Between 2024 and 2030, tokens worth approximately $155 billion from companies operating in the Web3 and blockchain market will be unlocked. Without increased demand from buyers, these unlocks could exert significant downward pressure on token prices, potentially leading to a decline in the value of many firms. This is particularly relevant for new projects that have recently debuted on the market, according to the latest report from Binance Research.
The crypto market has recently witnessed a trend where tokens of new companies are introduced with very high Fully Diluted Valuations (FDV) but low initial supply. This inflates the theoretical value of such companies, but in reality, many tokens are locked or unavailable for trading. This model is often driven by venture capital (VC) funding and optimistic market sentiment.
Up to 80% of currently locked tokens could enter circulation
Considering the market capitalization to FDV ratio, many recently introduced tokens have a low circulating supply, often below 20%. This low supply, combined with high FDV, explains the very high valuation of these tokens. Often, it is comparable to the valuations of established Layer 1 or DeFi tokens, despite the lack of a comparable user base.
To keep the prices of these tokens stable over the next few years, new investments worth approximately $80 billion would be needed to balance the increased supply. This is a challenging task, especially given market fluctuations, as noted by Binance Research analysts.
Therefore, the company recommends that investors exercise caution when making investments and focus on analyzing the fundamentals of projects, including their tokenomics, valuation, product profitability, and team credentials. Additionally, it is important to have a fundamental understanding of token unlocking schedules combined with thorough due diligence.
Implications for investors and crypto companies
“Tokenomics is undoubtedly one of the most important aspects that both investors and project teams should consider. While introducing tokens with a low initial circulating supply can drive up the price, continuous unlocking and further issuance of tokens create selling pressure, negatively affecting long-term performance,” the report states.
On the other hand, new Web3 and blockchain projects should adopt long-term thinking in designing tokenomics, ensuring fair distribution of tokens and considering the implications of high FDV valuations and low token supply. Strategies such as token burning, milestone-based vesting, and increasing the initial circulating supply can help mitigate future selling pressure.
“VC funds have an important role to play in collaborating with project teams to ensure fair distribution of token supplies and reasonable valuations,” concludes Binance Research.
