The recent controversy surrounding high FDV (Fully Diluted Valuation) and low circulation tokens has been escalating, with the prices of these tokens remaining sluggish and many retail investors becoming "victims" of liquidity exit. High FDV and low circulation tokens can lead to significant selling pressure upon future unlocks, which is detrimental to both the project's long-term development and ordinary investors. Rationally evaluating the value of high FDV and low circulation tokens is a challenging issue.

1. Overview of Circulation, Market Capitalization, and FDV

Circulation, market capitalization, and FDV are crucial indicators for assessing the value of a crypto project’s tokens. They are interrelated and collectively influence a project's performance and potential in the market.

1.1 Circulating Supply

Circulating supply refers to the number of a crypto asset currently available for trading in the market. This concept is typically used to measure an asset's liquidity and market participation. The calculation of circulating supply is usually based on blockchain data and publicly available information from the issuer. Accurate estimation of circulating supply is vital for investors as it directly affects the asset's supply-demand relationship and price volatility.

Circulating supply can be seen as the number of tokens that can freely flow in the market. The calculation method generally involves subtracting the number of locked or reserved tokens from the total supply. These locked or reserved tokens may include those held by the team, locked by funds, etc.

1.2 Market Capitalization

Market capitalization refers to the current total market value of a crypto asset, often used to gauge its scale and importance in the market. It is calculated by multiplying the circulating supply by the current price, yielding the total value of the asset in the market.

Market capitalization plays a significant role in the crypto market because it reflects the overall recognition and investment enthusiasm for the asset. Higher market capitalization usually means greater market acceptance and higher investor confidence, but it may also imply the presence of risks and bubbles.

1.3 Fully Diluted Valuation (FDV)

FDV represents the total market value of a crypto project considering all possible tokens to be issued. It includes both the currently circulating tokens and all tokens that might be issued in the future. FDV is calculated by multiplying the total supply by the current price, reflecting the total market value considering all potential issuance.

2. Impact of Circulation, Market Capitalization, and FDV on Token Value

Analyzing data such as circulation, market capitalization, and FDV provides some understanding of a project's current state and potential, aiding investors in making rational investment decisions.

2.1 How Circulation Affects Token Value

Circulation directly affects a project’s liquidity and market participation. Projects with lower circulation may be more susceptible to price fluctuations due to smaller market transaction volumes, making them more prone to the impact of large transactions. Additionally, low circulation might increase the risk of market manipulation and price manipulation, as a small number of transactions can significantly influence the market.

However, projects with lower circulation may also have greater growth potential. When a project’s circulation is low, the supply in the market is relatively scarce, potentially leading to increased price pressure. Some investors view low circulation as an opportunity for potential appreciation since prices might rise significantly if demand increases.

2.2 How Market Capitalization Affects Token Value

Market capitalization is the total value of a project in the market, a product of circulation and current price. The size of market capitalization reflects the market's overall recognition and investment enthusiasm for the project. Higher market capitalization usually means greater market acceptance and higher investor confidence, while lower market capitalization may indicate that the project is not yet fully recognized by the market or has low participation.

For investors, market capitalization provides a metric for measuring the scale and importance of a project. However, investors need to note that market capitalization does not necessarily reflect a project’s true value, as it is influenced by various factors such as market supply-demand relationships and investor sentiment. Therefore, investors should comprehensively consider market capitalization along with other indicators to evaluate a project's value.

2.3 How FDV Affects Token Value

FDV, considering all possible token issuances, represents a project's potential market scale and valuation ceiling. Understanding a project’s FDV helps investors evaluate the potential growth space and investment value. Comparing the current market capitalization with FDV allows investors to judge the project’s market recognition and growth potential. Lower market capitalization relative to FDV may indicate that the project is not fully recognized yet and has significant growth potential.

However, investors should note that FDV is merely a reference indicator, and actual market performance may be influenced by various factors. Therefore, investors should consider market capitalization, circulation, and other factors comprehensively when evaluating a project’s value.

3. Current Market Status of High FDV and Low Circulation Tokens

According to CoinGecko data, as of May 21, among the top 300 cryptocurrencies by market capitalization, there are 60 with an MC/FDV ratio of less than 0.5, accounting for 20%. This means that for every 5 cryptocurrencies with higher market capitalizations, there is 1 project where over half of the token supply is yet to be unlocked.

Among the top 300 cryptocurrencies, there are 15 with an MC/FDV ratio of less than 0.2, including Worldcoin (WLD), Cheelee (CHEEL), Saga (SAGA), Ethena (ENA), Starknet (STRK), Jito (JTO), Ether.fi (ETHFI), ZetaChain (ZETA), Jupiter (JUP), Ondo (ONDO), AltLayer (ALT), Pixels (PIXEL), Dymension (DYM), Celestia (TIA), and Wormhole (W). The circulation of the top 4 tokens does not even exceed 10%, and they are analyzed in detail below:

Worldcoin: Worldcoin is an emerging global cryptocurrency aimed at becoming the world’s largest and most inclusive crypto network. The project has developed a device called Orb that can capture an image of a person’s eye and convert it into a short digital code to verify their identity. Users will receive a free share of Worldcoin if not registered, without storing or uploading the original image. Some believe WLD's FDV is excessively high, unsustainable, and just an AI hype bubble. Others argue that WLD’s low circulation constrains its value to market makers’ willingness.

