This year, new tokens generally have low circulation and high valuations, which may lead to difficulties in maintaining long-term prices.

Recently issued new tokens have generally exhibited high valuations and low initial circulation, a phenomenon pointed out by Binance Research to have a negative impact on token prices and protocol development. Investors should exercise caution in selecting investment targets in the future.

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This article does not constitute investment advice.

Low Initial Circulation, High Valuation New Token Structure

Low Circulation: Indirectly Leading to High Valuation

Recent new token projects include STRK, ALT, JUP, W, and other key new coins. These tokens share a common characteristic in token economics: most are issued with relatively low initial circulation and a large portion is locked for future unlocking.

This phenomenon is becoming more common, especially with tokens launched in 2024. The average ratio of Market Capitalization (MC) to Fully Diluted Valuation (FDV) is only 12.3%, the lowest in years.

This trend is starting to raise concerns among some. While low initial circulation can hype the market and boost token prices, in the long term, due to a significant amount of unlocking, it may not lead to significant price growth, and there is even a high probability of prices declining in the long run.

To maintain their current prices in the coming years, demand would need to provide approximately $80 billion in liquidity to absorb these unlocked tokens, which is currently very challenging.

It's no wonder that meme coins are becoming more popular recently. Many meme coins emphasize fair distribution and typically have a higher or even 100% initial circulation, which reduces the price pressure from unlocking.

On the other hand, for the same level of demand, due to scarce liquidity, the initial token price is higher, thereby increasing the FDV.

High Valuation: Difficult to Attract Investors

Recently launched tokens not only have low initial circulation but also exhibit high, even excessively high, valuations.

For example, the tokens of Celestia and Jupiter are ranked 62nd and 63rd in terms of market capitalization, surpassing many established public chains or dapps with a fixed user base. For instance, Lido's LDO token ranks only 65th, and Aave's AAVE token is even ranked 76th, despite these two protocols being the first and third largest products in terms of Total Value Locked (TVL) in the entire blockchain industry.

It's not that new protocols won't be competitive, but rather that existing established protocols can better demonstrate their ability and value for sustainable operation. Therefore, it's evident that these new tokens are overvalued.

Tokens with high valuations at the outset are like startups reaching a $1 billion valuation in the seed round. Without strong growth or other advantages, it will be challenging to attract investors for the next round of fundraising. In the blockchain market, this means that these tokens are unlikely to find buyers.

People are concerned that this market structure leaves little room for sustainable price growth for traders after the token generation event (TGE) because the high valuation and low circulation indicate that more tokens will be unlocked in the future, bringing more selling pressure.

Why is the Token Structure Unhealthy This Year?

Massive Influx of Venture Capital Investment

Venture capital (VC) firms are increasingly solidifying their position as key players in the crypto space. The assets flowing into the crypto industry from VC fundraising have steadily increased. Since 2017, the total amount raised by crypto projects from venture capital has exceeded $91 billion.

With more funds pouring into the space and increased participation from venture capital, this essentially raises the valuation of most projects.

Most of the upside and easy money may have already been taken by early private market investors.

Strong Market Speculation

The strong performance of the crypto industry this year has stimulated market sentiment, leading to more active trading activities, causing some investors to be increasingly willing to purchase tokens at higher valuations, further driving up token valuations.

What Should Regular Users Do?

Understand the Implications

For regular users, it's crucial to have a clear understanding that "holding tokens with low circulation and high valuation for the long term may result in asset depreciation."

It is expected that a significant amount of tokens will be released in the future. Binance Research predicts that between 2024 and 2030, tokens worth approximately $155 billion will be unlocked. Without corresponding capital inflow, many tokens will face significant selling pressure, so it's advisable to adjust investment portfolios accordingly.

Recommended reading: Diamond hands won't make money? VC: Tokens issued recently will inevitably decline in price
Reason for recommendation: The article highlights the same issue from a different perspective - recent token issuances are characterized by high valuations and low circulation, significantly differing from previous public chain token economics, potentially leading long-term holders of these tokens to incur losses. The article also offers corresponding solutions.

Find Investment Opportunities Wisely

In this market, the ability to choose and foresee investments becomes increasingly important. Considering that many projects start with high valuations, projects that lack innovation and merely imitate are less likely to sustainably yield returns from their tokens. Perhaps searching for projects with more innovative models may increase the chances of success.

One recent notable example is the LRT project, where tokens are less likely to gain market favor in the long term due to a lack of clear differentiation and innovation. As an investor, it is essential to diligently seek out projects with genuine innovation.

This article does not provide investment advice