Forget about chasing the next 1000x for a second, or contemplating if you should be a paper hand or a diamond hand in that project. It’s time to dive deep into the DeFi jungle where project owners market their tokens like it is the next exotic bird in the paradise of wealth.

Now, before you go ape-ing into the next shiny token that flies by you, you must pay attention to the key that can help you crack the code to know which of these tokens in the market is worth your time and investment.

This key is simply known as tokenomics- the secret recipe that can either help a token give you that 1000x you are after, or take you back to the first day you heard about cryptocurrency.

In this article, the focus will be on an important ingredient that makes up this recipe, known as the float which refers to the number of shares of a token available for trading in the market. It is classified into high float and low float tokens and knowing how they play out will be the factor that will determine if you will strike gold or get rekt.

Picture it this way: imagine there is a limited edition NFT where only a handful exist and everyone is scrambling to cop one. Bam! Instant hype, Twitter is on fire, Instant visibility, floor price keeps increasing due to the limited supply and high demand.

Now imagine another NFT with unlimited circulating supply and easy access for everyone to get it. Bam! Hype dies, and the price just remains unaffected. That is the hallmark of high-float and low-float tokens.

Tokens with either a high or low float have different implications on their liquidity, volatility, as well as supply-demand dynamics. So which of them is preferable for the short and long run? In this article, you will discover the differences between high-float tokens and low-float tokens, as well as what to consider when analyzing their tokenomics.

The Concept of Tokenomics

Before delving fully into high-float and low-float tokens, it is important to understand the concept of tokenomics.

Tokenomics refers to the economic properties and principles that govern how a token is predetermined to behave in a particular ecosystem.

It embodies various economic aspects of a token including but not limited to token circulating supply, token total and maximum supply, inflation and deflation, staking, governance, team allocation, airdrop allocation, marketing allocation, vesting schedule, etc.

Before investing in any project, understanding tokenomics is a crucial aspect of every research that you need to do.

High-Float Tokens

High float tokens are tokens with a large circulating supply in the market. The circulating supply refers to the number of tokens that are available for trading. It doesn’t include tokens for the team, locked tokens, or tokens reserved for the future.

It is calculated based on this formula:

Market Capitalization >/= Fully diluted valuation of the token

Or

Circulating supply >/= total supply or maximum supply of the token

High-float tokens are less volatile than low-float tokens, as there are more tokens available in the market to buy and sell, which allows for a more stable demand-supply dynamic.

They are more liquid as there are more tokens available for trading in the market. This allows for easier buying and selling of large quantities of tokens. Due to this, they are suitable for long-term investments.

Here is an example of a high-float token:

Low-Float Tokens

On the other hand, low-float tokens are those tokens that have a limited number of tokens circulating in the market. This can create an imbalance in demand and supply, which has the ripple effect of greater price fluctuations and volatility.

It is calculated based on this formula:

Market Capitalization < Fully diluted valuation of the token

Or

Circulating supply < total supply or maximum supply of the token

Note that low-float tokens can be very profitable for you if you are a short-term trader, but if you are more of a long-term investor, such tokens mightn’t be the best for you due to their very volatile nature.

However, scarcity breeds desire and this can push these tokens to the moon faster than you can think of. Nevertheless, the majority of them come with less liquidity which makes it challenging to buy and sell large quantities of such tokens.

Here is an example of a low-float token:

Key Points to Note When Analyzing the Tokenomics of a High-Float or Low-Float Token

When analyzing a low-float or high-float token based on tokenomics, here are some factors to always have in mind:

1) Token’s Supply and Distribution: The total supply of the token and its distribution can affect the value of the token in so many ways, especially as it concerns liquidity and volatility.

2) Token’s Utility: The uniqueness of a project has a part to play in determining if there would be a growth potential or not, and this can greatly affect the acceptance of the token.

3) Staking and Governance: If a token comes with staking, it can be an incentive for token holders to want to hold and continue with the project. For governance, you’d have to check if the token in question is the governance token, i.e. the token that is used in decision-making.

4) Experience of the Team and Community Involvement: The experience and expertise of the team can affect the development of the token, Also, the extent of community engagement and involvement can play a part in determining the amount of support the token will get as it concerns its value and adoption by the cryptocurrency community.

5) Trends in the Market: As much as you want to pay attention to the float a token comes with, it is also important that you are in tune with the overall state of the market; trading volume, liquidity, market capitalization, etc. All of these also have a part to play in affecting the value of the token.

Final Words

Generally, low-float tokens are more volatile than high-float tokens. Picture it this way: with fewer tokens in circulation, if a big sell is made, the price can easily be swayed, just as it can be swayed once a big buy comes in as well. You might be happy at one point seeing the market cap rising due to a big buy, but a large sell can easily bring the market cap right down again.

However, there is a catch to this! Volatility isn’t just about float, there is a dance between other factors as well- rumors, news, project updates, fear or greed in the crypto market, etc, that can easily send a token spiraling up or down regardless of the float.

Thus, before crowning the ultimate volatility king, you must pay attention to the general cryptocurrency ecosystem just as mentioned in the points to consider when analyzing the float of a token as shared in this article.

Ultimately, you trying to determine which of your investment options is the most volatile stems from a place of making a profit and reducing losses. Do well to remember that cryptocurrency itself is volatile. Thus before making any investment, look at the full picture, and don’t ever forget the golden rule of DeFi: only invest what you can afford to lose.