Coinmetrics Report Explores the Risks of High FDVs in Crypto Markets

A new report by Coinmetrics, along with researchers Victor Ramirez, Matías Andrade, and Tanay Ved, delves into the complexities of crypto tokenomics. The report explores the intricate balance of token distribution, valuation, and market impact.

Understanding FDV and Token Float: Key Insights From Coinmetrics

In recent years, the launch Fully Diluted Valuations (FDVs) of crypto tokens have fluctuated significantly. According to Coinmetrics and researchers Ramirez, Andrade, and Ved, 2020 saw a median FDV of $140 million, largely from decentralized finance (defi) protocols. This figure skyrocketed to $1.4 billion in 2021, driven by non-fungible tokens (NFTs) and gaming projects, before dipping to $800 million in 2022.

The resurgence in 2023 and 2024, with FDVs reaching $2.4 billion and $1 billion respectively, highlights the growing interest in alternative layer one (L1) solutions and Solana projects. The report emphasizes the importance of understanding FDV in relation to token float, or the supply available to the public. Tokens like bitcoin (BTC), with a high float relative to its total supply, are seen as more stable and less prone to market shocks.

However, tokens with high FDVs and low floats, such as worldcoin (WLD) with an $800 million market cap versus a $34 billion FDV, can misrepresent true valuations. The reseachers argue that this discrepancy can lead to inflated and illusory valuations, drawing parallels to the historical criticism faced by FTX’s token FTT. Airdrops are another focal point of the report, used by many protocols to distribute tokens and incentivize adoption.

Coinmetrics’ data reveals that while airdrops can initially boost a token’s value, the majority of these tokens depreciate over time. The researchers cite BONK as a notable exception, achieving an approximate 8x return. However, they caution against the growing trend of airdrop farming, where users generate artificial activity to receive tokens, potentially undermining the long-term sustainability of these initiatives.

What do you think about the latest Coinmetrics report? Share your thoughts and opinions about this subject in the comments section below.

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