Proposal: New Category for LFG Launchpad - Low Float, High FDV overview

1/ Summary
In recent months, I’ve observed the proliferation of tokens with high valuation at listing and low circulating supply, known as Low float, High FDV model, resulting in potential mid- to long term drawbacks. It has initiated a substantial discussion among key players in the ecosystem, aiming to identify potential solutions that consider different perspectives. This diversity creates a challenge in finding a solution that suits all participants, such as traders, VC, projects, and the launchpad. Each player plays a crucial role in making the chain work effectively, so here’s a breakdown:

Project development usually needs a support that the project owners might not have on hand, and that’s where venture capital comes in. VCs provide this support for the early stage, such as fund raising, mentoring and networking services, enhancing cash flow, and bootstrapping their operations. In return for their support, these investors receive a portion of the tokenomics and may exert significant influence on decision-making for their own advantage, such as:

  • High token supply allocation with an unlocked percentage at TGE
  • High initial valuation reflected by a high FDV at listing¹

¹ This practice is followed by a low float approach at TGE.

These factors may lead to a significant decrease in the token’s value over the medium to long term, as a result of dilution from the growing circulating supply. This presents challenges for traders seeking a profit and loyal holders who play a fundamental role in the community. Indirectly, it also affects the launchpad, as it may now be perceived as a platform for launching “downside-tokens”, potentially driving away the public interest and resulting in a lower volume and, consequently, lower fees.

The Low Float, High FDV model has become popular among established projects that have medium to high investments from VCs. This trend has increased the barriers to establishing projects that have not pursued or secured VCs. As Jupiter’s values center on growing the pie together, I believe we, as the Jupiter community, should provide more space and opportunities for establishing projects to launch, versus established projects with Low float, High FDV.

2/ Goal
Modify current launchpad model to allow entry of establishing projects in the fair competition, by introducing a separate category and criteria for participation. Ultimate goal is to support high quality teams and projects with potential for growth and give them the appropriate attention.

3/ Problem
Releasing tokens under a Low Float, High FDV model can potentially lead to dilution during future unlocks. This can create a scenario where there is significant pressure to sell the tokens. Such a market configuration can be disadvantageous for individual investors and loyal members of the project’s community. I’ll be presenting some pertinent data to illustrate the growth of this model in recent months and its outcomes:

3.1/ Low float propagation
Based on Coinmarketcap data, numerous projects that debuted in 2024 adopted a lower circulating supply at their TGE. This includes $ZK at 6%, $STRK at 7%, $ENA at 10%, $MAVIA at 12%, and $ONDO at 14%, among others. Please be aware that the low float can lead to a high initial FDV, which is likely to trend downwards as vesting occurs.

3.2/ Aggressive FDV at TGE
My recent analysis of tokens launched in 2024 shows that the Fully Diluted Valuation often reaches inflated values at its peak, even exceeding the FDV of the top 10 tokens. This clearly demonstrates the potential risks associated with a low float, high FDV approach for the ecosystem.

3.3/ Major token unlocking
A report from Token Unlocks found that approximately US$155B in tokens are projected to be unlocked from 2024 to 2030. While this figure is just an estimate, it clearly implies that a substantial portion of the token supply is anticipated to be released in the upcoming years. Without a corresponding inflow of capital, many could face significant selling pressure.

3.4/ Results (initial FDV and FDV now)
Based on a report by @tradetheflow_, it’s evident that the performance of tokens listed on Binance has been underwhelming in the past six months. Most of them are down from listing price date (>80%). It’s important to observe that the majority adhere to the Low Float, High FDV model, thereby demonstrating the potential for decreases over the coming months. Here are some examples:

4/ Overview of LFG candidates
My study started with the collection of tokenomics data from each participant, specifically focusing on the impact on the FDV from the listing/1st min to the present moment. The table below displays the data, complemented by graphs for a more effective visualization of the situation. All relevant data was diligently gathered from the official pages of each participant as well as the FDV 1st min and current state of the Dexscreener.


