The world of cryptocurrency has been having some worrisome patterns, especially regarding token launching recently. We see many new tokens with sky-high valuations but small initial circulating supplies. In other words, a situation where these tokens appear to be very valuable at onset yet are scarce for exchange. I think this is bringing about some serious issues in the market and it’s nice that Binance is taking steps to deal with them.
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This trend seems to be driven by lots of private market capital and general optimism about the market. It appears like everyone is highly hopeful, that leads to such tokens being launched at high valuations. Still, considering that there are only a few initial supplies for these tokens, their costs may go up too fast. Although this might look okay from the beginning, it is not really sustainable. When more tokens are eventually released into the market the prices can fall just as fast thus leaving traders with huge losses.
One of the key problems here is that these tokens have market caps which are vastly below their fully diluted valuations (FDV). FDV is the equivalent of a market cap for all tokens that would exist if in circulation. However, FDVs are much greater than the market capitalization since many of them were initially locked up. Meaning, such tokens appear to be more valuable than they are in terms of tradable ones.
Further, I have come to know that approximately 155 billion US dollars’ worth of tokens will be unlocked between 2024 and 2030. With thousands and thousands of new tokens being released there could be some serious issues. If this supply exceeds demand it may cause a saturation on the market leading to lower prices. This can create extreme selling pressure and make that difficult for the market without affecting prices.
Clearly this kind of price rise based on low liquidity and high valuations cannot last forever. In due course, corrections come with big price falls when these coins get unlocked and open widely to public participation. That’s why we need more balance and sustainability in the future markets.
The measures taken by Binance to deal with these issues are commendable. Binance is one of the leading players in crypto and its operations can greatly influence the market. They have realized the problem and are working towards having a healthier market. One way they do this is by taking up more quality projects through their listing programs. For example, they are calling upon smaller high-quality teams to apply for their listing programs, which include direct listing, launchpools and megadrops.
By focusing on small projects with solid fundamentals, Binance hopes to build a more sustainable market. This has resulted in the smaller projects avoiding inflated valuations that come with several recent token launches Instead, they are likely to have a stable user base which contributes to sustainable growth as well as facilitating it.
Most of late listings on Binance are backed by prime venture capitalist firms. However, this trend is not always positive as this often results in tokens being issued at extremely high valuations, reaching over $4 billion. These projects sometimes lack a strong following or solid community backing and this makes their high valuations even more unsustainable.
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I believe that Binance’s commitment to solving these problems is crucial for the future of cryptocurrency trading industry. They contribute to the healthy growth and stability of the market by focusing on quality projects and fostering an environment for a more lasting marketplace.
It is obvious that the present situation where there are high valuations with low initial supplies cannot be sustained, I am happy that Binance has taken steps to tackle these challenges.
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