Analysis
What's Going on with New Tokens?
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, memecoins have outperformed many of them.
What's going on? In a recent article, Cobie tracked the numbers of Ethereum, Solana, Optimism, and StarkNet numbers to show declining returns from new launches.
So, why is this happening?
Essentially, 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:
- As locked tokens enter the market, they'll exert downward pressure on the price.
- As many people only use the market cap for evaluation, this model gives the wrong impression that the token is undervalued.
- Low-float tokens are much easier to manipulate. The lower the float, the lower the money required to maintain tokens at certain prices.
- 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'll 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 $.20.
You might assume that these tokens can't be traded because they're locked. But locked tokens are traded over-the-counter (OTC) using legal contracts. Cobie, an OG in crypto, calls these markets "Phantom Markets."
Locked tokens are usually traded at a discount compared to the normal crypto market. That's usually fine. But 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 basically creates two separate markets for plebs 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 you do?
Just don't buy these low-float high FDV tokens. You are basically 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:
- Look at the unlock schedule and expect price impact leading up to the unlocks.
- Look at the probability of that 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 for dumping.
- 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. It can be difficult to get this data however.
- Compare the FDV of your token to other projects in its category. You'll know if your project is undervalued or overvalued.
- 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.
- 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 get closer to 100% float, prices will be really low. But these might be the biggest buying opportunities for many tokens.
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.
Anyways, each cycle does become harder. But I still think Crypto's the best opportunity of our generation despite these articles.
Adapt or die.
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Updates
ETH ETF Approval, What Happened?
The possible approval of a spot Ether ETF has recently sparked much interest, driven by important political implications and market speculation.
I have tried to distill what has happened over the last few weeks to understand what's on.
Initially, Bloomberg analysts estimated only a 25% chance of approval.
But as of May 23rd, 2024, these odds have jumped to 75% due to rumors that the SEC might change its stance.
This shift was further supported when the SEC asked for faster updates on 19B-4 filings.
This is a clear signal of more proactive communication between the SEC, issuers, and exchanges.
Soon after, the SEC informed exchanges that approval by the May 23rd deadline was likely.
It's important to note that while 19B-4 filings are a necessary step, the actual trading of ETFs requires the approval of S-1 filings, which may take a few more weeks or even months.
The market has reacted positively to these developments.
Polymarket odds for ETF approval jumped from 13% to 69%!
However, the approval of 19B-4s does not mean that the ETF is fully approved yet. This is because S-1s also need to be approved first.
This uncertainty keeps the odds from increasing, but the momentum is strong.
Security or Not?
Approving these ETFs is more than just a market event; it has significant political importance.
By approving an Ether ETF, the SEC would effectively give up its ability to label Ethereum and similar cryptocurrencies as securities.
This then becomes a political debate as over 50 million Americans hold cryptocurrencies.
Donald Trump himself has expressed a neutral stance on cryptocurrencies and launched a fundraising page accepting crypto donations.
Having notable bipartisan support, this reflects the growing recognition of the importance of crypto.
The effect on market
The speculation surrounding the approval process has its own market effect.
The rumors added the entire SOL market cap to ETH in a single move. (+22% on the daily with $80B+ added)
Not only that..
Inflows into the BTC ETF have experienced a positive uptrend lately. Net inflows have stayed positive over the last week.
The time between the approval of 19B-4s and S-1s offers a chance for speculation, possibly driving positive market sentiment.
One aspect to consider is the potential sell-offs by ETHE which hold about $9B worth of Ether.
If this mirrors previous GBTC sell-offs, we might see significant sales volume in the early months of trading.
In the long-run, defining Ether as a non-security and making it easier for institutions to invest are positive signs for the crypto market.
In conclusion, get ready for action boys. If the ETH ETF gets approved, then expect some crazy price action.
🚀 DeFi Catalysts
Fantom Foundation introduced a new L1 called Sonic Network. It'll have a native L2 bridge connected to Ethereum. At genesis, $FTM can be migrated to $S 1:1.
Redacted Cartel is discussing the rebranding to Dinero Protocol. $BTRFLY will be converted to $DINERO. And their stablecoin will be $pxUSD.
SEI Network is voting on its v2 upgrade. If it passes, the network will upgrade the mainnet on May 27th
Jupiter Exchange launched the Giant Unified Market initiative. They aim to bring all assets into a single market, cheaply accessible to everyone.
Synthetix is undergoing v3 rollout. It's also enhancing the scalability and decentralization of the Synthetix stablecoin, sUSD.
Arbitrum DAO will start voting on the Gaming Catalyst Program. It looks to allocate 200m $ARB over three years to promote Arbitrum GameFi.
Lyra Finance introduced C-Tokens, their tokenized derivative. It earns yield from options premiums, ETH staking rewards, EigenLayer points, boosted re-staking points, and Lyra points.
MakerDAO is discussing the offboarding of Monetalis. It is an Arranger that oversees nearly $1.9 billion in assets for Maker. But reportedly, they had failed in their responsibilities.
🪂 Airdrop Alpha
Rabby wallet has set May 31st as the final date to claim the first round of Rabby Initial Points. Claim your points fast.
deBridge Finance introduced the $DBR governance token. Other details such as distribution ratios and token utility are also live.
SparkLend, a subDAO of MakerDAO, launched season 2 of SPK pre-farming.
6.66 million SPK tokens will be distributed monthly.
ZkSync posted a tweet indicating that they'll launch their token after the upcoming v24 upgrade.
Linea, an zkEVM L2, started the "Volt 1" of the Linea Surge program. It's a points program that incentivizes people to bridge and use the network.
ZKX launched its referral program. It'll give you potential airdrop eligibility and $USDC rewards as referral commission.
🚀 New Launches
Sanko mainnet is live. It is a gaming-focused L3 based on the Arbitrum Orbit.
Cyber launched an L2 for social. It'll have custom protocols and advanced developer tools specifically for social applications.
Genome launched the public registration of .gno domains. It is a domain system built for the Gnosis chain.
Catalyst AMM is now live on mainnet. It allows OP Stack rollups to share liquidity. ETH pool that connects Base, OP Mainnet, and Blast is now live.
📰 Industry News
MetaMask, the most used EVM wallet, might integrate Bitcoin. This is great for both BTC and MetaMask adoption.
Pump.fun was exploited for $1.9 million by an ex-employee. He was arrested and is now out on bail.
Uniswap Labs and Across Protocol introduced a new standard for cross-chain intends. UniswapX will be using the ERC-7683 standard.
🐦⬛ X Hits
- Ethereum Foundation researchers are facing backlash over Eigenlayer participation.
- Easy-to-read summary of the FIT21 Statement.
- When are you expected to hear from the SEC regarding ETH ETF?
- Marketing done right from a crypto protocol perspective.
- Hayes's new article TLDR
😂 Meme
| 5:6 AM • May 21, 2024 1265 | Retweets | 10098 | Likes |
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Until next time,
Edgy
Today's email was written by Edgy, Yayya, and Lorenzo.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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