PUSH tokenomics is the basis for the success of a crypto project. However, many projects use a controversial strategy. This is done using “lockup” or “low liquidity with high diluted valuation” (FDV) model.. In theory, this helps control the supply by locking most tokens for a certain period of time. But is it really a good plan for individual investors?
Lockup model: good or bad idea for cryptocurrency?
The “lock-in” model aims to limit the circulation of tokens at the beginning of the project. In fact, most tokens, especially those belonging to developers or investors, are subject to so-called grace periods. allotment. That means the tokens are blocked for a whilethen it unlocks linearly over time.
So fewer tokens on the market often mean a artificially inflated valuation. This low liquidity actually pushes the price of the token to artificially rise as the demand seems higher than the circulating supply. However, this valuation is misleading as it does not reflect the true value of the project.
This is why we can witness significant gaps between the market capitalization of the token and its Fully diluted value (FDV), namely the market capitalization that the project would have after the issuance of all tokens.
Unfortunately, this situation often hides opaque practices. In fact, it is generally large private investors who benefit from the increase. On their part, there were crumbs left for the general public.
Lockup and crypto: The situation confirmed by the numbers
Last May, Binance Research teams published a study on this topic. With a title « Low Float & High FDV: How Did We Get Here? »The aim of this study is to analyze this phenomenon.
The researchers found a significant rise in popularity of tokens marketed with low float and high diluted valuation (FDV). This model, while seemingly attractive to boost prices in the short term, hides a much more complex and risky reality, especially for public investors.
According to data from Binance, between 2024 and 2030 approx $155 billion in tokens will be unlocked. Not surprisingly, this will put enormous pressure on prices. Indeed, when these tokens are released, the market finds itself saturated and without sufficient demand to offset this supply. As a result, prices inevitably fall. This dilution particularly affects individual investors and benefits VCs.
Market cap/FDV ratio at record low
So much so that in 2024 The MC/FDV ratio reached an all-time low to 12.3%. This means that most of the tokens are not yet in circulation. A low ratio, such as 12.3% in 2024, indicates that a large portion of the tokens are not yet in the market, which could lead to dilution and downward pressure on the price when these tokens are released.
As a reminder, MC/FDV ratio compares a token’s current market capitalization (MC) to its fully diluted valuation (FDV). Market cap is the total value of tokens in circulation, while FDV represents the potential value if all tokens (circulating and locked) were in circulation.
So, as an investor, it is important to keep an eye on upcoming unlocks. But don’t panic, every month we revisit the main upcoming unlocksso you can prepare.