The Flawed ‘Low-Float, High FDV’ Token Distribution Model

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The Flawed “Low-Float, High FDV” Token Distribution Model in Cryptocurrency

The “Low-Float, High FDV” token distribution model has caused significant distortions in market signals and undermined sustainability in the cryptocurrency space. This model prioritizes short-term gains over long-lasting benefits, which has become a common practice in many high-profile launches of the industry. However, this model appears to be a subtle distortion of market signals, misrepresenting market participants and potentially damaging the very foundations of the cryptocurrency ecosystem.

This is particularly problematic because crypto networks prefer unconditional lockups with no strings attached, unlike traditional finance, where vesting lockUPs come with performance expectations and revoke mechanisms. The locked tokens remain unusable, preventing transactions from being sold or traded, and resulting in an artificial supply-side constraint that artificially boosts short-term metrics. As a result, market participants are misled into believing that advancing their projects is more valuable than it actually is.

Investing in tokens with high valuations leads to a vicious cycle of speculation, where public markets are left to manage the risk. CoinGecko reports that around 25% of the top tokens in the market are low-float, meaning that a significant portion of their supply is kept free from market forces. Recent releases such as Starknet, Aptos, Arbitrum, Optimism, Celestia, and Worldcoin all utilize this model to different degrees. As of writing, Worldcoin has an incredible lock-in of nearly 95.7% of its supply, which raises serious questions about the project’s commitment to transparency and public trust.

The “low-float, high FDV” model also favors private investors over public markets. These projects allocate large amounts of resources to specific groups, resulting in a system of insiders and outsider contributors, where those with early access to information and tokens are the beneficiaries, while the general public is left to scrap their scraps. This not only undermines market confidence but also creates ambivalent hypotheses that suggest this model will have devastating long-term effects.

The focus on short-term benefits is causing projects to lose credibility and reputation for being more sustainable. The cryptocurrency space will continue to struggle as a whole, with the prospect of legitimate projects being increasingly rare and less credible due to the failure of numerous projects. Furthermore, the artificial inflation of short-term metrics creates an unwarranted sense of security that drives investors to take unnecessary risks while disregarding warning signs of potential failure.

As the industry matures, it becomes imperative to adopt more sustainable and transparent token distribution models that prioritize public trust and long-term value creation. The “low-float, high FDV” model may have been a successful approach in creating buzz and attracting investors in the short term, but its long terms benefits are not as substantial. With the industry at its zenith, it is time to reconsider how tokenism works and prioritize transparency, sustainability, and public trust over short-term gains. Only then can we create a truly strong and credible cryptocurrency ecosystem that serves all users, not just the elite.

Learn more about the risks of low-float tokens and the importance of sustainable token distribution models in our article on CoinSeeks.com.