2024 has been the year of airdrops, with many SolcialFi projects like GMRX, Everyworld, Block, Nibiru, Notcoin etc all sending out allocated tokens to their dedicated communities after weeks of tasks and testing. Many people have made good money from these airdrops and have been pulled out of some financial problems they were faced with. Notcoin and GMRX are two notable mentions that did very well during their launch. Months after their launch, all of them are down more than 50% from their listing prices.

$GMRX is down over 85% from its ATH

$BLOCK is down over 76% from its ATH

$EVERY is down over 66% from its ATH

$NIBIRU is down over 46% from its ATH

One piece of "wisdom" in Crypto is to be biased towards new projects. Why? Fresher tokenomics and people are obsessed with bright shiny objections.
But in this cycle so far, a lot of "new launches" have sucked. In fact, meme coins have outperformed many of them. Look at Tremp and Boden, 2 meme coins from my previous article. They are up over 700% and 500% respectively, with many more meme coins launching and performing far better than other "useful" tokens.

So What's Going On?

Venture Capitalists are gobbling up all the profits before we get a chance to.

1. Teams are raising money privately: ICO has allowed teams to raise money by selling tokens directly to retail. So, teams are now raising money from seed deals only accessible to VCs and private markets. Whereas things like ETH and BTC were accessible to anyone years ago.

2. Many new tokens are low-float and high FDV: And these are the real sh*tcoins. Low float means that the percentage of tokens circulating in the market is very low compared to the total supply. Fully Diluted Valuation = Total Token Supply x Price. This model has negative consequences such as:

a. As locked tokens enter the market, they'll exert downward pressure on the price.

b. As many people only use the market cap for evaluation, this model gives the wrong impression that the token is undervalued.

c. Low-float tokens are much easier to manipulate. The lower the float, the lower the money required to maintain tokens at certain prices.

d. Frauds like SBF borrowed against these overvalued tokens. But in reality, the actual value of these tokens was much lower than the borrowed amount.

3. Private rounds are creating rigged markets: In private markets, teams are selling locked tokens to VCs and early-stage investors. These are sold at a much lower valuation than when they enter the market. So a token might be trading at $1 when it hits the markets, but it was available to earlier investors at say $0.20.

You might assume that these tokens can't be traded because they're locked. However, locked tokens are traded over-the-counter (OTC) using legal contracts. These markets are referred to as "Phantom Markets". Locked tokens are usually traded at a discount compared to the normal crypto market. That's usually fine. However, in the case of some low-float high-FDV tokens, these discounts can be massive. For example, if the FDV of a token is $5B, it could be trading on the phantom market for only $2B.

This creates two separate markets for us and VCs. We now have a cheaper phantom market for VC aristocrats and another market with inflated prices for plebs like us. This is a huge problem. VCs can simply buy cheap locked tokens on the phantom market and dump them all on retail once they become unlocked.

What Should We Do?

1. Just don't buy these low-float high FDV tokens: You are voting with your capital. If no one buys these tokens, then teams will change how the tokens are launched.

But if you must insist that the project is the greatest thing since sliced bread, here are some pointers for evaluation:

a. Look at the unlock schedule and expect price impact leading up to the unlocks.

b. Look at the probability of those tokens entering the market by considering the price VCs paid for the token. Typically, the higher the return for the VC, the higher the probability of dumping.

c. Look at the demand for the token in the OTC phantom market. If there's high demand and prices are closer to liquid markets, that's a bullish sign. If it's the opposite, it's bearish. However, it can be difficult to get this data.

d. Compare the FDV of your token to other projects in its category. You'll know if your project is undervalued or overvalued.

e. Consider the overall direction of the crypto market and the protocol's category. In the last bull run, for example, Solana and Avalanche pumped a lot due to the Alt-1 narrative.

f. Do all the normal evaluation stuff. Like the protocol's positioning vs competitors.

But it might be wiser to be patient. Really good projects with terrible tokenomics may have horrible price action until all the unlocks happen. This can take months to years. And most market participants will write off these projects as bad investments.

As the token gets closer to 100% float, prices will be really low. However, these might be the biggest buying opportunities for many tokens.

2. Be on the lookout for fake high floats: Some projects may claim that 15% of their tokens are unlocked. But within that 15%, the majority will be allocated to categories like "ecosystem growth fund" and "protocol development".

It is impossible for outsiders to know how these funds will be used. In practice, these tokens haven't entered the market yet. So, the real sellable float for these tokens could be 2-3%. And the rest of the supply might enter the market out of nowhere and crash the price.

You should be looking at who holds the unlocked supply and when it'll enter the market.