Recently, the cryptocurrency market has experienced a general decline. Some believe that the excessive listing of “VC token” by exchanges has drained market liquidity. The anti-VC sentiment surfaced during the Meme coin boom, and the recent downturn has intensified this contradiction.
This article will interpret whether VC token has drained the market, whether exchanges have contributed to this process, and what users’ demands are.
Regardless of the impact of the exchange’s listing of “VC token,” it is important to note that the core way for users to enter the crypto market is through purchasing USDT or USDC. The total amount of stable coins to a certain extent represents the total liquidity within the market. Therefore, we will compare the “incremental stable coin” and “VC token market value” to draw preliminary conclusions.
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. USDC has increased from $28.4 billion to $32.6 billion, with an increment of $4.2 billion. The total increment of these two stable coins in one year is $33.7 billion.
The total circulating market value of ten VC tokens launched in the past six months is $5.47 billion. These tokens include PYTH ($1.1 billion), ENA ($0.95 billion), STRK ($0.9 billion), ZRO ($0.67 billion), ZK ($0.6 billion), ETHFI ($0.36 billion), DYM ($0.27 billion), ALT ($0.27 billion), ATH ($0.25 billion), and EZ ($0.1 billion).
In the second half of 2023, there are giant tokens like TIA ($1.17 billion) and SEI ($1.05 billion). The circulating market value of these tokens has decreased 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 dozens of “VC tokens.”
ARB was launched in March 2023 with an initial circulation of 1.275 billion tokens, and at a price of 1.25 USDT, the initial circulating market value was $1.02 billion. Currently, ARB’s circulating market value is $2.5 billion, but the token price has dropped by about 40%. If the increase in circulating market value is understood as a net inflow of funds, the fact that holders are still losing tokens means that the funds can only be flowing to unlocked parts.
We have concluded in the previous section that “VC tokens” indeed have a significant siphoning effect on funds. So, have exchanges fueled this process?
Regarding this question, He Yi, the co-founder of Binance, expressed his views on the X platform: “The cryptocurrency market is a free market and the liquidity and trading volume of various trading platforms are shared. Even if Binance does not list new projects, these projects still exist, and funds will flow to the entire industry. In addition to the unlocked VC investment projects, Meme coins, on-chain dogs, rug pulls, and financial scams will also divert funds. After the approval of ETFs, the traditional financial market will also divert funds directly to the cryptocurrency market.”
In summary, the observation can be transformed into “even if exchanges do not list tokens, VC can still be dumped elsewhere” and “fund diversions cannot be solely blamed on VC unlocks.” We have already proved in the previous section that VC tokens are the major players in fund diversion. However, He Yi’s observation ignores two important factors “user attributes in different scenarios” and “leverage ratios in different scenarios.”
In the on-chain scenario, most traders have a “dislike” psychology towards high market value projects due to the low risk-return ratio and the ability to quickly exit through AMM features. Therefore, if a project has a circulation market value of over 100 million, and a FDV is sky-high, it will not differ much from holding 90% of SCAM on-chain dog tokens, resulting in a significant decrease in acceptance.
On the other hand, exchanges provide leverage that is far superior to on-chain scenarios, with leverage ratios reaching tens of times, providing sufficient liquidity for “exiting.” The acceptance of on-chain scenarios is far less than that of centralized trading markets with leverage.
In conclusion, the different “user attributes” and “leverage ratios” in different scenarios significantly affect the willingness and ability of users to accept VC unlock tokens. If the project’s trading is conducted outside CEX, the price is more likely to quickly return to a reasonable range, rather than slowly decline with the unlock, or perhaps the situation where the circulation market value rises and the token price falls will not occur. Therefore, it cannot be said that centralized exchanges have no impact on VC unlock programs.
For exchanges, “king-class” projects such as ZKsync and LayerZero, as long as the projects have not run away and hackers have not robbed them, they have no possibility of not being listed. However, for other currencies, users have many demands, and there are still many better choices for exchanges.
For some value projects, they can generate extremely high profits and cash flow, such as the popular project Pump.fun, which has an annual income of up to $219 million, and many users are looking forward to its launch. Or projects like BananaGun and Whales Market, with a market value of $160 million and $40 million, respectively.
The data of these projects are not constructed by VC scams or on-chain dog token interactions but are truly needed by users, and they have grown from small-cap to large-cap projects. In the previous bull market, SOL and MATIC were able to grow after being listed on exchanges with market values in the tens of millions of dollars. However, this time, these projects did not have the same opportunities and treatment.
In contrast to projects that have gone missing after issuance, giving value projects more opportunities is one of the fundamental demands of the majority of users.
How to determine value projects? Using financial data to judge is a very direct and effective method. The financial data here does not refer to indicators that are easily inflated, such as address numbers and interaction numbers, but more substantial data such as TVL and project income. Some users worry that this may lead to exchanges being more business-oriented. However, traditional markets such as the US stock market do not fail because of clear standards, but provide more opportunities for real value projects, rather than some AI projects, scams, or inflated projects.
Furthermore, it is possible to set delisting standards for these projects, to “leave liquidity to those in need”, and guide the market towards healthy development.
The data of token operation and when and how much will be unlocked is not available in exchanges. However, it is generally believed that this is not the responsibility of exchanges.
The power to go long or short is fully in the hands of traders, but assuming that the exchange has clearly notified users of the decline in operational data and the imminent large unlock, and users still choose to trade, then there is no one to blame.
Placing the blame for the market downturn entirely on the exchange is not a completely correct judgment. However, believing that oneself is completely correct and educating users is not the best way. As the party with the most discourse power and traffic in the industry, exchanges still have many better choices in guiding the healthy and rapid development of the industry and projects.