Lightspeed Newsletter: Anatomy of a token launch

Blockworks2024/05/28 02:13

By:Blockworks

Maybe there’s no silver bullet to avoiding most tokens dumping after launch…

Howdy!

Today’s Lightspeed is a bit shorter, on account of the US office being closed for Memorial Day.

Hopefully you’re soaking in a bit of sun today. And if any current or former members of the military happen to be reading this, thank you for your service!

High FDV, low float, no dice

If you want to kick a crypto founder or VC into fight or flight mode, ask him about his low float, high fully diluted valuation (FDV) token launch.

The online part of the crypto world has been blaming these sorts of token launches — where the amount of initially available tokens is small, and the total supply is large — on lackluster returns that purportedly benefit insiders for some newly-circulating coins. Boiled down, some allege that inflated FDVs are making it difficult for retail investors to capture any upside.

One chart has been making the rounds showing a large majority of new Binance listings seeing price declines in recent months.

The prodigious crypto poster cobie opined on the subject at length, concluding that new token launches are “uninvestable” because of “the privatization of price discovery and unhealthy inflated valuations from VC markets that ignore supply and demand.”

In the VC corner, Dragonfly managing partner Haseeb Qureshi argued that new token prices are actually down because risky assets became generally less attractive when instability flared up in the Middle East.

In Solana land, where token launches have been a big driver of DeFi activity in recent months, it’s unclear how much of a problem this all is. Jito and Jupiter’s tokens were among the rare few to appreciate in price following their Binance listing despite having FDVs in the billions, per CoinGecko. Still, the Solana ecosystem token PYTH declined post its early February listing, per the aforementioned chart.

I spoke with David Lu, core contributor at Drift Labs, about the perpetuals DEX’s airdrop from last week. DRIFT launched with 17% of its total supply circulating, Lu said, adding that many tokens launch with closer to 10% in circulation.

Lu said this put Drift’s community on a more level playing field with insiders.

“The high FDV just benefits VCs and insiders and really hurts people because your real users cannot participate. And I think at some point the music stops, and once your community leaves, that’s it for your project,” Lu said.

DRIFT’s price has climbed over the past week, though its exchange listings were somewhat staggered , and I won’t claim to know causally why the price is up.

But maybe there’s no silver bullet to avoiding most tokens dumping after launch. If making the token price go up was as simple as punching numbers in differently, wouldn’t everyone be doing it?

— Jack Kubinec