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Binance announces a strategic shift to support small to medium-sized crypto projects
Binance has announced a key change in listing strategy in response to widespread dissatisfaction with recent token listings. This promises to prioritize small-cap tokens, with an eye on sustainability and high FDV listing value. This will support small and mid-cap projects and contribute to healthier market conditions.
According to available data, almost 80% of the tokens listed on Binance have suffered sharp price drops in the last six months. This has been linked to the all-too-common case of tokens launching with unusually high FDVs but little initial supply in circulation. Tokens, in these cases, often fall victim to selling pressure when large numbers of tokens are unlocked, leading to dilution and subsequent price collapse.
“Launching tokens with a high, fully diluted valuation and low circulating supply may result in dilutions from future unlocks which may put selling pressure on the tokens,” Binance said in its latest announcement. This structure is driven by venture capital funding and a bull market, leading to unsustainable price appreciations followed by a decline after the TGE.
Binance’s new strategy
Therefore, Binance announced that it is willing to engage more with small and medium-sized projects to solve these problems. The exchange is looking for quality teams to allocate the majority of tokens to their community and maintain a small token float at launch.
“Take the initiative to engage in small and medium-sized projects,” Binance said, inviting such teams to apply for its programs, including Listing, Launchpool and Megadrop. She added that such projects should have “less allocation to non-community users” such as teams and venture capitalists, to have more equity in terms of token distribution.
Impact of token unlocks
In fact, a report from Binance Research highlights that the potential unlocking of tokens represents a potential impactful force. According to aggregate data from Token Unlocks and CoinMarketCap, approximately $155 billion worth of tokens will be unlocked between 2024 and 2030. Without increased demand from the buyer side, these breakouts can put substantial downward pressure on token prices.
Tokens launched in 2024 recorded the lowest MC/FDV ratios in recent years, i.e. only 12.3% MC/FDV ratio. This shows that many tokens have yet to be unlocked and that prices could fall further if supply is not supplemented by sufficient demand.
Private market capital has been extraordinarily influential on cryptocurrency market valuations. Since 2017, over $91 billion has been invested in crypto projects, driving up the price of tokens well before their public market launch. Cryptocurrency trading activity increased 52.1% quarter-on-quarter in the first quarter of 2024, signaling continued investor interest in funding projects at elevated levels.
However, this trend carries some long-term risks. Many new tokens have a comparable FDV to established Layer-1 or DeFi tokens, despite not having equivalent user traction and market presence. This is a sign of a misalignment of valuations with actual market demand, which can lead to overvaluation and subsequent correction.
Recommendations for sustainable growth
This puts the project into consideration in terms of tokenomics, valuation, product viability and team credentials. Binance Research emphasizes that a comprehensive understanding of unlock programs and carefully conducted due diligence are imperative to avoid the downsides of high FDV tokens.
“Tokenomics is undoubtedly one of the most important considerations for investors and project teams. Every design decision comes with its own set of benefits and trade-offs. While launching tokens with a low initial circulating supply can push initial prices, constant unlocking and issuing tokens creates selling pressure, weighing on long-term performance,” the report states.
A tokenomics design should be long-term for projects, ensuring fair distribution of tokens and keeping in mind the implications of having high FDVs and low floats. It also explains that future selling pressures can be reduced through strategies such as token burning, milestone-based vesting, and increasing initial circulating supply.