Low float, high FDV tokens: are VCs and influencers dumping on retail?

Transcript

recently there's been a lot of criticism of crypto projects launching a token with high fully diluted value but low circulating Supply this has led many to ask are VCS and influencers dumping on retail critics argue that this strategy benefits early investors such as VCS involved in preed and seeding funding rounds at the expense of later participants who buy into the project at inflated valuations the concern is that this approach not only harms individual investors but also damages The credibility of the entire crypto industry by promoting unsustainable practices and fostering distrust there is a call for change in the way tokens

are launched and distributed to ensure fairness accessibility for all potential investors emphasizing the importance of creating genuinely valuable tokens that offer equal opportunities in today's episode we will discuss what exactly is low float and high fdv are VCS and influencers really dumping on retail or is retail just rage quitting these coins and buying meme coins instead what happens when there is too little supply for there to be meaningful price Discovery and most importantly what does this mean for you as an investor and your bags GM good morning and welcome to milk Road radio the easiest path to get

smarter about crypto I'm Jay Hamilton joined by Kyle rehead head and we believe that onchain is the next online Kai welcome back to the show thank you sir excited to be here once again let's start at the beginning here for those who don't know what is O flat high fdv mean yeah crypto is a funny world because you have the technology jargon that is hard for people to wrap their heads around and understand and then you also have the finance jargon that's hard for people to understand so like there a very complicated industry uh so for those listeners that don't know what the heck this means don't worry you're not alone there are many that have no idea what the heck this means it's a weird

word but basically I'll explain it like this High fdv tokens this just means High fully diluted valuations what does that mean well you have a certain amount of tokens let's say a company or a protocol has I don't know one billion tokens okay all of those tokens times the price of that token is what the fully diluted valuation is now the weird part about well it's not even just crypto this happens in traditional Finance as well is that sometimes not all those tokens are available for people to actually buy and sell right they are tucked away that and they'll be released at a later date whether that's for investors or for incentivizing or whatever and so what the float considers is the circulating Supply how many tokens are actually available for people to buy and sell this is your market cap

this is like the circulating Supply so that certain percent of tokens times the price so you have a market cap you have a fully diluted valuation a high FTV means it's very very very high in price I mean worldcoin for example was worth like 150 billion and yet it only had like 2% or less than that of its Supply available that's low float there's not much of its token actually available that's what we call low float and so what's happening is there's a lot of tokens that have released in the last you know year let's say whether they're aird dropped or they've launched whatever and they release with like two to 10% or 15% of their circulating Supply available that's called Low float and so what it means is it makes the fully diluted valuation of this company

look much higher than it actually is so that's what low float High FDD is and why are we talking about this right now not just why are we talking about this why is everyone talking about this on Twitter because crypto Twitter likes to make up narratives and find something to talk about to be honest the real reason this is happening is because over the last two months previous to the EF getting approved a lot of people just lost money right Bitcoin pulled back out 20% all the alt coins got completely wrecked especially many of these low float High FTV ones and so a bunch of people were losing money and they were pissed off and so everyone went to Twitter to try to figure out what's going on and they decided to blame VC's and make up a bunch of other excuses which we'll talk about today some true

some probably not so true so probably that's why what's funny is I think once the eth ETF got approved and eth went up 20% I was like well no one's talking about this conversation anymore it's like well everyone's bags are happy they've made money and so what we're we're talking about this because we're trying to get to the bottom of why are there's so many tokens because over the last six to nine months we've had so many airdrops so there's been a lot of new tokens that have been put into the ecosystem many of them are this like this idea of lowf flow high fdv and so we're just trying to figure out is this a good thing is this a bad thing is this screwing over investors what's kind of going on here that and that conversation is just kind of really I don't know

ignited across crypto Twitter over the last few weeks and as you said really trying to get to the bottom of is this a not just for investors but for projects because what we're going to talk about at some point in this show is this might not be so uncommon when you compare to trafi but we'll get there later first let's talk about the the outcome of this that a lot of people are saying is that VCS and influencers because influencers often get involved in early fundraising just like VC's are dumping on retail that is the main narrative that has come out of this low float High fdv convers ation in your view is that true is that actually