¹ Included VC (5%) and seed investors (10%)
² Included private sale (5%) and seed investors (5%)
³ Included strategic (6.7%) and seed investors (6.3%)
⁴ Custom single-sided Meteora DLMM pool in a $0.5-1.62 range (FDV 50-162M)
⁵ Custom single-sided Meteora DLMM pool in a $0.3-0.85 range (FDV 300-850M)

R1
R2
R3

Based on the collected data, I arrived at the following conclusions:

  • 75% participants have VC investment in a $1.52-15M range (Average $5.5M and Median $4M)
  • VC allocation makes up 17% of tokenomics on average
  • VC allocation unlocked at TGE could create a significant price dump, such as with Sharky (10% from circulating supply at TGE)
  • 80%¹ of projects used a low float model at TGE
  • Float model was almost the standard for projects from LFG launchpad
  • Projects without VC funding had the worst performance in LFG Voting Round #1 and #2 (5th and 6th place)
  • 50% of tokens are down from their listing date comparing FDV (listing); 50% of tokens launched on LFG are down from their listing by FDV (listing)
  • For a common user, it’s unrealistic to use the FDV from listing as parameter that’s why I added the FDV (1st min)
  • Considering the FDV from the 1st min, 100% are down from listing date
  • Average performance considering FDV (listing) is 32.20% and -29.92% (excluding Nyan Heroes)³; Average performance considering FDV (now) is -67.355% and -78.34% (excluding Nyan Heroes)²

¹ Excluding Sanctum (TBA for circulating supply at TGE)
² FDV impact from Nyan Heroes is inconclusive due a short period of time from listing and now (only few days)


5/ Solution
The predominance of projects using the Low Float, High FDV model presents a significant risk to traders, a fact that has drawn substantial criticism from experts. I identified this pattern among the LFG candidates, confirming a considerable decrease in their FDV after a few weeks. This led me to consider seeking out small to medium capitalization projects that are fully committed to their community, and have minimal or no involvement from VCs. These projects can effectively allocate more tokens to the community, launching the token with a moderate float and a lower FDV. It lowers the risk, potentially attracting more investors, and presents an intriguing opportunity for increased allocation to the Jupiter community. Here’s the plan that Jupiter can be putting into action:

5.1/ Create a round for establishing projects
I propose the introduction of a new category named “Establishing Projects”. This category would cater to small to medium capitalization projects and would be regulated based on specific criteria, such as Valuation, Medium Float, and so on. This way LFG Launchpad would host voting rounds for larger, well-established projects, known as “Established Projects”, as well as for smaller, emerging projects, referred to as “Establishing Projects”.

This updated voting system enhances diversity in the market scenario for LFG Launchpad, traders, and investors, offering benefits for everyone involved in the process, such as:

  • Reduce trader risks by introducing projects that are not based on the LFHFDV model
  • Supporting smaller, community-focused projects
  • Create a positive impact in the Solana ecosystem
  • More token allocation for Jupiter community

Establishing Projects (Information and Criteria)
Since I’m seeking smaller projects, it’s essential to establish additional criteria beforehand to guarantee fair competition. For this purpose, I propose introducing an additional preliminary phase from “LFG Launchpad: From application to the LFG Launch!” process. This new approach includes five stages, with the initial stage involving applying on LFG forum in a new category called "Establishing Projects”, designed to filter out projects that do not meet the required criteria. So, here’s all details about this step:

Anyone can apply by posting on an Establishing projects forum with the following information:

  • Project name and socials (Twitter, Discord and Website)¹
  • Core team members description
  • Project description (summary)
  • Describe your project in one sentence
  • How is your product different from others?
  • Why Jupiter? Describe how your project contributes to Jupiter & Solana ecosystem
  • Why does Community matter to you?
  • What actions have been taken to achieve an organic community?
  • Have any partners in the space? If yes, describe your relation
  • Fundraising by VCs? If yes, how much, valuation and FDV from each round
  • Tokenomics
  • Circulating supply and FDV at TGE
  • Approximate date for TGE
  • Roadmap details
  • Have a product working? If yes, which phase?

The following criteria will be used to qualify for this new category:

  • Tokenomics
    1/ Significant token allocation to community users
    2/ Medium float at TGE¹
    3/ Low allocation to VCs or non-community users²

  • Valuation
    1/ Small to medium valuation relative to competitors in their respective sectors

  • Community
    1/ Organic community and the positive impact to Solana ecosystem

  • Product
    1/ Innovative project (concept, mechanism, etc.)
    2/ Functional product (minimum viable product)
    3/ Project competitive compared to others

¹ Based on a study made by @thedefivillain. This analysis showed that actual average MC/FDV of tokens launched in 2024 is 12.3% and 26.7% in 2023. It is a result by some factors, such as upbeat market sentiment.

