Translation:
Regan Bozman, co-founder of Lattice, a cryptographic venture, has drawn an interesting conclusion regarding the recent token issuances this year: the prices of recently issued tokens are bound to fall. This is because the high valuations and prevalence of airdrops make it difficult to find buyers who can sustain the token prices, resulting in a long-term decline in prices.
This article, compiled and translated by Chain News, provides insights into the recent trends in token issuances. Please refer to the original article for any uncertainties. (This article does not provide investment advice.)
Background: Token Market Capitalization
The recent token issuances are facing an inevitable decline in prices. Recent changes in token economics have brought about interesting observations.
Serious Consideration of Token Buyers and Sellers
Who are the buyers in the current market? Definitely not institutional investors! While there are some liquidity funds and cryptocurrency venture capital funds purchasing tokens, there is not much capital flowing into the market. Excluding BTC and ETH, the inflow of funds is only around 10 to 15 billion USD per year.
Are the Most Anticipated Token Issuances Worth the Hype?
EigenLayer may be issuing tokens with a market capitalization of over 100 billion USD. ETH holders with a certain level of knowledge have already been staking their ETH in anticipation of the token issuance. More than 3% of the entire ETH network has been deposited into EigenLayer, creating an ecosystem worth over 50 billion USD.
Considering the logic, if users want to participate in EigenLayer’s airdrop, it is likely that they already own ETH and are using it to earn Eigen tokens or points. Therefore, a large portion of potential buyers will receive the tokens for free, without having to purchase them.
How to Mitigate the Inevitable Decline in Token Prices?
Bozman believes that there are three ways to potentially mitigate the inevitable decline in token economics:
1. Linear unlocking of tokens
2. Public token sales
3. Truly innovative projects
Bozman suggests that the correct direction for token issuances is to have 20 to 25% of tokens already circulating in the market, with locked tokens being linearly unlocked over 36 months. Additionally, projects should adopt public token sales to allow mass purchases by retail investors. Furthermore, allowing the community to accumulate tokens with real money, in addition to airdrops, will increase user loyalty.
Projects with innovative applications and use cases usually generate higher market expectations. Therefore, it is important to have a fresh design or innovative point. The market may already be tired of being forced to buy the tenth data availability (DA) modular solution.
In conclusion, before systematically changing the token issuance practices in the industry, Bozman warns that the current data already signals that the current token issuance structure will not lead to long-term success for token holders. It is advised not to listen to bad advice from venture capitalists, consultants, or anyone else, as a diamond hand may not be successful this year.
Price increases can facilitate the development of a genuine community and developer ecosystem, but the reverse is also true, and it can be brutal.
Recommended Reading:
– What to Consider when Issuing Tokens? How to Avoid Legal Risks Pursued by the SEC?
– Tokenomics: How to Evaluate Token Supply and Demand? Measuring Demand Momentum from Return on Investment, Game Theory, and Memes
– Token Economics: Having Powerful Features Does Not Necessarily Mean Having a High Token Price.