- High initial token circulation (65-75%) fosters better market dynamics post-TGE.
- Memecoins thrive due to immediate price appreciation potential compared to traditional tokens.
- Regulatory changes could level the playing field for early-stage decentralized token access.
Tokenomics, the economic design of a cryptocurrency’s token, shapes a project’s market performance and an appeal to retail investors. Traditional models featuring extended vesting schedules and low initial token circulation have become the norm, but some experts argue this approach is outdated.
Andrew Kang, Co-Founder of Mechanism Capital, stated in response to a tweet by prominent crypto figure Cobie that long investor lockups and limited token circulation at launch hinder true price discovery and can impede a project’s growth. This revelation has ignited calls within the industry for greater immediate circulation on Day 1, potentially fostering a healthier investment environment and attracting more committed participants.
Why Extended Vesting Schedules May Hinder Growth
In the past, lengthy lockups in token vesting became a template in crypto simply because projects replicated previous models, not because of proven effectiveness. Instead of fostering ongoing investor contributions, long vesting schedules may attract passive investors who often sell after the token generation event (TGE), creating a wave of sell pressure as tokens unlock.
Experts now recommend high initial circulation – 65-75% of tokens at TGE – arguing this benefits market dynamics more than delayed unlocks.
Memecoin Success and the Power of High Initial Circulation
The popularity of memecoins demonstrates this perspective. Cobie noted that memecoins appeal to investors because of their immediate potential for price appreciation, something that traditional tokens with high fully diluted valuations (FDV) lack. Unlike large-cap tokens valued in the billions, memecoins offer early-stage investment opportunities where substantial gains are more plausible.
High-FDV tokens, initially offered at lower valuations to select investors, struggle to justify their worth when they hit public exchanges with inflated market caps. This approach often creates an uneven playing field. A shift toward high circulating supply and lower FDVs from the start could lead to a more equitable and attractive market for all.
Aligning Market Transparency with Regulatory Shifts
To further level the playing field, a significant regulatory change could also help. If the U.S. Securities and Exchange Commission (SEC) introduced crowdfunding exemptions for decentralized projects, it could allow retail investors access to early-stage tokens.
Yet, many founders remain hesitant, citing distractions from development as a reason to avoid decentralized cap tables. Ironically, these same teams often accelerate token launches. Open cap tables and linear unlocks without cliffs could resolve this issue by aligning market transparency with founder incentives.
Read also: The Mystery of Unlocked Tokens: Why Aren’t They Circulating?
Removing restrictive vesting could be the best approach for crypto markets. Transparent team holdings and more circulating tokens allow for effective price discovery and provide investors the freedom to make independent choices. This shift could redefine crypto tokenomics for a fairer, more accessible future.
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