Reshaping the future of blockchain: the need to thoroughly rethink token distribution

A major impediment to widespread mainstream blockchain adoption remains the widespread feeling that the space remains too focused on speculation. To build a sustainable ecosystem and attract more users, protocols must fundamentally rethink how tokens are distributed. The focus must shift from inflated valuations and speculative price action to long-term utility and transparency.

This year, the cryptocurrency market has witnessed a resurgence in token issuance, many of which have adopted the “low circulation, high fully diluted value (FDV)” strategy. The plan is simple: launch at a high price, lead with a multi-billion dollar valuation, and create hype around the project’s potential. This script, while widely criticized, is irresistible to many attention-seeking projects. So what’s the problem? Such a script is completely artificial hype.

The “low circulation, high FDV” model involves releasing a small portion of the total token supply (circulating supply) to the market while pricing each token very high. This creates a falsely inflated FDV for projects, while many token holders fail to take into account the remaining token supply that has yet to enter circulation.

While this approach can generate significant initial interest from users, numerous projects that adopt this model see short-term benefits that disintegrate in the long term. This is not a sustainable approach and diverts attention away from the real focus of all crypto projects - long-term utility and protocol adoption. Bitcoin took years to build a user base - today, projects can do that with a single large launch.

Cryptocurrency must make bolder changes to refocus the industry on distribution and utility while avoiding price speculation.

There is a better way to manage token issuance - one that prioritizes long-term utility and organic growth over speculative gains. Protocols are beginning to experiment with alternative models. For example, the blockchain-based social platform FRIEND launched with 100% of the circulating supply, distributing all tokens to the community from day one. After Lava Network took a radically different approach, I firmly believe the industry must adopt a new standard for how blockchain projects should manage token distribution and valuation.

A Market-Derived Approach

By sharing lessons learned at Lava, an access layer to blockchains, I hope we can inspire a shift toward more responsible and sustainable token issuance practices. Together, we build a stronger, more resilient blockchain ecosystem that benefits all participants.

This alternative token issuance strategy, centered around decentralized exchange (DEX) trading, aims to reduce speculation and organically cultivate a community of believers and long-term network participants through market-derived FDV (fully diluted valuation). By ensuring a high initial circulating supply and capped supply, this approach places more focus on the intrinsic utility of the token and the real-world potential of the project, rather than speculative pricing.

This strategy provides several benefits:

1. Reduced speculation: With a higher initial circulation, the market can more accurately price the token based on its utility and demand, rather than based on speculative hype.

2. Organic growth: Market-derived FDV fosters a community focused on the long-term success and utility of the project.

3. Transparency and trust: By avoiding the pitfalls of inflated valuations, this approach builds greater trust with the community and stakeholders, ensuring a more stable and predictable path forward.

While some may argue that the market-derived FDV approach may lead to the risk of slower initial growth or underestimation, the benefits of a stable, sustainable protocol in the long run far outweigh these short-term concerns.

Recent commentary in the blockchain space has also highlighted the need for change. For example, an article on CoinDesk written by Azeem Khan correctly argues for the need to shift away from inflated valuations that attract retail investors and revitalize the venture capital token market. While this view recognizes the flaws of high FDV, it focuses primarily on attracting retail investors by keeping valuations low and creating market hype. However, this is not enough. A long-term sustainable approach should not focus solely on reducing valuations, but on creating value and utility that truly resonates with retail investors and the broader community. The focus should be on transparency, realistic valuations, and promoting organic growth, not just the immediate excitement of the market.

Building a Sustainable Blockchain Ecosystem

The blockchain industry is still in its infancy, and how token issuance is managed today will shape the future of the ecosystem. A market-derived FDV approach is a call to action for other projects to prioritize transparency, long-term utility, and community trust over short-term gains.

The blockchain industry is at a crossroads. Continuing down the path of low circulation, high FDV issuance will only lead to more market instability and investor disillusionment. By taking a market-derived FDV approach, projects can build stronger, more resilient ecosystems that benefit all participants. It's time for the industry to focus on building real products - not on the next shiny new token.