² Not included the team allocation in “non-community users”. It is focused in VC, seed investors and advisors. Ensure that there aren’t a small number of seed investors holding a high percentage of this share.

¹ If it is available.


5.2/ Remarks

My proposal draws from recent articles and particularly a Binance study titled “Low Float & High FDV: How Did We Get Here?” published in May 2024. This study served as the basis for management changes at Binance Launchpad. It began inviting small and medium capitalization projects in order to mitigate the risks associated with the Low Float, High FDV model.

“We hope to enhance the development of the blockchain ecosystem through our support of small and medium-sized projects with strong fundamentals, an organic community base, a sustainable business model, and a dedicated team acting as responsible industry participants.” - Binance, 2024.

”In pursuit of sustainable development of the cryptocurrency market, we are committed to delivering value to our users whilst safeguarding their interests. Actively supporting small to medium capitalization projects is one of our approaches to mitigate some of the risks that we have observed in certain aspects of the market. We invite all eligible projects to apply for listing with Binance, as we collectively strive to foster a more balanced and robust market environment.” - Binance, 2024.

6/ Conclusion
Let’s make our Jupiter Launchpad a better place on Solana by bringing more benefits to our community and supporting small to medium projects with a real impact in our ecosystem. By following this proposal, we can minimize the risks related to Low Float, High FDV for our launchpad users, and secure more benefits for the Jupiter community.

7/ References

Here are the references consulted in crafting this proposal:

24 Likes

Very interesting article. Low float / high FDV can drive substantial price challenges that add additional pressure to founders forcing them to make short sighted decisions that are not aligned to the long term strategy.

4 Likes

yessir, this is a very valid proposal and good point - we internally talked a lot about initial supply vs. FDV and how to optimize it. Solana ID moved its initial circ supply from 15 to 20% and I think around there could be the sweet spot, but it highly depends on many other aspects of a project’s tokenomics. I think more studies as the ones highlighted in this proposal are needed to nail it down.

Projects with strong community and the right incentives for holders to hold on their tokens, can take a higher TGE circl supply as the incentive model might lead to less dumps. Also to consider is that some selling pressure is needed at TGE so a too little float is actually contra-productive.

Anyhow, overall I am a fan of this proposal and would recommend for LFG to roll out a “small cap” project category as mentioned. I do know for a fact that this is already being discussed actually inside of CWG.

4 Likes

Thanks for the in-depth analysis about high FDV, low float tokens @buddlestraws

I feel like I see what you’re aiming at but have several remarks / opposing thoughts.

Remark 1

First of all HFDVLF is a non-issue if it is communicated transparently (i.e., unlock schedules are accessible). At least that’s what my monkey-brain thinks.

Remark 2

You’ve also mentioned the following:

However, this is general market risk and it can also not affect the value of a token in a bad way (see SOL when FTX sold their stakes to others at a 5x valuation compared to the bear [but you’re right that we won’t know what had happened if FTX wasn’t forced to sell])

Remark 3

This addresses FDV in a more general way:

  • From a company perspective tokens are often used as if they we’re shares (i.e., investors expect a profit and want some voice in the company but companies/projects can use new funds to pay employees and build a product).

Now if we can agree on that, it is just logical to have HFDVLF tokens…

Let me explain by comparing a traditional fundraising model with the crypto model:

  • traditional companies raise funds in multiple rounds
  • in every round the initial investors get diluted
  • new funds enables the company to do cool stuff
  • to do all this they effectively print new shares every round

Now in crypto we have this idea of “minting new tokens is a bad thing” so we had to come up with something else that is minting a lot of tokens at a fixed max supply right at the start, but holding them back for future use.

:arrow_right: high FDV, low float

to the gist

If I understood the gist of your post you would like to foster projects that are committed to the community as well as reward users that are committed to a project.

I 100% agree with that but feel like we have to answer the following question first:

  • What’s the true reason why projects still rely on the VC model (regardless of using a token / shares)?

Is it because they provide valuable feedback (a community should be able to do that too)?

Because they have a lot of money (a community that likes the product can fund a project just as well)?

Because they provide a network (wouldn’t the only network you need be a network of members that uses your product)? or…

Because projects don’t actually want to deal with a community (if their product is otherwise successful)?

Only if we figure this out we will be able to convince new and valuable projects to use your model. Otherwise we’ll end up with adverse selection like crowdfunding platforms or go back to an ICO model.

3 Likes

In stocks, every IPO with less than 5 years is forbidden for some value investors (insufficient real data/interaction market).
Crypto is a risky investment. And LFG is even harder to evaluate.

