Original title: "Cobie: When low circulation and high FDV tokens are rampant, the rising profits have long been privately divided"

Original author: Cobie

Original translation: TechFlow

Editor's note: Although Bitcoin has broken through its previous high this year, the crypto market has been feeling "sluggish" in the past two months. At the same time, many projects have issued tokens this year in the bull market. Unlike before, the current market prefers to use FDV (token's fully diluted value) as a potential criterion for judging projects. A new trend has sparked user discussion: that is, many projects have low circulation tokens but very high FDV. Regarding this situation, crypto KOL @cobie wrote an article to express his views.

This article will discuss the topic of new token launches, focusing on common problems and misunderstandings about new tokens in the market, which are often referred to as "low circulation, high FDV".

Before we begin — if you’re confused by what’s going on in this post, here’s an article I wrote in 2021: On the Myth of Market Caps and Unlocks that might help.

As always, please remember: I’m not a financial advisor, I’m a biased and flawed human being, I’ve been brainwashed, I’m an idiot, I’ve mentally passed my prime and entered my twilight years, and I’m stumbling through the world trying to make sense of it all, with little success. I’m actually a participant in the crypto industry, which means my IQ probably isn’t even in the double digits. I try not to write about the tokens I own, but I disclose my holdings in my articles. Did you guys hear that RoaringKitty is back and released fifty super cool Avengers clips? Well, anyway, let's get started.

When I wrote that post three years ago, I thought that would be the last time I discussed the float, FDV, and market cap game. Perhaps I was naive, and I thought market participants would become more savvy about these important dynamics.

However, the reality is that they are singling out these new tokens as the “best long-term holding tokens” citing “locking up for a year” and other novel reasons like new coin charts, new coin concentration, etc.

To make matters worse, other market participants have become more savvy about these dynamics. Teams, exchanges, market makers, and financiers have adapted to these market mechanisms and are often able to exploit them to great advantage.

As a result, in my opinion, most new token launches are effectively uninvestable in the market right now, and market participants have an extremely immature understanding of these issues, and are mostly spending their time blaming the symptoms of the problem.

In this series of multiple posts, I will explore some of the problems in the current new token launch market and discuss why I generally choose to avoid new token launches altogether - unless you know what you are doing and are willing to do sufficient research and analysis.

The profits from the upside have long been privately divided

In modern markets, "price discovery" for almost all assets is done outside the market, and these pricings are privately divided long before the token actually exists. A lot of price discovery is actually exaggerated due to the dynamics of private markets.

Looking back to 2024, people actually look back on the days of ICOs (Initial Coin Offerings). When you look at the difference in opportunities between then and now, it's hard to disagree with them: in some ways, the ICO era was much fairer than the current market dynamics.

Looking back at ICOs: The drawbacks

Lest I be misunderstood, I must emphasize that ICOs also have many drawbacks. It's easy to look back at those successful ICOs, but in reality there are hundreds of projects that raised eight figures and either ran away or slowly collapsed. (Besides, ICOs are probably illegal in most major jurisdictions.)

Retail investors wasted hundreds of millions of dollars funding unrealistically junky projects that were able to raise money because of the ICO craze.

Even for those that succeeded, their ICOs left investors with losses. Many of the tokens of supposedly successful companies ended up being worthless, while the companies received non-dilutive funds in the process and then gradually ignored the existence of these tokens.

(This even happened with the Binance ICO — investors raised $15 million to build Binance, but received no equity in Binance. Of course, investors who participated in the Binance ICO are certainly not complaining now that the price of each BNB is $0.15, making it one of the best performing ICOs in history.)

Benefits of ICOs

Okay, we know ICOs have their downsides, but there are some benefits that are easier to show.

Ethereum raised $16 million in its ICO, selling 83% of the then-current supply (60 million ETH) at $0.31 per ETH.

The effective valuation of this public token sale was about $26 million (it’s a little more complicated to factor in mining and staking issuance, but that’s roughly it).

