token is listed, but as a large number of users sell tokens after the airdrop, the market performance deteriorates.
4.2 Analysis of the impact of high FDV and low circulation on tokens
4.2.1 Increased selling pressure : The prevalence of high FDV and low circulation tokens has led to a large number of unlocked tokens entering the market, increasing selling pressure. According to Binance Research, approximately $155 billion worth of tokens will be unlocked from 2024 to 2030, which may have a negative impact on market prices.
4.2.2 Increased price volatility: High FDV low circulation tokens usually have lower circulation and a large number of unlocked tokens. Market participants must pay more attention to the supply and unlocking schedule of tokens. When the market circulation fluctuates, price fluctuations may increase.
4.2.3 Increased risk of market manipulation: High FDV low circulation tokens have limited circulation, which increases the risk of market manipulation. A small amount of transactions can have a greater impact on the market, providing more opportunities for manipulators. Manipulators can influence the price of tokens through large transactions or market manipulation to make profits.
4.2.4 Value bubble risk: For high-quality projects with high demand, high FDV is seen as an opportunity for potential value-added of the project, because the price may rise significantly when demand increases. However, if the growth of token demand cannot keep up with the rate of token inflation, high FDV may also indicate the existence of risks and bubbles.
5. How to correctly evaluate the value of high FDV and low circulation tokens
After discussing the phenomenon and driving factors of high FDV and low circulation tokens, we need to delve deeper into how to properly evaluate the value of these tokens. Although these tokens may enjoy high valuations in the market, investors still need to rationally evaluate their potential value and long-term prospects, and avoid blindly following the trend or being swayed by market sentiment.
1. Team background and strength : First of all, we should examine the team background and strength of the project. A team composed of experienced developers and industry experts may be more capable of achieving the vision and goals of the project, thereby increasing the long-term value of the token.
2. Project Vision and Technology Implementation : Evaluate whether the project’s vision is realistic and feasible, and whether its technology implementation can solve real-world problems. Innovative and forward-looking projects usually have higher growth potential.
3. Community and user base : Observe the project’s community and user base, including activity on social media, user engagement, and the quality of community building. An active and loyal community may increase the liquidity and market demand of the token.
4. Actual Application and Adoption : Understand the actual application scenarios and adoption of the project, as well as its partnerships with the real world. Whether the project has been applied in real scenarios and whether it has partner support will have an impact on the value of the token.
5. Competitive advantages and differentiation : Analyze the advantages and differentiation of the project in the same industry competition, and whether it has sustainable competitive advantages. Projects with unique technology, business model or market positioning may be more attractive.
6. Financial Status and Funding Management : Review the financial status and fund management of the project, including token allocation, fund operation and project development planning. Good fund management and transparent financial reporting can increase investor trust and project sustainability.
7. Risks and uncertainties : Identify the risks and uncertainties of the project, including technical risks, market risks, and legal risks. Understanding and evaluating the impact of these risk factors on the value of tokens will help make reasonable investment decisions.
Evaluating the value of high FDV low circulation tokens requires comprehensive consideration of multiple factors, and adopting a rational and objective attitude to analyze and judge. Investors should choose appropriate investment strategies based on their own risk tolerance and investment goals, pay close attention to the development dynamics of the project and market performance, and adjust their investment portfolios in a timely manner.
6. Response and prospects of high FDV and low circulation tokens
Recently, in response to the prevalence of high FDV and low circulation tokens, crypto exchage Binance and OKX have adjusted their listing strategies, which has attracted widespread attention in the market. Binance said it will take the lead in supporting small and medium-sized cryptocurrency projects, and sincerely invites high-quality teams and projects to apply for Binance listing projects, including: Direct Listing, Launchpools, Megadrops, etc. It hopes to promote the development of the blockchain ecosystem by strengthening support for small and medium-sized cryptocurrency projects with good fundamentals, organic community foundation, sustainable business model and industry responsibility.
However, some people pointed out that the adjustment of the listing of exchanges such as Binance is only a temporary solution. The lack of liquidity in the market is still the key to the problem, and a low market value does not mean good performance in the secondary market. Therefore, retail investors need to pay attention to investment strategies and avoid over-reliance on market heat and short-term fluctuations.
For high FDV and low circulation tokens, exchanges should consider lowering the token listing price and adhere to the principle of a reasonable lock-up period; project parties need to pay attention to token allocation and unlocking time, and strive to create valuable products and a healthy community ecosystem; VCs need to maintain price discipline and encourage founders to remain realistic; and retail investors need to carefully select projects and pay attention to the token unlocking situation and the degree of match between internal and external values.
In general, high FDV low circulation tokens not only affect the development and market performance of the project itself, but also affect the operation and development of the entire crypto ecosystem. High FDV low circulation token project owners need to build an ecosystem that can motivate all parties to contribute and benefit together to ensure the steady development and sustained growth of tokens.
