FDV Frenzy Over? Binance Shifts to Sustainable Low-Cap Crypto Tokens

Binance, a leading cryptocurrency exchange, has announced a significant change in its listing strategy to address dissatisfaction with recent token listings. The platform will now prioritize low-cap tokens, focusing on sustainability and the value of high fully diluted valuations (FDVs).

This new approach aims to support small to medium-cap projects, promoting healthier market conditions.

Tackling Token Price Declines

Recent data shows that nearly 80% of tokens listed on Binance in the past six months have suffered severe price drops. This trend is linked to launching tokens with high FDVs but low initial circulating supplies. Such tokens often face selling pressure when large amounts unlock, leading to dilution and significant price declines.

“Launching tokens at high fully diluted valuation and low circulating supply can result in dilutions from future unlocks which can place selling pressure on tokens,”

Binance

This practice, driven by venture capital funding and a bullish market, often leads to unsustainable price surges followed by declines after the Token Generation Event (TGE).

Binance’s New Strategy

To address these issues, Binance has committed to working more closely with small to medium projects. The exchange is looking for quality teams that allocate a large portion of tokens to their community, maintaining a small token float at launch.

“Taking the lead to engage small to medium projects,” Binance said, calling on such teams to apply for its programs, including listing, Launchpool, and Megadrop.

The exchange emphasized that such projects should have “less allocation to non-community users” like team members and venture capitalists to ensure fairer token distribution.

Impact of Upcoming Token Unlocks

A report from Binance Research highlights the potential impact of upcoming token unlocks. According to data from Token Unlocks and CoinMarketCap, about $155 billion worth of tokens will unlock between 2024 and 2030. Without increased buy-side demand, these unlocks could put significant downward pressure on token prices.

Tokens launched in 2024 have posted the lowest market cap to FDV ratios in recent years, with an average MC/FDV ratio of just 12.3%. This indicates that many tokens are yet to be unlocked, and prices could decline further if supply is not matched by sufficient demand.

Influence of Private Market Capital

Private market capital has significantly influenced crypto market valuations. Since 2017, over $91 billion has been invested in crypto projects, driving up token prices before their public market launches. Crypto deal-making activity rose by 52.1% quarter-over-quarter in Q1 2024, showing continued investor interest in funding projects at high levels.

However, this trend poses long-term risks. Many new tokens have FDVs comparable to established layer-1 or DeFi tokens, despite lacking equivalent user traction and market presence. This misalignment between valuations and actual market demand can lead to overvaluation and subsequent corrections.

Thoughtful Tokenomics

Binance’s new strategy highlights the need for careful consideration of tokenomics, valuation, product viability, and team credentials. Binance Research stresses that understanding unlock schedules and conducting thorough due diligence are crucial to avoiding the pitfalls of high-FDV tokens.

“Tokenomics is doubtlessly one of the most important considerations for investors and project teams. Every design decision comes with its set of benefits and trade-offs. While launching tokens with low initial circulating supply can drive initial price pumps, the steady unlocking and emission of tokens creates selling pressure, weighing on long-term performance,”

To ensure fair token distributions and mitigate the challenges of high FDVs and low floats, projects should adopt long-term strategies. These include token burning, milestone-based vesting, and increasing the initial circulating supply, which can reduce future selling pressures.

Do you think focusing on low-cap tokens with strong tokenomics will lead to a healthier crypto market?