Investors who bought into the ETH ICO have made about a 10,000x return in USD at today’s prices (about a 70x return in Bitcoin).

If you missed the ETH ICO, the cheapest ETH purchase price on the market was $0.433 in October 2015, just 1.5 times higher than the public sale price. At the time, Ethereum was valued at about $35 million.

While it is almost impossible to find a similar, $26 million valuation in crypto investing now, it is hard to find such a valuation even for the seed round of the dumbest ideas. The key is that the price discovery and upside at the time were open to all participants.

The price discovery from $26 million to $350 billion was done on the open market, and ordinary people could participate. There was no KOL round, no unlocking and vesting schedule, and buying the cheapest price on the market was very similar to the returns of buying ICOs.

The Shift to Private Fundraising

After major global regulators enforced ICOs, crypto token issuers stopped raising money from the public and turned to private funding from venture capital firms.

If you compare Solana’s first funding round in 2018 to Ethereum’s ICO, there are some interesting contrasts.

Solana raised ~$3.2 million in this round, selling ~15% of the supply at the time at a price of $0.04 per SOL. The effective valuation of this round was ~$20 million, similar to the valuation of the ETH ICO.

Investors who bought into the SOL seed round received a ~4,000x USD return at today’s prices. (Their actual returns are likely higher given the annualized staking returns.)

If you were unable to participate in the limited funding rounds, the cheapest SOL purchase price on the market was $0.50 in May 2020, ~12x higher than the seed round.

Buying the cheapest price on the market yielded a ~300x return. At the time, Solana was valued at ~$240M with less than 5% of supply in circulation. Solana actually only had ~10 months of low circulation - they unlocked very quickly from very little supply, with the majority of tokens unlocked all at once in January 2021.

The initial few privileged rounds allowed investors to privately effectively capture 10x of the Solana price increase ($0.04 → $0.50).

(Solana has done a few other privileged/private rounds at around $0.20. There was also an “auction-style” limited public token sale on CoinList that I recall was also priced at $0.20.)

The 2021 Frenzy

Solana launched in 2020, almost exactly at the low point in BTC and ETH prices after the COVID crash. Their massive unlocks coincided with a new wave of users entering crypto. This pattern has been successful across a variety of tokens, with the “bullish unlock” phenomenon leading to massive increases in private market valuations.

Both ETH and SOL had initial sales valuations of around $20M. In 2021, seed rounds were highly competitive, with large VCs often engaging in bidding wars. Seed round prices reached hundreds of millions of dollars.

(I remember the first time I was recommended a $100M seed round, I turned it down in disgust. Later, the project opened with a FDV of $4B, and I missed a 40x gain. After learning my lesson, I bought the next $100M seed round project. It failed, the project went to zero and is no longer active.)

As private market valuations soared, crypto traders on liquid markets claimed that "FDV is a joke" and all charts were almost green.

Axie Infinity reached a valuation of ~$50B, with only ~20% of tokens in circulation at the time. FileCoin reached an FDV of ~$475B, but the market cap was only $12B. The supply increase of high FDV tokens is masked by the influx of a large number of new entrants.

As fully diluted valuations reach larger numbers, venture capital firms are increasingly willing to pay higher private round prices - "If the transaction valuation of this project is $15 billion, then bidding $300 million for this project is okay, and the risk of missing out is greater!"

Founders are, of course, happy to take these offers — they can raise more money while paying less in tokens. They previously had to sell 10% of their tokens at a $20 million valuation to raise $2 million. Now, they can sell 1% to raise $2 million and keep the extra token supply for incentives, the community, or (… surprise!) themselves.

If a well-known VC funds a promising project at a $100 million valuation, many less respected VCs will try to follow suit. If a project’s last round of funding was valued at $100 million, these follower VCs with no clear investment thesis will raise a new round as soon as possible at a $300-500 million valuation. A slightly worse entry price doesn’t matter to them because these projects are already trading at multi-billion dollar valuations.