happening so I don't think so and the reason is if you're investing in solid projects like tier we'll call it tier one projects they tend to have tier one VCS so your good VCS that you think of a160 etc etc okay and these guys have specific rules and specific contracts where when a token goes live they're not able to sell they get vested for a year or three years or five years depending depending on what it is these guys all have long time long-term time Horizons and it's part of their contracts that they actually don't get their Capital as the tge happens so when the token goes live publicly whether it's high float low float whatever it doesn't really matter they don't even get access to these tokens so they actually can't dump on retail it's actually not possible now

this isn't true of every token if you buy some shitty tokens on some shitty Launchpad that's on binance Smart chain or whatever that has you know these like no-name VCS probably they are dumping on you because they don't have any restrictions they actually Force contracts where they don't get these vested contracts but like most of what we're talking about here are these bigger projects like worldcoin and like Jupiter and like legit projects you know e ethery etc etc these are tier one VCS that are investing these tokens and this is these are the type of tokens that have typically been part of the conversation though I'm sure there's many people that are buying the like low-end ones that's probably happening there I don't think it's really happening on the VC side

for the for the better tokens because it's just mainly it's not possible although I would say like in the tri fight world this is how it works right like you get private investment for your company because you can't IPO and like have your stock available on the NASDAQ when you're a you know a million dollar company not even a startup you need to get Capital somewhere and you got to get it through someone and VC's are going to be the ones that do it and so like companies should be very grateful that VCS are giving them money at a angel or seed round when they don't really have a business they have no Revenue retail normally wouldn't invest in that and then so then eventually IPOs and now retail buys and then of course those that invested early can then sell that's the whole point in giving millions of

dollars to a company when it's worth nothing is so that you can sell when it becomes liquid is that happening here in the crypto World potentially but I think to a lesser extent than in the trii world to be honest H interesting okay so summary VCS and influencers might be dumping on well they are dumping on retail in certain cases of lowquality projects but when it comes to tier one projects it's not happening this is a narrative that is untrue let's go to the second thesis here is okay are is retail just rage quitting all of these tokens and buying meme coins instead yeah so this is the idea that well in April is really why this

conversation came up because everyone's tokens got crushed in April this was about mid April and so every was like well maybe just no one's buying these tokens anymore and they are instead buying much M mem coins I would say the data doesn't suggest that if you look on like binance for example if you look at volumes mcoins only make up about 14% so it's like it's not that much also mcoins had their moment in March and they really have sort of fizzled out I don't want to say it completely but they've sort of fizzled out and they'll still have their Moment by the way but it didn't correlate with the time that all these tokens got dumped these tokens got dumped because markets dumped everything went down eth went down Bitcoin went down everything went down and so of course these tokens are going to go down

too is it because retail's given up on these I don't think so at all maybe it's because these things had high ftvs and so they're overvalued and so people didn't want to buy them maybe it's not retail maybe just people are getting smart because like as we'll wrap when we wrap up I think my big takeaway from all this is like look doesn't really matter what the situation is if you're buying World coin at 150 billion fdv and it went down 50% that's on you we don't need equal rules and like make sure that you don't get in when tokens are valued high this is a game these are markets they are free flowing and if you're going to buy something that is valued at 150 billion when it's a tiny little app that's completely your fault and you

can't blame VC's or that the market has left for something else again that's on you go be first in mcoins if you think everyone's leaving mem coins so the data doesn't suggest it has anything to do with meme coins actually just might be investors are getting smarter no way not possible okay so second theory the investors are not retail is not moving from or at least the evidence does not show that retail is moving from these tokens into meme coins final theory that I wanted to discuss is is there too little supply for the be price Discovery if the fully diluted value is so high in the supply that is uh currently circulating the low float is

in this low range 10% there's obviously a large range is it too little for for there to be true price Discovery and that's why there's so much volatility in these tokens uh this definitely has something to do with it and it's something people need to be aware of I think the average for all the tokens over the last however many months is around like 12% I think it's 12 or 12.3 or 12.5 whatever it is in terms of their their flow how much of the circulating Supply is available and that is quite a small amount especially if these tokens also have staking or some other primitive to it right this is what's kind of different about crypto versus like trafi with shares like if you hold shares you can't do anything with them crypto you can and so if you have a small circulating Supply and you