According to the whitepaper, WLD’s maximum circulating supply is 143 million, with 100 million lent to overseas market makers and 43 million distributed to users verified through Orb. Since the World App's official launch, a single user can receive a total of 77 WLD allowances. However, in countries like France and Hong Kong, regulatory pressures prevent some users from withdrawing tokens. Therefore, the current circulating WLD tokens include those withdrawn through daily allowances in the app and the 10 million held by market makers. This circulating supply accounts for only about 1.33% of the total WLD supply. Considering WLD's unlocking period is 150 days, its FDV is not relevant in the short term, and surpassing OpenAI's valuation seems more like an AI meme.

Cheelee: Cheelee is a short video platform with a Watch to Earn mechanism that pays all users for watching content. Its mission is to enable all users to earn money on social networks. Cheelee aims to promote Web3 and crypto adoption through the gamer community. Users can watch and generate gaming video content using its “NFT glasses,” which monitor viewing time and convert it into corresponding points, redeemable for token rewards. Cheelee is the closest socialFi project to TikTok, incorporating watch to earn and gaming concepts, achieving the most popular application in Web2 within Web3. The best approach for such a project is watch to earn, rather than buying on the secondary market, with future growth dependent on promotional efforts.

Ethena: Ethena is building derivative infrastructure, transforming Ethereum into global internet bonds through Delta neutral positions on stETH, creating the first crypto-native, yield-bearing stablecoin USDe. Inspired by Arthur Hayes' "Dust to Crust" article, EthenaLabs aims to create a derivative-backed stablecoin, addressing the significant issue of crypto dependency on traditional banking. Their goal is to provide a decentralized, permissionless savings product to a broad audience. EthenaLabs’ synthetic dollar USDe is designed to be the first crypto-native, censorship-resistant, scalable, and stable financial solution, achieved through Delta hedging collateralized Ethereum.

Saga: Saga is a modular Layer1 platform tailored for the gaming industry. The Saga protocol simplifies the deployment process through Chainlets, dedicated blockchains that developers can easily launch like deploying smart contracts, integrating key elements like data availability, consensus, execution, and settlement for a seamless product experience. Saga protocol runs on a fully decentralized proof-of-stake model, ensuring each Chainlet maintains the same high-security standards as the Saga mainnet, using the same validator set. In less than two years, Saga has attracted 350 projects, 80% of which focus on the gaming industry.

Among the top 100 by market capitalization, the top 10 projects with the lowest MC/FDV ratios include:

4. Reasons and Impacts of the Prevalence of High FDV and Low Circulation Tokens

The prevalence of high FDV and low circulation tokens is driven by multiple factors, including the influx of private market capital, aggressive valuations, and optimistic market sentiment. However, this trend also brings negative impacts such as increased selling pressure and project selection challenges, requiring careful evaluation and handling by investors and project teams.

4.1 Reasons for the Prevalence of High FDV and Low Circulation Tokens

• 4.1.1 Influx of Private Market Capital: Venture capital (VC) funds are increasingly consolidating their position in the crypto space, making private market financing a vital means for projects to obtain funding. With capital inflows, VC influence increases, leading to higher valuations and expanded private market financing scales.

• 4.1.2 Aggressive Valuations: Optimistic market sentiment drives investors’ preference for high valuation tokens, willing to invest at higher prices. This sentiment also prompts VC firms to pay higher valuations in private financing, pushing up token FDV.

• 4.1.3 Optimistic Market Sentiment: In a positive market sentiment environment, project teams can more easily raise high valuation funds. This market sentiment makes investors more willing to participate in projects at high valuations, providing more fundraising opportunities for projects.

• 4.1.4 Promotion of Reward Programs: Recently popular reward programs attract users by offering reward points, leading to inflated FDV upon token listing. However, with many users selling tokens after airdrops end, market performance deteriorates.

4.2 Analysis of the Impact of High FDV and Low Circulation Tokens

• 4.2.1 Increased Selling Pressure: The prevalence of high FDV and low circulation tokens leads to significant unlocked tokens entering the market, increasing selling pressure. Binance estimates that approximately $155 billion worth of tokens will be unlocked between 2024 and 2030, potentially negatively impacting market prices.

• 4.2.2 Increased Price Volatility: High FDV and low circulation tokens typically have lower circulation, with many tokens yet to be unlocked. Market participants must pay more attention to token supply and unlocking schedules. Price volatility may intensify when market circulation fluctuates.