Founders easily take these deals. Their personal wealth “water level” is raised without market forces, and new team members are added to help their product succeed. Of course, most of these team members turned out to be net negative, but the founders didn’t know that at the time.

Through this model, more value and price discovery is privately divided over time.

Private Dividing

If we compare the Ethereum and Solana examples mentioned earlier to projects launched in recent years. I would pick two comparable projects: Optimism and Starknet.

Consider the following metrics: initial sale valuation, lowest valuation on the market, % of circulating supply at the time, market vs. private returns.

ETH ICO valuation: $26 million

ETH market minimum valuation: $35 million FDV

Market minimum valuation date: October 2015

Circulation at the time: 100% supply on the market - market value $35 million

Public sale return: 10,000x

Market return: 7,500x

SOL seed round valuation: $20 million

SOL market minimum valuation: $240 million FDV

Market minimum valuation date: May 2020

Circulation at that time: 2% of supply on the market - market value of $4 million

Seed round return: 4,000x

Market return: 300x

OP Seed round valuation: $60 million

OP's market minimum valuation: $1.7 billion FDV

Market minimum valuation date: June 2022

Circulation at that time: 6% of supply on the market - market value of $95 million

Seed round return: 183x

Market return: 6x

STRK Seed round valuation: $80 million

STRK's market minimum valuation: $11 billion FDV

Market Low Valuation Date: Today

Circulating Supply at Time: 7.5% Supply on Market - Market Cap $800M

Seed Round Return: 138x

Market Return: None

If you look at these metrics, a few things are clear. First, seed valuations have increased dramatically over time.

Ethereum’s ICO valuation was ~$26M.

Solana’s seed round valuation was ~$20M FDV.

Optimism’s seed round valuation was ~$60M FDV.

StarkNet’s seed round valuation was ~$80M FDV.

Similar projects are currently raising over $100M FDV in seed rounds.

With the seed valuation going up, the team can reap this multiple benefit because they still own the entire supply until the first round of funding. If StarkNet had the same valuation as Ethereum, the initial investors would still have a worse financial return because their initial entry price was 4x higher.

Honestly, I think that in itself is pretty acceptable.

I think it’s reasonable that as cryptocurrencies gain popularity and the financial returns of Bitcoin and Ethereum prove their worth over time, founders will have better fundraising options. The demand for early crypto investments is so huge that the price will naturally adjust.

But the most obvious trend from the above data is the huge difference between financial returns in the public market and financial returns in the private market.

Ethereum's ICO returns were 1.5 times higher than the returns available on the market.

Solana's seed round returns were 10 times higher than the returns available on the market.

OP's seed round returns were 30 times higher than the returns available on the market.

STRK's seed round returns are infinitely higher because today is the lowest price STRK has ever seen, which means that all public market buyers lost money, but the seed round returns were 138 times.

As you can see, the gains are increasingly being divided up privately.

To visualize, consider the private fundraising rounds of the tokens I mentioned earlier:

Ethereum had an ICO that sold 80% of tokens and no other funding rounds.

Solana had a seed round that sold 15% of tokens, and a few other private rounds that reached ~$80M FDV before the TGE.

OP had a seed round valuation of ~$60M, and then had private fundraising rounds of ~$300M and ~$1.5B FDV before the TGE.

STRK had a seed round valuation of ~$80M FDV, and then also had fundraising rounds of ~$240M FDV, ~$1B FDV, and ~$8B FDV before the TGE.

If you imagine a price chart for each asset, and try to visualize the private market prices on the chart at the same time. (Valuations are represented on a logarithmic scale.)

All of the charts start at roughly the same point ($2-8B range), but more and more of the uptrend is being captured by the private markets.

OP and STRK are currently valued at similar levels ($11B), yet OP had to grow 6x on the public markets to get to $11B, while STRK fell 50% to get here.