actually can like go and stake them like mode for example okay that could be problematic and so I do agree here there is some issues in terms of price recovery however if you look at all the tokens that dropped last cycle same thing it was around 12% as well so there was really no difference even if you look at equities when they IPO their median amount of shares that are available when they IPO 12% so it's pretty much on par with what we're seeing now so like I don't this is why I say like I don't really think this is a crypto problem specifically sure maybe there's ways to approve it like I do think teams should try to get more tokens in their circling sply when they launch it is better for Price Discovery it is somewhat more fair but ultimately like I don't know these guys need to

hold back tokens because again there's utility in these tokens they can use them for incentives they can use them for aird drops they can use them to do marketing you can't do that with shares in a normal tra company so I think we also need to like think a bit differently about what's happening here in crypto versus what could or what is happening over in like the trfi world interesting so regardless of you know how this is happening or why this is happening I think what we're saying is that it is happening but the question is is it a problem and I think that's where I want to go to next and if it is a problem what do we do about it and so there's been a lot of theories spread around I'm just going to a couple of potential solutions that have been

presented people have said we should bring back icos we should unlock 100% immediately more like meme coins do we should list tokens at lower prices to allow retail to buy earlier and win some of the upside or we should go back to Fair launches kle what do you think do you agree with any of these Solutions do you think that we do you even think this is a problem I don't think this is a problem I don't think it deserves as much of a conversation as it's had to be completely honest if VC's were dumping on retail in like a very problematic way then sure I don't think that's the case influencers actually probably do in some cases influencers don't need as much so the K rounds they don't need as much vesting sometimes they unlock right

right off the bat but their share is quite small so I don't think it really matters that much but in terms of those Solutions like I do think there is things we can do to be better there's always ways that we can reiterate and like try to make this better bringing back icos this is actually part of why I think this happens is the SEC doesn't allow for icos and so because of the I guess like fear around Securities laws Etc these tokens these protocols they need to launch these tokens right they need to get them out to public but they can't allow the public to invest early on so because of the SEC at least in the US they are forcing these companies to not raise from the public but instead they have to raise from VCS I'm sure

many of these protocols would love to raise from their community but they can't because then they'd be called to security and then they would get fined and they would to business and so what's happening here is actually I think this is a symptom of the SEC holding this back and so icos technically is a solution to this however they're a legal you can't have icos in the US and so a lot of these companies that come from the US they just can't do this and honestly even companies outside the US don't want to do this because they don't you know us customers might buy them Etc so I don't know that I is a good solution and to be honest I don't even think that that works even if it was legal because if you look at 2017 when we had icos it actually meant

that the public could get dumped on people were just putting any money into anything there was no rules and like I don't know that anyone should be able to buy any token at you know before it even has any project at all um a lot of people got screwed on the Ico days and part of that is because this is go back to the unlock 100% immediately in ico's not they weren't always unlocked immediately but the team got a bunch of money right off the bat and they didn't have to be vested and so teams would just leave right they made their Millions why do they need to go and build what they were going to do they would make a white paper they would launch an Ico a bunch of retail would go huh I'll put in all this money whereas VCS won't do that they'll look they'll

talk to the person and make sure like are you legit are you here for the long term are you gon to build something retail will just here's take my eth like you see it on Twitter all the time people like literally put out a a wallet address on Twitter like send me soul and I'll give you this meme coin and people do it and like I don't think that that's a good way to do this because that just means teams make a bunch of money and then they they piece out so I don't think that's smart so bringing back icos unlocking 100% immediately I don't think it's a great idea also in terms of unlocking all your tokens immediately I think that's a terrible idea for a project because these tokens as I said they have utility they can be used in points programs or in airdrops ETC to

incentivize people to actually use their products or to use their products in a certain way I think that's an amazing marketing tool it is a way to get people to come uh use your protocol and then reward them for using it I think that's amazing because the alternative to that in the web 2 world is I'll pay Facebook or Google or whatever big Tech platform to run ads to get in front of these users to have them use my platform users make no money from it Facebook makes all the money instead with web two with these Tok or sorry with web 3 with these tokens I'm now just going direct to the users and paying them I think that's actually amazing and so if a team was to unlock 100% of their tokens immediately they lose that you don't get that anymore and so it's like blowing your

load too soon you don't want to do that so I think that's a bad idea for projects listing tokens at your third one listing tokens at a lower price to allow retail to buy early and win some upside that's the worst idea I've ever heard in my entire life and so I'm not even going to comment on that like these are free markets why are we giving an upside to retail even if you did do that institutions or smart individuals will figure out a way to bot that and and win that anyway so retail's not going to win that regardless so I don't know I don't think there's a ton of good Solutions out there I just think we need to keep playing around with like what is the right Supply and honestly the supply is going to be different depending on your protocol and your business like

