Recently, in the market downturn, there has been a growing belief that the excessive listing of “VC series tokens” by exchanges has drained market liquidity. The anti-VC sentiment has been brewing since the era of written texts and has become a banner and slogan during the rise of Meme coins. The recent decline has intensified this contradiction to a whole new level.
Is the VC token sucking the market dry? Did exchanges contribute to this process? What are the demands of users for token listings? Odaily will interpret these questions in this article.
Do “VC series tokens” siphon off market funds?
Regardless of the impact of exchanges listing “VC series tokens,” the main entry point for users to enter the crypto market is still through the purchase of USDT or USDC. The total supply of stablecoins represents the total liquidity in the market to some extent. Therefore, let’s compare the increase in stablecoin supply with the increase in VC token market value.
Where did the incremental funds go?
A year ago, the circulating market value of USDT was $83.2 billion, and it is currently $112.7 billion, an increase of $29.5 billion. On the other hand, USDC increased from $28.4 billion to $32.6 billion, with an increment of $4.2 billion. The combined market value of ten recently listed VC tokens in the past six months is $5.47 billion (all values are in USD): PYTH ($1.1 billion), ENA ($950 million), STRK ($900 million), ZRO ($670 million), ZK ($600 million), ETHFI ($360 million), DYM ($270 million), ALT ($270 million), ATH ($250 million), EZ ($100 million). In the second half of 2023, there are also giant tokens like TIA ($1.17 billion) and SEI ($1.05 billion) that will be listed. It’s worth noting that these market values have already declined by at least 20%-30% in the past few weeks. Therefore, we can conclude that at least 50% of the incremental funds have been captured by these “VC tokens.”
Existing tokens bleeding together
ARB was listed in March 2023 with an initial circulating supply of 1.275 billion tokens, which at a price of 1.25 USDT equates to an initial market value of $1.02 billion. The current circulating market value of ARB is $2.5 billion, but the token price has dropped by about 40%. If we understand the increase in circulating market value as a net inflow of funds, then the funds must have flowed into the unlocked portion.
The role of exchanges
In the previous section, we concluded that “VC tokens” indeed have a significant suction effect on funds. But did exchanges contribute to this process?
Regarding this question, He Yi, co-founder of Binance, expressed his opinion on X platform: “The crypto market is a free market, and liquidity and trading volume are shared among various trading platforms. Even if Binance does not list new projects, these projects still exist, and funds will flow to the entire industry. In addition to VC-funded projects unlocking, funds will also flow to Meme coins, on-chain tokens, Ponzi schemes, and when ETFs are approved, traditional financial markets will also directly flow funds into the crypto market.”
In summary, his viewpoint can be translated as “tokens that exchanges don’t list can still be sold in other places” and “fund diversion cannot be solely attributed to VC unlocking.” In the previous section, we already proved through data that VC tokens are the main players in fund diversion. As for the former viewpoint, Odaily believes that it overlooks two important factors: “user attributes in different scenarios” and “leverage ratios in different scenarios.”
In on-chain scenarios, apart from users focused on DeFi farming or yield farming, most traders have a psychological aversion to high-market-value projects due to their low risk-to-reward ratio and the ability to quickly sell through AMM features. If a project has a market value of over a billion and an FDV that is sky-high, it is no different in the eyes of on-chain users from the 90% SCAM dog tokens. Therefore, the willingness to accept such tokens significantly decreases.
On the other hand, exchanges provide leverage capabilities that are much higher than on-chain platforms, with leverage ratios of up to several tens of times. This provides sufficient liquidity for traders to sell their holdings. The on-chain capacity to absorb tokens is much lower compared to the centralized trading market with leverage.
Therefore, the “user attributes” and “leverage ratios” in different scenarios significantly impact the willingness and ability to accept VC unlock tokens. If token trading occurs outside centralized exchanges, prices are more likely to quickly return to a reasonable range instead of slowly declining with unlockings or experiencing a situation where market value increases while token prices fall. This shows that centralized exchanges do have an impact on the VC unlock process.
Can exchanges do better?
For exchanges, “king-level” projects like ZKsync and LayerZero will always be listed unless the project team disappears or hackers empty their wallets. However, when it comes to other tokens, users have many demands, and exchanges still have many better choices.
Give opportunities to “value” projects
Some value projects can generate extremely high profits and cash flows, such as the recent popular project Pump.fun, with an annual revenue of up to $219 million. Many users are eagerly waiting for its token launch and are willing to buy. There are also projects like BananaGun and Whales Market, with market values of $160 million and $40 million, respectively.
The data of these projects is not constructed by VC accumulation or yield farming manipulation but is genuinely needed by users. These projects have grown from small market caps to large market cap projects. In the previous bull market, projects like SOL and MATIC were able to develop after being listed on exchanges with market caps in the tens of millions of dollars. However, this time, we have not seen these projects have the same opportunities and treatment.
Giving more opportunities to value projects is one of the fundamental demands of users.
Establish clearer standards
How to determine value projects? Judging through financial data is a very direct and effective method. Here, financial data does not refer to easily manipulable metrics such as the number of addresses or interactions, but rather to tangible data such as TVL and project revenue. Some users may argue that this could lead to entrepreneurship focused on exchanges. However, traditional markets such as the US stock market have not declined due to clear standards but have provided more opportunities for truly valuable projects, rather than certain AI projects, manipulative schemes, or projects focused on inflating trading volume.
Furthermore, it may even be possible to establish delisting standards for these projects to “leave liquidity to those in need” and guide the healthy development of the market.
More transparent information disclosure
Token operating data, such as how a token is performing and when it will face significant unlockings, cannot be accessed on exchanges. Of course, it is generally believed that this is not the responsibility of exchanges at present.
The power to go long or short lies solely with traders. However, assuming that exchanges have clearly notified users of declining operating data and imminent large unlockings but users still choose to buy, then there is no one else to blame.
Conclusion
Blaming exchanges entirely for market declines is not entirely correct, but it is also not the best way to educate users by assuming one’s own correctness. As the dominant force in the industry in terms of influence and traffic, exchanges still have many better choices when it comes to guiding the healthy and rapid development of the industry and projects.