To reach $11 billion, SOL would have to achieve 50x growth on the public market and Ethereum would have to achieve a massive 450x public market return.

Crypto token investment opportunities similar to the Ethereum ICO are still very common, but are now almost entirely occupied by private markets.

High FDV is partially due to natural growth in market demand

Expecting an issuance FDV to match the FDV issued 4 years ago is an unrealistic expectation.

Capitalization in the space has grown 100x, stablecoin supply has grown 100x, demand for new quality crypto tokens has grown 100x, etc. New tokens will be issued at higher prices because market demand is now higher and comparable projects are valued much higher.

When looking at FDV, consider if they are priced in line with the rest of the market.

Solana’s launch FDV is ~$500M.

At that time, Solana’s valuation would have ranked it as a top 25 cryptocurrency.

It was worth 1/4 of BNB’s valuation, which was a top 10 cryptocurrency at the time.

It launched when Ethereum was $150/ETH.

It launched when the ETHBTC ratio was 0.02.

I’m using the ETHBTC ratio here to show the market’s confidence and demand for Ethereum and the smart contract chain thesis, both of which are at historical lows. The skepticism of “alt L1s that replace Ethereum” is even greater. There have been a series of “ETH killers” that failed.

Since then, ETH is up 20x, BTC is up 10x, SOL is up 138x, the general market has surged, and confidence in smart contract chains as an Ethereum alternative is at an all-time high.

Today:

A top 25 cryptocurrency would have a market cap of over $5 billion, ~10x higher than when Solana launched.

1/4 of BNB’s valuation is now ~$9 billion market cap, ~20x higher than when Solana launched.

ETH is $3,100, ~20x higher than when Solana launched.

The ETHBTC ratio is 0.046, more than 2x higher than when Solana launched.

If Solana launched today, using these comparable metrics as proxies for demand, the FDV at launch would likely be ~$10B — and that may even be an underestimate, as these proxies don’t take into account the popularity of alt L1s.

Similarly, when Avalanche launched in September 2020:

Avalanche’s issuance FDV was ~$2.2B.

At that point in time, it would have ranked AVA in the top 15 cryptocurrencies.

It was worth 1/2 of BNB’s valuation, which was a top 5 crypto at the time.

It launched when Ethereum was $350 per ETH.

It launched when the ETHBTC ratio was around 0.03.

Recalculating the issuance FDV, using modern prices, Avalanche’s issuance would be $15-20 billion.

Post-Crisis Prices

Another way to think about Solana’s low valuation at the trough of 2022 was after the FTX crash and collapse of investor confidence.

In a severely depressed market, Solana’s lowest valuation was around $5 billion. This valuation represents one of the best liquid investment opportunities of the last few years and was only made possible by the absolute expulsion of fraud and leverage from the market.

Since then, the market has rebounded significantly. If the Ethereum ICO were held today, it would not only raise $16 million. If Solana’s seed round were held today, there would be billions of dollars in demand.

It’s great that you want to buy something at the price you paid 5-10 years ago, but that’s a bit like saying “I want to buy Ethereum at $150.” Yeah, who wouldn’t want that?

Older rounds and prior issuances FDV are priced relative to the amount of risk taken, the level of confidence in those assets and crypto as a whole. The demand for those earlier funding rounds is much lower, so they are priced to meet that demand.

Even in late 2020, the projects I’m invested in had a hard time filling their $2-3 million funding rounds. Now, seed rounds for unrealistic projects are being oversubscribed simply for calling themselves “gamefi.”

Imagine this: if the founders of Solana launched a new blockchain tomorrow, what price would you be willing to pay to buy it? Would you pay at least a quarter of Solana’s current valuation ($25 billion FDV)? Maybe even half of Solana’s valuation ($50 billion FDV)?

Of course, even 10% of Solana’s current valuation would have an extremely high FDV because market demand is extremely high. So yes, the FDV is higher now because the overall market is much more valuable than it was before, and demand is much greater. Of course, a high FDV is not always indicative of market demand for a particular asset. A high FDV is not always justified or deserved.