• 4.2.3 Increased Risk of Market Manipulation: Limited circulation in high FDV and low circulation tokens increases the risk of market manipulation. Small transactions can significantly impact the market, providing more opportunities for manipulators. Manipulators can influence token prices through large transactions or market manipulation tactics to profit.

• 4.2.4 Risk of Value Bubbles: For high-demand quality projects, high FDV is seen as an opportunity for potential appreciation, as prices might rise significantly if demand increases. However, if token demand growth does not keep pace with token inflation, high FDV may also imply risks and bubbles.

5. How to Properly Evaluate the Value of High FDV and Low Circulation Tokens

After discussing the phenomenon and driving factors of high FDV and low circulation tokens, it is crucial to explore how to properly evaluate these tokens' value. Despite enjoying high valuations in the market, investors need to rationally assess their potential value and long-term prospects to avoid blindly following trends or being swayed by market sentiment.

1. Team Background and Strength: Assess the project’s team background and strength. A team with experienced developers and industry experts is more likely to achieve the project’s vision and goals, increasing the token’s long-term value.

2. Project Vision and Technical Implementation: Evaluate the feasibility of the project’s vision and the ability of its technical implementation to solve real-world problems. Innovative and forward-looking projects typically have higher growth potential.

3. Community and User Base: Observe the project’s community and user base, including social media activity, user engagement, and community building quality. An active and loyal community can increase token liquidity and market demand.

4. Actual Application and Adoption: Understand the project’s real-world application scenarios and adoption, as well as partnerships with real-world entities. Whether the project has been applied in real-world scenarios and supported by partners can impact the token’s value.

5. Competitive Advantage and Differentiation: Analyze the project’s competitive advantages and differentiation in the industry, and whether it has sustainable competitive advantages. Projects with unique technology, business models, or market positioning may be more attractive.

6. Financial Status and Fund Management: Review the project’s financial status and fund management, including token distribution, fund operations, and development planning. Good fund management and transparent financial reporting can increase investor trust and project sustainability.

7. Risks and Uncertainties: Identify the risks and uncertainties of the project, including technical, market, and legal risks. Understanding and assessing these risk factors can help make informed investment decisions.

Evaluating the value of high FDV and low circulation tokens requires comprehensive consideration of multiple factors and rational, objective analysis and judgment. Investors should choose suitable investment strategies based on their risk tolerance and investment goals, closely monitor project development and market performance, and adjust their investment portfolio timely.

6. Response and Prospects for High FDV and Low Circulation Tokens

Recently, in response to the prevalence of high FDV and low circulation tokens, crypto exchanges Binance and OKX have successively adjusted their listing strategies, attracting widespread market attention. Binance announced it will first support small and medium-sized crypto projects, inviting quality teams and projects to apply for listing on Binance, including Direct Listing, Launchpools, Megadrops, etc. Binance hopes to promote the development of the blockchain ecosystem by strengthening support for small and medium-sized crypto projects with good fundamentals, organic community bases, sustainable business models, and industry responsibility.

However, some argue that Binance’s listing adjustments only address the symptoms, not the root cause. Market liquidity remains a key issue, and low market capitalization does not necessarily mean good performance in the secondary market. Therefore, retail investors need to pay attention to investment strategies and avoid over-reliance on market hype and short-term fluctuations.

For high FDV and low circulation tokens, exchanges should consider lowering the listing price and adhering to reasonable lock-up principles; project parties should focus on token distribution and unlocking schedules, and strive to build valuable products and healthy community ecosystems; VCs should maintain price discipline and encourage founders to remain realistic; and retail investors should carefully choose projects, paying attention to token unlocking conditions and the match between internal and external values.

Overall, high FDV and low circulation tokens not only affect the project’s development and market performance but also impact the operation and development of the entire crypto ecosystem. High FDV and low circulation token projects need to build an ecosystem that encourages all parties to contribute and benefit together to ensure the steady development and sustainable growth of tokens.

Hotcoin is highly focused on the potential value and long-term prospects of projects and will continue to monitor and list quality assets. For crypto investments, come to Hotcoin to reach the hottest quality assets ahead of others!

About Us

Hotcoin Research, as the core investment research department of Hotcoin, is dedicated to providing comprehensive and professional analysis of the crypto market. Our goal is to offer clear market insights and practical operational guidance for investors at all levels. Our professional content includes "Play to Earn Web3" tutorial series, in-depth analysis of crypto market trends, detailed analysis of potential projects, and real-time market observations. Whether you are a newcomer exploring the crypto world or a seasoned investor seeking deep insights, Hotcoin is your reliable partner for understanding and seizing market opportunities.

Risk Disclaimer

The crypto market is highly volatile, and investment involves risks. We strongly advise investors to fully understand these risks and operate within a strict risk management framework to ensure the safety of their funds.

Website：https://www.hotcoin.com/

X：x.com/HotcoinAcademy

Mail：labs@hotcoin.com

Medium：medium.com/@hotcoinglobalofficial