Invest with your heart! And stake your JUP

4 Likes

I think this is the largest and still fastest growing grievance in crypto, and is an easy target for critics. Anyone who establishes a trusted place to mitigate this type of market behavior will undoubtedly become the leading marketplace to invest in new projects for the general public. This is central to jupiter’s mission and so should be top of mind. Thanks @buddlestraws for outlining this with such clarity. If we solve this, there is no stopping the growth of the jupiter community. Its important to remember that this this kind of asymmetry is the root of frustrations with tradfi.

5 Likes

First of all, thank you for this in depth analysis on the impact and possible impact of low float & high fdv tokens entering the launchpad. I’ve read the Binance article and amongst my peers it’s been discussed heavily prior to this proposal.

I have a few remarks that I’d like to share in hopes that we can discuss this proposal further and come to a conclusion on whether something can or should be done about this.

Remark 1
It is my belief that the increase in launches with a low float and high fdv(referred to as HFLFDV in the future) comes largely from an increased interest from VCs and attention to the cryptocurrency space as a whole.


Image drawn from Galaxy article on VC investments in cryptocurrency

My assumption here is that obtaining funds to build a project is easier now than it has been in the past. We are headed towards a time in which investments into cryptocurrency ideas are becoming more common. Due to this, tokenomics have to change to reflect this. It doesn’t necessarily mean that HFLFDV tokens will dominate launches in the future, but it does make it harder to succeed without something set aside for VCs.

Remark 2
I don’t think we need to change any steps for regular LFG candidates, but rather add isolated rounds for establishing projects. I think separate rounds for establishing projects to allow fair launches, passion projects and unfunded bootstrappers a chance to compete with projects that compare to their own instead of competing against funded projects with VC interests.

Disclaimer; I don’t believe one process to be worse than the other as long as it is being communicated. However, I have seen people caught by surprise either because they haven’t looked at a projects tokenomics or simply that they are overly complex and it’s hard to understand who has an interest in it.

4 Likes

i had been thinking // commenting this in other channels. there should be some sort of separation for highly funded / established projects, and those in more beginning / bootstrapping stages. Also, even if we are able to refine this by project type it would help even more. There seems to be disparity between the type of projects ( ie betting vs art vs bridges in the last round) and also in amount of funding / capital. Most arent even in the same tier

3 Likes

Thank you for your input! Here are my thoughts:

Remark 1

I share your opinion based on the data collected from Galaxy/Binance articles. VC funds have established a strong presence in our ecosystem in the last years ($91B influx since 2017), becoming a “standard” to create a new project but coming with some consequences, such as project’s overvaluation, changes in tokenomics for VCs, among others. We will see other models, but LFHFDV will significantly influence future projects. This will continue until the community intensifies discussions about this topic and proposes changes to the launchpads.

Remark 2
My proposal is to create a new voting round for small to medium capitalization projects (”Establishing Projects”) based in specific criteria, such as Medium Float, Valuation, among others. I’ve proposed an additional stage, referred to as Step 0. This is to provide a more thorough evaluation, crucial for maintaining the integrity of our process. I’m confident that our collective effort can enhance this proposal for the benefit of the entire ecosystem.

P.S.: I’ve made some adjustments to Item 5.

2 Likes

Remark 1
The Low Float, High FDV model has recently become a hot topic of discussion due to the results of tokens listed on Binance over the last six months. More than 80% are below FDV at TGE, in a rising market with BTC seeking new highs. This has resulted in the questioning of this model and its effectiveness from a trader and loyal holder perspective. From this, I initiated research using articles to share this viewpoint with our community and propose a potential solution. This would involve the introduction of a new category for small to medium capitalization projects (”Establishing projects”), aiming to lessen the risks identified.

Remark 2
Unlocking events are inevitable for all projects resulting in a dilution from the growing circulating supply. This recently happened to $PYTH on the 19th leading to a -15% drop at the time of unlocking. The $PYTH price recovered, as you said, but this isn’t a pattern that happens in every token. Indeed, it’s important to note that the LFHFDV model results in more dilution, mainly due to its operation with a smaller circulating supply¹ at TGE.

¹ In 2024, projects with this model ranges in 6 to 18% circulating supply at TGE and 12.3% as average.