Especially recently, this has often not been the case. Market participants have found ways to use these levers to keep valuations at artificially high levels.

One of the bigger issues in the market is not that FDVs are high on average, but that many new projects have high FDVs that are disconnected from the reality of the asset and are simply trying to fit in with other high FDVs.

It has become the norm for projects to launch at multi-billion dollar valuations, even if this valuation cannot be justified by any real data, and for many market participants, projects that may never be able to justify these valuations are clearly indistinguishable from better projects.

Low Circulation Is Not the Only Culprit

Low circulation is not a bad thing in and of itself, nor does low circulation itself lead to an unhealthy market or represent a state of bad behavior - it is just one variable that investors must consider. Many low circulation tokens have good launches and healthy market dynamics.

Bitcoin’s issuance schedule is famously halved every four years, reducing the supply of new coins on the market every four years. Bitcoin’s “circulation” was less than 10% for a full year after the genesis block.

Solona’s first year float was also very small, not unlocked until 10 months later.

To be clear, I am not trying to defend low circulation.

I think higher float is always healthier for a token, and I respect projects that try to reach 100% float quickly. (There doesn't seem to be a good way to introduce more float to the market right now, and projects that do succeed often don't act in their own best interest in the short term).

I'm just suggesting that low float alone isn't an obvious problem if you evaluate other important factors and they work out well. Likewise, higher float doesn't immediately signal a green flag or mean it'll be a "better investment".

The dynamics of low float can really get tricky when it's combined with other issues; unwarranted and inflated FDVs, improper agreements with other market participants, or active manipulation from bad actors.

When used in the wrong hands by bad actors, low float markets are more susceptible to manipulation and distortion - for example, the lower the float, the lower the USD demand needed to price a token at a high valuation.

Yes, low float can also lead to a disconnect between valuation and reality when float or FDV is misunderstood or ignored by uninformed token buyers. I think it is highly unlikely that there are buyers independent of valuation. It is more likely that token buyers simply do not review or consider these metrics.

To protect and inform themselves, token buyers need to evaluate the balance between float, FDV, and demand for tokens that are being unlocked. They should consider: what is the cost basis for locked supply, what is the OTC demand for locked tokens in private markets, and how willing existing holders are to sell these locked tokens.

Finally, a reported high float may itself be low float.

I think an example that demonstrates this point might be a recent popular token launch:

As you can see from this chart, about 15% of the float has been unlocked.

Looking closely, you’ll notice that only about 2% is attributed to “Community Sales.” The remaining unlocked supply is attributed to the “Ecosystem Growth Fund,” a portion of tokens reserved specifically for growth incentives (like airdrops) and contributors to the project’s ecosystem, including developers, educators, researchers, and strategic contributors.

As outsiders, we have no way of knowing how this portion of the ecosystem tokens will be distributed. We don’t even know if this portion has been distributed. The actual (saleable) supply of this token is likely only about 2-3%, despite reports that 15% is unlocked. This could mean that the market cap is almost 90% lower than reported due to inactive supply and OTC tokens being included in the circulation.

This suggests that simply assessing the percentage of circulating supply that is unlocked is not enough. In fact, from the perspective of bad actors, obscuring and exaggerating the size of the actual (trading) circulating supply may be a more effective technique, especially if market participants default to the belief that “low circulating supply = bad”.

Token buyers should research who holds the unlocked supply, how it is being used, and whether they are able to allocate it.

This “private price discovery” occurs in a manipulated market, and the resulting valuations are deceptive

In my opinion, one of the core issues with the low circulating supply/high FDV debate lies here. The problem people have with “low circulating supply” or “high FDV” is actually that price discovery occurs in a private market that is manipulated, delusional, or both.

