Author: Ethan Luc Source: coindesk Translation: Shan Ouba, Golden Finance
The main factor hindering mainstream blockchain adoption remains the widespread perception that the field is still too focused on speculation. In order to build a sustainable ecosystem and attract more users, protocols must fundamentally rethink the way tokens are distributed. The focus must shift from inflated valuations and speculative price behavior 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: issue at a high price, lead with a multi-billion dollar valuation, and build hype around the project's potential. This strategy has been widely criticized, but it has proven irresistible to many projects chasing attention. The problem? It's completely artificial.
The “low float, high FDV” model involves releasing a small portion of the total token supply (float) into the market while assigning a high price to each token. This creates a deceptive FDV for projects, with many token holders failing to account for the remaining token supply that remains to be circulated.
While this approach can generate huge initial interest, many projects that adopt this model see only short-term benefits that disintegrate over the long term. This is not a sustainable approach and distracts all crypto projects from what should be the real focus — long-term utility and protocol adoption. It took Bitcoin years to build a user base — and now projects can do that with a single massive launch.
Crypto must make bolder bets 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 a 100% floating issuance, distributing all tokens to the community from day one. After Lava Network took a radically different approach, I believe the industry must adopt a new standard for how blockchain projects should approach token distribution and valuation.
Market-Led Approach
By sharing the experience and insights of Lava, the blockchain access layer, I hope we can inspire a shift to more responsible and sustainable token issuance practices. Together, we can build a stronger, more resilient blockchain ecosystem that benefits all participants.
This alternative token issuance strategy, centered around a market-derived FDV enabled by trading on a decentralized exchange (DEX), aims to reduce speculation and organically cultivate a community of believers and long-term network participants. By ensuring a higher initial circulating supply and capped supply, this approach places more focus on the intrinsic utility of the token and the real potential of the project, rather than speculative pricing.
This strategy has several key benefits:
Reduce Speculation:With a higher initial circulating supply, the market can more accurately price the token based on its utility and demand, rather than speculative hype.
Organic Growth:A market-derived FDV fosters a community focused on the long-term success and utility of the project.
Transparency and Trust:By avoiding the pitfalls of overvaluation, this approach builds greater trust with the community and stakeholders, ensuring a more stable and predictable path forward.
While some may argue that a market-derived FDV approach may lead to the risk of slower initial growth or undervaluation, the long-term benefits of a stable, sustainable protocol far outweigh these short-term concerns.
Recent commentary in the blockchain space has also highlighted the need for change. For example, an article by Azeem Khan on CoinDesk correctly argues that inflated valuations should be abandoned in order to attract retail investors and reinvigorate the VC token market. While this view acknowledges the shortcomings of high FDV, it focuses primarily on attracting retail investors by keeping valuations low and creating market hype.
However, this is far from enough. A long-term sustainable approach should not simply reduce valuations, but create real value and utility that resonates with retail investors and the broader community. The focus should be on transparency, realistic valuations, and promoting organic growth, not just immediate market excitement.
Building a Sustainable Blockchain Ecosystem
The blockchain industry is still in its infancy, and how token issuance is managed today will determine the future of the ecosystem. The market-derived FDV approach calls on 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 disappointment. By adopting 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, rather than focusing on the next shiny new token.
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