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Binance doubles down with low float and high FDV: call to action
There has been growing concern regarding the increased traction of tokens with high valuations but low initial circulating supply, sparking discussions about the sustainability of the upside potential for traders following the token generation event (TGE).
Binance Research’s latest findings have confirmed this trend, describing a growing number of tokens launched with limited circulating supply and inflated valuations.
High valuation, low liquidity crisis
An influx of private market capital, coupled with aggressive valuations and optimistic market outlook, has spurred the practice of launching cryptocurrency tokens at very high, fully diluted valuation points (FDV).
THE relationship estimates that tokens worth around $155 billion will be unlocked between 2024 and 2030. This significant influx of tokens into the market, without a commensurate increase in buy-side demand and capital flows, could exert substantial selling pressure, according to the report, which, in turn, would test the market’s ability to absorb these tokens without negatively impacting prices.
“In bullish market conditions, these tokens may experience rapid price appreciation due to limited liquidity available for trading at launch. However, it is clear that this type of price growth is unsustainable when a wave of token supply hits the market upon unlock.”
The analysis also highlights a growing gap between market caps and fully diluted valuations (FDV) for tokens launched in the last three years, with 2024 FDVs already approaching 2023 totals. Tokens launched in 2024 have a ratio MC/FDV averaged just 12.3%, implying that around $80 billion in new demand would be needed to accommodate future increases in supply and maintain current prices.
This appears to be mainly due to recent token launches with extremely low circulating supplies, often less than 20% of the total supply. With most tokens locked, their FDVs are inflated compared to current market caps.
Address the trend
AS reported Previously, well over 80% of newly listed cryptocurrencies experienced a decline in value on Binance.
It was also discovered that the majority of tokens recently listed on Binance forums are backed by top-tier venture capital firms launched at inflated valuations, with the average fully diluted valuation exceeding $4.2 billion at the time of listing and some tokens even surpass the $11 billion threshold. These projects have been observed to potentially lack an established user base or adequate community support.
To address the trend of tokens launching at high valuations with low initial circulating inventories, Binance did called to promote a healthy and sustainable market environment. The plan is for Binance to take the lead in engaging small and medium-sized projects and inviting high-quality teams and projects to apply for the exchange’s listing programs, such as direct listing, Launchpools, Megadrops, etc.