Remark 3
My proposed strategy seeks to enhance the variety of projects on the LFG launchpad. This will be achieved by introducing a new “Establishing Projects” category for small to medium projects, defined by specific criteria such as Medium Float, Low VC allocation, Valuation, etc. This diversification leads to beneficial outcomes for the entire chain, including:

  • Lower investor risk¹
  • Support small to medium cap projects²
  • Increase the benefits to Jupiter’s community³

¹ Medium float & Low FDV model increases the chances for an upside movement at TGE.
² 75% LFG candidates have VC investment in a $1.52-15M range (Average $5.5M and Median $4M).
³ Establishing a new category allows for more token allocations for our community.

P.S.: I’ve made some adjustments to Item 5 for clarity

2 Likes

This proposal is designed to bring the Low Float, High FDV discussion deeper into our community, by highlighting the challenges and sharing the data I’ve gathered from recent projects.

It’s encouraging to see that SolanaID has acknowledged the risks associated with this model and adjusted the circulating supply at TGE. It demonstrates your project’s awareness of prevailing trends and responsiveness to community feedback!

In conclusion, the creation of a new category for “small caps”, as mentioned, brings several advantages to the entire chain.

P.S.: I’ve made some adjustments to point 5/ for clarity

3 Likes

You’re right in thinking that LFHFDV can significantly influence the future of a project. I’d even go as far as to say that extreme price action can hamper a projects ability to grow based on such tokenomics. Not to say they can’t succeed, but it can be a concern. I think this is a solid proposition.

3 Likes

it’s amazing article, It explains everything fully and comprehensively, the best way to make new projects as profitable as possible, complete introduction of projects and also increase the profit margin for voters, can’t be better than this.

3 Likes

Someone in my DAO mentioned this article while discussing low float, high FDV. I think it’s not easy to understand all the nuances for laypeople, but I like the idea of creating a second group for smaller projects with no massive VC backing :pleading_face:

5 Likes

I agree with this a lot, I am not a fan of heavy delayed unlocks, they can really kill a projects momentum. I love when i see a projects market cap and fdv the same even.

I think this balanced approach of a community funded medium float, over low float vc overhang is a nice middle ground which is often best solution.

5 Likes

I think it’s fair to say that LFHFDV has become the “standard” for most VC-based projects. This trend is likely to persist, considering the significant increase in private capital in recent years.

The creation of this new category woulld be good for the entire ecosystem imho. It’s also beneficial for us to back small to medium cap projects, given their strong community focus.

6 Likes

Regardless of whether this gets accepted or not, I thank you for the great effort taken to put these thoughts today. I think this discussion is needed. Ultimately as a launchpad I think LFG is in an interesting spot as it serves not just the buyers, but also the projects launching. Also the fact that the DEX powering the launches is Jupiter’s sister company Meteora also adds an element to the mix, because now more higher dollar-valued trading volume is also good for them. So there are many various interests here and it’s tough to think about and balance them all.

5 Likes

I am involved in different launchpads and VCs. I skip most projects and invest in only a few. I see a lot of different projects and information. Generally, it is very difficult to single out individual points and evaluate them. For example, the FDV. If the project is very strong, solves a significant problem, is innovative, and has a strong team, then a high valuation can be justified. For instance, I bought Truflation for $40M and it is now over $400M. Overall, I am in the plus with most of my investments. One of the few projects that are in the minus, I bought for about $2-3M FDV. It is now at $1-2M FDV (funny because this one was a fair sale with 100 percent unlocked at listing).

Regarding FDV, I personally would pay attention to the following:

What is the project about and what problem is it solving?
Is there a market for the product and how large is that market?
Are there already revenues from a product?
Are there strong backers?
Which partners are involved?

There are other factors like sustainability, etc. These were just examples; in reality, there is a long list of points to consider.

3 Likes

Regarding the IMC, I personally believe that the IMC should be as close to the FDV as possible, and many tokens should be available from the start. The project should value itself in such a way that the listing goes positively and the price does not dump. Also, as many coins as possible should be tradable from the beginning. The sell pressure should not be too high in the following months. But even this is easier said than done. Tokenomics is an important topic on its own, and one should look at all aspects carefully.

2 Likes

We appreciate your commitment to enhancing the Jupiter Launchpad on Solana. Supporting impactful small to medium projects will undoubtedly benefit our community. By implementing this proposal, we can effectively mitigate risks associated with Low Float and High FDV, ensuring greater advantages for Jupiter users. Thank you for your dedication to our ecosystem’s growth and stability.

4 Likes