Let me introduce you to the ghost market. (I was going to call it the shadow realm, but I’m trying to stop obsessing over Yugioh). Imagine a market where one person, let’s call him Kain, controls all the new token supply. In this market, anyone can bid, but only Kain can sell.

Kain sells some tokens to a new investor, Adam, at a $50 million valuation. Adam’s tokens are locked and cannot be transferred. Kain sells more tokens to another new investor, Eve, at a $300 million valuation. Eve’s tokens are also locked and cannot be transferred.

Adam and Eve have a great reputation as investors (perhaps because of their biblical reputation?), so other investors are interested in Kain’s tokens. Kyle, Bob, and Taylor Swift are all bidding for the next round at a $1 billion valuation - Kain decides Bob is the best investor here, and Bob also buys the locked tokens. Unwilling to give up after being rejected, Kyle bids at a $2.5 billion valuation, and Kain sells him some of the locked tokens.

At this point, Adam’s investment is up 50x. He’s desperate to sell. He’s been writing Twitter posts for years and now he’s finally getting a big payout. In fact, he’d be willing to sell even at the $1 billion valuation from the previous round.

Eve’s position is up about 10x, and she’d be happy to sell at any price above the $1 billion valuation.

But since these holders can’t sell, and Kain, the only one who can, has no reason to sell at a lower price, it’s a rigged market that can only go up.

This pre-token “ghost market” is an illusion. Rather than discovering a natural price based on supply and demand dynamics, it simply finds the highest price VC investors are willing to pay. This dynamic drives valuations to prices the market can’t bear, as can be seen in the 2020-2022 token graveyard, which trades at far below private market valuations.

When Kain’s tokens arrive on Binance or Coinbase, the ghost market doesn’t stop, it evolves a bit. Let’s say Kain’s tokens are now trading at a $5 billion valuation. Even Kyle, who panic-bought late, has doubled down. Every investor is now willing to sell their tokens — maybe Kain is now accused of doing something nefarious in private, or a new guy has designed a better version of Kain’s product.

These investors are eager to sell, but can’t sell their locked tokens on the market. They can only wait until the unlock/vesting period arrives. So these investors try again through the private market, finding off-market demand at a 60% discount to the market price.

Right now, the real market price is $5 billion. But in the ghost market, the tokens are trading at $2 billion. The real problem with such low float tokens is the disconnect between the float price and the locked price. If the ghost market price is significantly below the real price, then unlocking will be extremely painful.

(On the other hand, if the ghost market price is close to the real price, then low float and upcoming unlocks may not mean much. I was told that at some points before the main unlock, locked Solana was trading at only 15% less than unlocked Solana, and almost all locked SOL tokens were bought up by MultiCoin, Jump, Alameda, or someone else.)

Open market price discovery creates healthier markets. The reason why some tokens have such large unlocks is because price discovery never really happened, it was just testing what the highest possible bid was.

Ghost market prices are wildly different from real prices. Most market participants cannot track ghost market prices, which means they have a hard time assessing the expected pain of unlocking any asset.

Opting Out

Parts 2 and 3 of this series will explore the incentive structures of other market participants and use these to further explain the dynamics of new issuance. Specifically, who is benefiting and why new issuance is able to sustain such high valuations.

These sequels will also discuss ideas and solutions that well-intentioned actors can use to create healthier markets — and why it is in their interest to do so.

However, in the interim, I can recommend a simple piece of advice for readers who do not have the power to change structural dynamics at the infrastructure level.

Buying inflated FDV is your choice — you can opt out, and you probably should

Sure, it seems obvious, but the mantra of “invest first, investigate later” doesn’t seem to work for many of you. Either that, or maybe you skipped the investigation part.

Token market cap information and FDV information are always public — unlocks are usually public somewhere too, as long as the project is half decent. Token economics usually show who owns the supply. It’s hard to find prices for private rounds, but it’s possible.

If any of this basic information is missing — it’s a red flag! If any of this basic information looks confusing or obfuscated — it’s a major red flag.

Even if you think the project is good, you don’t have to buy these tokens.

