Concerns have been rising over the trend of tokens with high valuations but low initial circulating supply, sparking debates about their sustainability for traders post-token generation event (TGE).

Binance Research's latest findings highlight this trend, showing more tokens being launched with limited circulating supply and inflated valuations.

High Valuation, Low Liquidity Crisis

A surge in private market capital, coupled with aggressive valuations and a positive market outlook, has encouraged the launch of cryptocurrency tokens at very high, fully diluted valuations (FDVs).

The report projects that approximately $155 billion worth of tokens will be unlocked between 2024 and 2030. This significant influx of tokens, without a corresponding increase in buy-side demand and capital flows, could lead to substantial selling pressure, challenging the market's ability to absorb these tokens without a negative impact on prices.

"Under bullish market conditions, these tokens can see rapid price increases due to limited liquidity available for trading at launch. However, this price growth is unsustainable when a wave of token supply hits the market upon unlocking."

The analysis also points to a growing gap between market caps and FDVs for tokens launched in the past three years, with 2024's FDVs already nearing 2023's totals. Tokens launched in 2024 have an average MC/FDV ratio of just 12.3%, indicating about $80 billion in new demand is needed to match future supply increases and maintain current prices.

This trend is largely driven by recent token launches with very low circulating supplies, often under 20% of the total supply. With most tokens locked, their FDVs are inflated compared to actual market caps.

Addressing The Trend

As previously reported, over 80% of newly listed cryptocurrencies have seen a decline in value on Binance.

It was also noted that most new tokens listed on Binance are backed by top-tier VC firms and launched at inflated valuations, with the average FDV exceeding $4.2 billion at listing, and some tokens even surpassing $11 billion. These projects often lack an established user base or strong community support.

To address this trend, Binance has proposed fostering a healthy and sustainable market environment. This involves engaging small to medium projects and inviting high-quality teams and projects to apply for the exchange’s listing programs, such as direct listing, Launchpools, and Megadrops.