After reading through a lot of the threads about high FDV / low float projects, I feel like they're missing a core part of the story stemming from a different issue.
The post-TGE down only token phenomenon is not only happening on Binance, but on OKX and Bybit too. We've always had high FDV / low float launches in the past, but there is something different going on this time.
This is my take on what has happened / is happening.
1. Some time over the last few years, top exchanges began really hammering down on requirements like: "Hey Projects, we want you to have crazy user numbers (500k+ MAU) or huge TVL ($1B+) BEFORE your token is launched for us to even consider you for listing. Oh and we are only listing projects at TGE now, so you only get one shot at this. Good luck".
2. This was previously not a big deal for top Tier 1 projects such as Arbitrum and Optimism, as the speculation of a token airdrop alone was enough for this amount of users to start using / farming their chain. The EV was extremely high for the amount of effort required, and these were guaranteed Binance/Coinbase day 1 listings, IF they decided to launch a token (this was not even a given back then).
3. On the other side of the coin, how the hell were other Projects without similar VC backing or well known founders meant to get anywhere close to these requirements? They didn't have a liquid token to incentivise activity, and teasing with retroactive airdrops didn't seem worth it for users to do anything.
To solve this, instead of letting people speculate on whether or not there would be a token, projects began launching points programs for very specific actions revolving around, you guessed it, on-chain activity, TVL and/or NFT holdings over time, pretty much guaranteeing users that there would be a token at some point and that they would be rewarded in the form of a future airdrop.
If you're new to the space, believe it or not, in the past many projects would have their TGE on the same day of the product launching and then use that token to incentivise dapp activity with the token being liquid on a DEX. If there was no PMF, the project and token would die off. If the project gained traction, then exchanges would monitor then list the token, as there was natural demand displayed from users.
The above is one of the main reasons I think things have gone to shit lately - The points that projects give out are being farmed and valued at a certain expected FDV months before the token is even liquid.
Why is this an issue? This means that retail is actually farming with a high FDV of very low upside. Everyone has a similar expected FDV for the project, so their upside is actually only captured if they farm better and more efficiently than other farmers, so as to get a better airdrop %. i.e. It's PVP.
Do they actually like or care about the protocols themselves? Most of the time, no. Will they stay with the project after the airdrop? Also, likely no, it's generally quite exhausting to farm at a high output rate.
4. Going back to the projects for a second. Armed with hyped up incentives to give out, any random project is able to gather "millions" of users and txs and show exchanges this data, despite being incredibly botted most all the time (I'm sorry but if you believe that a gamefi project suddenly acquired a million new users in a week I don't know what to tell you).
5. The worst part of this? The top exchanges didn't seem to care about the quality of data presented to them by these projects for a period of time and still decided to go ahead and launch some really questionable projects. I guess it looked like there was "hype" and "demand" to them at the time. (I think they've realised it now fwiw but the damage is done)
6. This resulted in an outlandish number of new projects popping out of nowhere and going straight for the points meta to farm activity and TVL. Projects often did exactly the same thing as each other, but each with a different token you could farm. We start getting tweets daily about the crazy amount of money that people have been making from these airdrops at TGE.
7. Don't get me wrong though. I think points are great for getting users to try out your dapp / chain. There are projects I would have never tried out if there weren't any points being given out, for better or worse.
8. However, the glaring issue is that now every single project has some form of points airdrop and the opportunity cost and lack of liquidity in the market is now at an all time high. For e.g. Users have to pick between bridging ETH to Blast to farm for 6 months or to drop their liquidity into restaking protocols. Why would anyone buy a newly launched token hoping for appreciation in this market when you can just hop around different protocols with those funds and get 100% APY in the form of airdrops while retaining your capital?
An example. Ok so you parked $10,000 into this protocol, did tasks everyday for 3 months and got a nice $5,000 airdrop at TGE. Amazing. You see that the FDV at launch is somehow $1bn. Everyone farmed the points expecting a $500m FDV launch.
For anyone with a brain, there is just no way you are holding this airdrop in this current market. You know this protocol would probably have had close to zero users without a token. You know there is absolutely no need for a token at all. All your friends that you farmed with have jeeted. You dump all your tokens, wish the project well, move your liquidity to a shiny new protocol, and never look back.
How did the token launch at $1bn? Well exchanges and VCs probably thought that it was future of finance with all the impressive stats that YOU and all your friends helped generate.
Think about it, if you're getting paid for a construction job that you spent months grinding on (and you even spent money to buy tools for it), when it comes time for payday, it's unlikely that you say "sure i'm happy for you to hold my money for me boss, let's start on the next project right away". You're probably locking in the bag and paying your bills first. In fact, now that your boss has revealed their payment amount to you, it's likely that you take your tools to someone else that's offering a bigger potential bounty with fewer workers that you need to share with.
9. Now imagine getting the same airdrop value, but all you did was spam tweet a ticker non-stop everyday for 2 months, and for some reason exhanges really liked this (?). You managed to strike gold even though you got muted by all your friends. You wonder how this translated to actually helping the project in a fundamental way. You conclude that it didn't, you dump.
10. To summarize, we've gotten to a point where the expectation from market participants is that all projects must pay you for all your efforts on their protocol pre-TGE, and pay you handsomely at that.
Also, if a project delivers a shit airdrop (price goes down only / allocation to farmers is shit), you can bet that they aren't getting any high quality user retention into their Season 2 after TGE.
It only takes a few projects to fuck this up (it's already happened), which leads to more people jeeting their airdropped tokens on day 1. The more people jeet, the worse the charts for new token launches look, and that destroys any organic demand that the tokens previously would have had. It's an endless cycle that then carries on to other concurrent projects with scheduled airdrops.
11. So how do we fix this?
First of all, I don't think VCs are to blame here. Yeah they'll push FDV higher but they generally have a one year lockup. We need to think about why FDVs are pushed higher in the first place. The top VCs look for solid teams, good user traction / TVL and good narrative. How does a project gain user traction / TVL in the current market? Points. Why are points important? It allows projects to show top exchanges why they're such a good fit to be listed / launched (I'm generalising btw. There are a small handful of top tier projects that don't care about exchanges at all).
I don't think we can blame project founders or users either. They will always appear whenever there's money to be made and go hand in hand. ICOs, DeFi, NFT mints etc. It's a feature of crypto at this point, not a bug.
So I guess this leads us to a thought that CEXs currently hold a large portion of the power. Even if this makes you upset, you have to admit that having a token launched on Binance in the current market automatically provides a token with a baseline FDV at TGE that is much higher than what it would be if it weren't listed there.
And with this, I would like to implore the top exchanges to start doing a few more things:
Start listing more tokens are already trading on the secondary market that exhibit high organic user demand. Yes it's great business to take fees on self-hosted launches but you are harming the industry overall by forcing all projects to resort to having a points system pre-TGE to match up to your standards.
Look for projects that have actual organic users and market fit, where the token fits naturally within the incentive flywheel.
Avoid super low float (<5%) token launches.
Stop getting tricked by vaporware projects with fake data.
Reward teams that have built real and loyal communities, not ones just there for an airdrop.
Actually hire analysts that are knowledgeable about what a "good" token airdrop at TGE looks like, including what the plan is for the token to be used after the TGE.
Ask yourself if airdrop recipients are going to dump or hold the token and if the answer is the former, make that your criteria for listing rejections instead.
This is really the tip of the iceberg on this issue and there are so many other factors that play into this that others have already gone into in depth already, so I'll stop here 👋.