In fact, opting out and expressing protest by not participating seems to be the right response to recent token launches.

Projects, founders, exchanges, and other market participants will have to adjust their market strategies if existing strategies fail, or are rejected by the market.

I have seen some projects adjust their plans for token launches and fundraising due to the popularity of the meme and the rejection of the recent Metaverse launch. Valuations should be studied before buying, and if they don’t like the valuation, then they should refuse to participate.

If you think a new project is the greatest idea in the world and you want to get exposure to it, it is still important to evaluate valuations and unlock schedules. Even great projects may have bad token dynamics before full dilution, or valuations may be too high to invest in at that moment.

It is currently impossible to participate “early” in new token launches, and as we have seen, private sharing of the upside profits occurs in an inaccessible way.

Rather than trying to get in early, it’s better to be disciplined and patient. It’s better to identify projects you’re interested in and evaluate them within attractive valuation ranges, rather than follow the latest CEX-affiliated Twitter influencer to chase the token 30 minutes after listing.

The good news is that for most of these tokens (good projects, but with a lot of unlocks or VC overhang, or perhaps a few years of bad token dynamics), market participants may draw the wrong conclusions about these assets and abandon them entirely during their early volatility — potentially providing you with a better entry opportunity than expected.

Summary

Newly issued tokens have become uninvestable primarily due to the privatization of price discovery and high valuations by the VC market that ignore supply and demand. These market dynamics can be exploited by dishonest actors, and increasingly by established market participants.

While FDVs are higher than in past years, the FDVs of popular and hyped newly issued tokens are always set at the top of the market’s valuation range. This has been true for at least the past five years — primarily due to the privatization of price discovery.

The “upside” of Avalanche and Solana since launch is:

Partially driven by overall market returns.

a. Avalanche has outperformed ~7x since its public market debut, while Ethereum has outperformed ~9x over the same period.

But also driven by a repricing of their position in the market.

a. Solana moved from top 25 to top 5, a significant repricing relative to ETH and the rest of the market.

b. Avalanche moved from top 15 to top 10 and then back down, causing a temporary repricing relative to ETH (and the rest of the market) during the bull run that was subsequently erased.

When evaluating the upside of a new token, one should consider the FDV of the new token relative to the rest of the market, but also the trajectory of the market as a whole.

If the valuation of the new issuance puts it in the top 3 of all existing tokens, then in order for this investment to perform well, the investor would need a massive market expansion and for the project to maintain its position in the top 3 as it does not have much upside relative to the market.

If the valuation of the new issuance places it in the top 30 and investors consider it a top 10 project, then low float and high FDV may not be as important when valuing the token.

While a $1 billion offering price may look expensive today — if Solana hits $1,000 each and is worth $1 trillion in a few years, $1 billion may look cheap in retrospect and people will complain about new issuances at $80 billion.

Judging new token issuances based on performance in the first few months can also be misleading — Solana fell 50% from its listing price and failed to recover to its initial price in a few months. New capital inflows in a bull market will be needed to re-price its position in the market.

Major early market repricing is unlikely in the absence of a sustained market trend because:

a) Private markets extract upside.

b) In high demand markets, it is difficult to fight market forces to drive prices down.

c) If liquidity is very low, projects, exchanges, and market makers can fight market forces and bid prices up.

Market participants should expect valuations of new projects to remain high when market demand is high. In a model of private returns, it is no longer possible to “get in early” — investors should focus on finding forgotten or mispriced value in the market. When buying, one should become more proficient in evaluating valuations and supply and demand dynamics of new tokens, discerning which high FDVs (fully diluted valuations) are based on supply and demand realities and which are extremely out of touch “ghost markets”. Choosing not to participate in these markets is voting with capital.

Good founders want to build successful projects and they know that market dynamics will affect the perception of their projects. The overperformance of memes and the underperformance of new token launches have caused future founders to adjust their fundraising and launch plans.

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