Recently, the cryptocurrency market has experienced a general decline. Is it because exchanges have listed too many VC tokens, causing the market to be drained? Have exchanges contributed to this process? This article will provide you with answers.
Table of Contents:
– Siphoning of Market Funds by “VC Tokens”?
– Where Did the Incremental Funds Go?
– Existing Tokens Sucking Blood Together
– Role of Exchanges
– Can Exchanges Do Better?
– Providing Opportunities for “Valuable” Projects
– Establishing Clearer Standards
– More Transparent Information Disclosure
– Conclusion
In the recent market downturn, there has been a growing belief that exchanges listing an excessive number of “VC tokens” have drained the market liquidity. The anti-VC sentiment has been evident since the era of meme hype, and this time the contradiction has reached new heights with the market decline.
Has VC token sucked the blood out of the market? Have exchanges fueled this process? What are the demands of users for token listings? Odaily will provide an interpretation in this article.
Regardless of the impact of exchanges listing “VC tokens,” the core entry point for users into the crypto space is still through purchasing USDT or USDC. The total supply of stablecoins represents the total liquidity within the market to some extent. Therefore, let’s compare the growth of “stablecoin supply” and “market value of VC tokens” as a preliminary analysis.
A year ago, the circulating market value of USDT was $83.2 billion, and it has currently reached $112.7 billion, an increase of $29.5 billion. On the other hand, USDC has increased from $28.4 billion to $32.6 billion, with an increment of $4.2 billion. The combined incremental funds for both stablecoins over the past year amount to $33.7 billion.
Now, let’s look at ten VC tokens that were listed in the past six months, with a total circulating market value of $5.47 billion: PYTH ($1.1 billion), ENA ($950 million), STRK ($900 million), ZRO ($670 million), ZK ($600 million), ETHFI ($360 million), DYM ($270 million), ALT ($270 million), ATH ($250 million), and EZ ($100 million).
Furthermore, in the second half of 2023, there are mega tokens like TIA ($1.17 billion) and SEI ($1.05 billion) that exist. The calculated circulating market value is based on at least a 20% – 30% decline in recent weeks. Therefore, we can come to the preliminary conclusion that over 50% of the incremental funds have been captured by dozens of “VC tokens.”
ARB was listed in March 2023 with an initial circulating supply of 1.275 billion tokens, and based on a price of 1.25 USDT, the initial market value was $1.02 billion. Currently, ARB’s circulating market value is $2.5 billion, but the token price has dropped by about 40%. If we understand the increase in circulating market value as the net inflow of funds, token holders are still losing value, indicating that the funds can only flow to the unlocked portion.
In the previous section, we concluded that “VC tokens” indeed have a significant siphoning effect on funds. So, have exchanges contributed to this process?
Regarding this question, He Yi, co-founder of Binance, expressed his views on the X platform: “The cryptocurrency market is a free market, and the liquidity and trading volume of various trading platforms are shared. Even if Binance does not list new projects, these projects will still exist, and funds will flow to the entire industry. In addition to VC projects unlocking, meme coins, dog coins on the chain, scams, and capital pools will also divert funds. After ETF approval, traditional financial markets will also divert funds directly to the cryptocurrency market.”
In summary, his views can be transformed into “Tokens that exchanges do not list can still be dumped elsewhere” and “Fund diversion cannot be solely attributed to VC unlocking.” As we have proven in the previous section, the latter view ignores two important factors: “user attributes in different scenarios” and “leverage ratios in different scenarios.”
In the on-chain scenario, apart from users focusing on DeFi farming or meme hype, most traders have a psychological “aversion” to high-market value projects due to the low risk-reward ratio and the ability to quickly sell due to AMM features. If a project has a market value of billions and an FDV that is sky-high, it is no different from reserving 90% of SCAM dog tokens in the eyes of on-chain users, leading to a significant decrease in their willingness to participate.
On the other hand, exchanges offer leverage functions that are much higher than on-chain scenarios, with leverage ratios reaching up to tens of times. This provides sufficient liquidity for “selling.” The on-chain reception capacity is far inferior to the centralized trading market with leverage.
Therefore, the “user attributes” and “leverage ratios” in different scenarios significantly affect the willingness and ability to receive VC unlocking tokens. If project transactions are conducted outside centralized exchanges, prices are more likely to quickly return to reasonable ranges, rather than gradually decline with unlocking, or situations where the circulating market value increases while the token price drops. Thus, it cannot be said that centralized exchanges have no impact on the VC unlocking process.
For exchanges, “king-sized” projects like ZKsync and LayerZero will never be left unlisted as long as the project teams do not exit or hackers do not empty the wallets. However, in other cases, users have many demands, and exchanges have many better choices.
For some valuable projects that can generate high profits and cash flows, such as the recent popular project Pump.fun with an annual income of $219 million, many users are eagerly awaiting their token issuance and willing to buy them. Alternatively, projects like BananaGun and Whales Market have market values of $160 million and $40 million, respectively.
The data of these projects is not constructed by VC accumulation or meme hype, but they genuinely cater to the needs of users. They have gradually grown from small-market value projects to large-market value projects. In the last bull run, SOL and MATIC were able to develop after being listed on exchanges with market values in the tens of millions of dollars. However, in this round, we have not seen the same opportunities and treatment for these projects.
Compared to projects that disappear after token issuance, giving more opportunities to valuable projects is one of the fundamental demands of users.
How can we determine valuable projects? Assessing them based on financial data is a very direct and effective approach. Here, financial data does not refer to indicators that are easily manipulated, such as address count and interaction count, but rather tangible data such as TVL and project revenue. Some users worry that this may lead to an orientation towards exchange entrepreneurship. However, traditional markets like the US stock market do not decline due to clear standards. Instead, they provide more opportunities for genuinely valuable projects, rather than some skin-deep AI projects, accumulation projects, and hype projects.
Furthermore, it is even possible to establish delisting standards for these projects, achieving the goal of “leaving liquidity to those in need” and guiding the healthy development of the market.
Token operational data, such as how and when they will face unlocking and how much will be unlocked, cannot be queried on exchanges. Of course, the market currently generally believes that this is not the responsibility of exchanges.
The power to go long or short lies entirely with traders. However, assuming that exchanges have clearly notified users of declining operational data and imminent large-scale unlocking, but users still choose to take over, then there is no one else to blame.
Blaming the entire market decline on exchanges is not entirely correct, but considering oneself completely correct and educating users is not the best approach either. As the party with the most influential voice and traffic in the industry, exchanges still have many better choices in guiding the healthy and rapid development of the industry and projects.
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