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.

As Binance Research states, "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 alarming 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, creating a false sense of value and potential for traders. As the locked tokens are gradually released, the market will face a significant challenge in absorbing this influx of supply without experiencing substantial price declines.

Addressing The Trend
To address this concerning 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. By promoting transparency, responsible token distribution, and sustainable growth, Binance aims to mitigate the risks associated with tokens with high valuations and low initial circulating supply.

As the cryptocurrency market continues to evolve, it is crucial for investors and traders to be aware of these trends and their potential implications. High valuations and low liquidity can lead to unsustainable price growth, followed by significant sell-offs and market volatility. By understanding these risks and supporting projects with strong fundamentals and responsible token distribution, the crypto community can work towards a more stable and healthy market environment.

It is essential for project teams to prioritize long-term sustainability over short-term gains and to ensure that their token distribution models align with the needs of their ecosystem and community. Exchanges like Binance have a crucial role to play in promoting responsible listing practices and fostering a more transparent and accountable crypto market.

As the industry matures, it is expected that more exchanges and regulatory bodies will take steps to address the risks associated with tokens with high valuations and low initial circulating supply. By working together to promote responsible practices and sustainable growth, the crypto community can build a stronger and more resilient ecosystem that serves the needs of all stakeholders.