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Binance Research Estimates Token Unlocking to Reach $155 Billion by 2030
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The cryptocurrency market has recently witnessed a trend of launching tokens with high fully diluted valuations (FDV) but low initial circulating inventories.
This structure, often driven by venture capital (VC) funding and market optimism, can lead to unsustainable price appreciation post-token generation event (TGE) and significant selling pressure once tokens are unlocked.
According to a recent release relationship from Binance Research, aggregate data from Token Unlocks and CoinMarketCap indicates that approximately $155 billion worth of tokens will be unlocked between 2024 and 2030.
Binance Research suggests that without an increase in buy-side demand, these breakouts could put substantial downward pressure on token prices. Tokens launched in 2024 exhibited the lowest market capitalization (MC) to FDV ratios in recent years, highlighting the prevalence of low-circulation supplies at launch.
The MC/FDV ratio for tokens launched in 2024 is just 12.3%, suggesting that significant value of tokens will be unlocked in the future.
The inflow of private market capital has significantly affected cryptocurrency market valuations. Since 2017, over $91 billion has been invested in crypto projects, driving up token prices even before launching on the public market. In the first quarter of 2024, cryptocurrency trading activity increased by 52.1% quarter-on-quarter, indicating a strong willingness among investors to fund projects at high valuations.
Notably, cryptocurrency market capitalization also increased by 61% over the same period, fueling positive investor sentiment and allowing projects to raise substantial capital with less dilution.
This trend poses long-term risks associated with inflated valuations, the research report said. Many new tokens have FDVs comparable to established layer-1 or DeFi tokens, despite lacking similar user traction and market presence. This discrepancy suggests a misalignment between valuations and actual market demand.
To this end, Binance Research advised investors to emphasize project fundamentals such as tokenomics, valuation, product viability, and team credentials. By extension, a basic understanding of how unlock programs work, coupled with thorough due diligence, would be crucial to avoiding the pitfalls of high FDV tokens, the paper suggests.
“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 low initial circulating supply can push initial prices, constant unlocking and issuance of tokens creates selling pressure, weighing on long-term performance,” the report states.
Projects, on the other hand, should take a long-term view in designing tokenomics, ensuring fair distribution of tokens and considering the implications of high FDV and low floats. Strategies such as token burn, vesting based on milestones, and increasing the initial outstanding offering can help mitigate future selling pressure.
The trend of launching tokens with low float and high FDV poses significant challenges for sustainable growth. Both investors and project teams need to be aware of the long-term implications of their decisions, Binance Research said. Venture capital-backed projects should focus on equitable distribution of supply and realistic valuations to foster a healthier market environment.
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