worldcoin had to launch at one 2% um Supply because their whole business revolves around rewarding people that come and sign up the idea of worldcoin is to give everyone a worldcoin in the future but there's only I don't know what is it two million people that are using it right now which means there's still 99.9% of the world that need a token at some point for signing up if they just released all their tokens right now their business model makes no sense and so like we can't bucket them all into one thing we need to think a little bit more differently about this and understand that these tokens have use cases and utilities and so we can't just give them all out at any point and also we don't need a we can't just favor retail because they're getting perceived

getting dumped on we don't need to make things better for retail retail just needs to get smarter they are called retail because they are the dumb money and I say that in quotations I'm not saying that all retail is dumb but like this is a game that's what investing is you don't just like prop up the ones that are the worst at the game that's not how this works no game should ever work that way so I I just think yeah I don't know I don't know what the best solution is yet I think we just need to keep iterating and see what works but I don't think there's a huge problem no participant trophies in in Kyle's world no free ribbons no way it doesn't make any sense okay before we wrap here then Kai what what's your takeaway and what would you

advise investors to be doing in order to make sure that they're not falling into a trap here yeah I mean investors need to look at fdv everyone's so caught up on market cap and the only thing that you should be looking at is FTV to be completely honest because well I mean you should know both you want to know the ratio because FTV is the real valuation it is what people are actually valuing this company at like World coin at 50 billion but it was a pretty small market cap it was so obvious you should never invest in that at that point it made no sense there was going to be more unlocks it's so overvalued so don't look at market cap look at FTV the second thing is like if a token air drops there's a tge just because it's a good protocol or it's the next shiny thing

and everyone's talking about it it doesn't mean you need to buy it look at the valuation is it valued at like $20 billion like Wormhole came out at like close to 20 billion and that thing's down like 60% is that a problem no it just would have been ridiculous for you to buy that token at $20 billion the thing just launched and it launched at like I think maybe 10% circulating Supply so what does that mean one it's probably overvalued and two over the coming years there's a bunch of tokens that are going to get vested unvested sorry which means yes a bunch of people that's gave liquidity to this company early on so it could survive and build and pay its team they're going to get tokens that unlock and what do you think they're going to do they've been investing this company for years of

course they're going to sell their token that's not a bad thing but as an investor you need to be aware of that right you need to look at this FTV you need to look at how many tokens are coming out and you need to look at token unlocks because if there's 10% of the supply coming on the market next week that's probably a bad thing you probably don't want to buy that token but mainly like you don't have to buy every new shiny thing right you can hold your eth you can hold your salana and when the opportunity is there like Wormhole is now down 60% maybe now's a good time to buy right if you just looked at the FTV and you understood unlocks like okay maybe you just need to time it better I think that's what investors need to be aware of you don't just fomo into

whatever is the shiny next thing Kai fantastic wisdom thanks so much for joining the show and breaking down this complex issue for us in such simple terms and helping our listeners be confident in their Investments appreciate again you joining us today absolutely thanks everyone for listening hopefully this was helpful can't wait to be on next time in case you missed it here's what happened last week the GameStop Saga continued and roaring Kitty might become a billionaire now last week Ryan Kitty posted on Reddit for the first time since 2021 he disclosed that he holds over 200 million in gme which led to a price surge of gme stock of over a

100% And also liquidating short positions of $1 billion in a day now on Friday roran Kitty went live on YouTube after a three-year absence fully proving that he is back and now if gme hits $70 which still a long way off from but with roaring Kitty in the mix you never know it's possible royan Kitty would become a billionaire also in case you missed it last week Robin Hood acquired bit stamp for $200 million now obviously this is a strategic move that positions Robin Hood for significant growth in the European

market bitstamp boasts a 13-year track record and a solid reputation in Europe a market where Robin Hood seeks expansion now bitstamp has four million users and they sold at 200 million so that essentially equates to a $50 per user fee which is an incredibly attractive price for Robin Hood considering the lifetime value of a customer this deal allows Robin Hood to Leap Frog competitors like krton and eoro in Europe gaining immediate access to bit stamps established user base thanks so much for listening in everybody hope you have a great Monday and an awesome start to the week thank you for listening to milk Road radio the

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