Thread by @DonParzival

What is the difference between FDV vs MC? How does one analyze it?

Some say "FDV" doesn't matter, others say MC is all that matters.

True.... yet both are misguided.

Let's explore 🧵

1/x

Today we'll be covering:

1. Why do some projects have high FDV/ low MC
2. What affects equalization between FDV/MC? How does it balance over time?
3. Why does it matter to me as a trader?
4. Pros & Cons of equal FDV/MC vs high FDV/MC
5. How does this apply to stakeholders?

2/x

1. Why do tokens have such high FDVs but low MCs?
- Most projects have a "fundraise" portion before a public launch from VCs / private
- Typically VCs get 10-40% of a project, and public launches release 1-5% of the total token supply
- This creates an illusion of high FDVs

3/x

Simplistic example:

Retail demand, let's say $5m, will be fighting over 1% of a project's tokens

This results in an MC of $5m and an FDV of 500m.

Assumption: all $5m of liquidity is deployed to purchase & hold all the tokens and there are buyers supporting the price

4/x

Key questions here:

Does this mean a project is actually worth $500m? Well, it's more complicated than that.
- How the project maintains/grows demand over time to match its "released" supply of tokens matters.

5/x

Case in point: #Bitcoin is the most splendid example of a "fixed supply token growing over time" & growing demand which has resulted in its current MC/FDV.

Growth in demand outpaces growth in Supply. Resulting in upward price momentum despite the growing amount of $BTC

6/x

2. What affects the equalization of MC and FDV over time?
- Tokenomics, token emissions, & project execution.
- Tokenomics - how are the tokens distributed? What's the split between investors, team, exchanges, ecosystem, and public?

7a/x

- Token emissions - how are the remaining tokens across these parties distributed over time?
- Project execution - how will the project deliver value & drive / grow demand for the token over time?

7b/x

Let's use #APECOIN as an example
$17.50, 5b MC & 17.5b FDV (Yes I know the price has moved and will move in the future. Just follow along)
i) Tokenomics
- 24% team (1% charity)
- 14% VCs / contributors (Cs)
- 15% community
- 11.75% yuga
- 35% Ecosystem Fund

8/x

ii) Token Emissions (~)
- Team: 1y lock, 0.67%/mth drip over 3y
- VCs/Cs
-> A, 8.5%: 1% unlocked upfront, & 2.5% every 6mths
-> B, 2.5%: 1y lock, 0.75%/mth for 33mths
-> C 3%: 1y lock, 0.83%/mth for 36mths
- Community + Yuga: 26.75% Unlocked
- Ecosystem - 0.73%/mth for 4y
9/x

iii) Project Execution
- Usually, a token lock-up period is to give a team sufficient time to build a product and drive demand before token unlocks hit the market
- In @yugalabs case, likely it's for attracting 3rd party projects to build their tokens, etc.

10/x

@yugalabs - During this period, product updates, events, AMAs, and more will be held to keep "belief" in the project and keep the community excited & engaged

Case in point #Otherside #OthersideMeta teaser

11/x

@yugalabs Recap:
~28% of tokens are released to the public
~3.4% of tokens are unlocked on a monthly basis

Assuming 30% of these 3.4% tokens are liquidated to the public (hodlers / other reasons), ~1% of tokens are liquidated on a monthly basis (after initial 12 mths)

12/x

@yugalabs Which means...

~$175m of demand must be added to the token every month to absorb "Active Supply" unlocked for prices to remain stable.

If $APE #BAYC is able to generate value-driven interest in the project over $175m, the price of $APE will increase over time.

13/x

@yugalabs Each of these factors deserves a longer thread on its own. Others have written about it before - check out this thread from @thedefiedge for a quick education on tokenomics.

https://twitter.com/thedefiedge/status/1511737802655903744?s=21&t=2ibys4WrldqRQkg8OLlZbQ

14/x

@yugalabs @thedefiedge 3. Why does this matter?
Due to Price, and Demand / Supply dynamics

- Price today does not = price tomorrow, assuming the project's "value" stays the same
- FDV indicates future supply growth
- MC indicates today's current token "demand"

15/x

@yugalabs @thedefiedge Using a tradfi val. method

- $APE, Yuga needs to grow the "Ape Nation Economy" to generate value worth $17.5b
- Roblox is worth $20b and generates $2b/y in revenues (10x P/S)
- $APE should generate ~$175m in profits (100x P/E) or ~580m in revenues / year (30x P/S)

16/x

@yugalabs @thedefiedge Can #APECOIN do it?

- Likely yes.
- Ecosystem fund tokens (~0.73%/mth) will mostly go towards projects that drive utility in $APE
- Strong project supporters, community, and increasing utility
- Demand for $APE grows quicker than the unlocked "Active supply", = 📈

17/x

@yugalabs @thedefiedge An extremely short thread that briefly explains demand/supply dynamics and how a token price changes by @CryptosEngineer

https://twitter.com/CryptosEngineer/status/1517768650870116352?s=20&t=IdXR6iRQdwluR4-CXDhA8g

18/x

@yugalabs @thedefiedge @CryptosEngineer 4. Pros and Cons of full distribution & partial (MC/FDV gap)
(i) Full Distribution
Pros:
- Less centralized starting point (depending on distribution method)
- Higher upside potential with lower "dump" risk

19a/x

@yugalabs @thedefiedge @CryptosEngineer Cons:
- Team has far less "leverage" to raise funds (public / investor token sales) for future developments or emergencies
- Little room for error in distribution, tokenomics, product, marketing, etc.

19b/x

@yugalabs @thedefiedge @CryptosEngineer (ii) Partial distribution
Pros:
- Coin rank / MC grows over time as emissions are not always fully sold, e.g. 30-70% of “dripped” tokens are usually kept (diamond hands/ capital recovered etc)
- War chest to tap on to trade for funds/partnerships & ecosystem developments

20a/x

@yugalabs @thedefiedge @CryptosEngineer Cons:
- Potential dumping by early investors onto retail / strong & sustained selling pressure
- Illusion of value. Liquidity and Value are not the same.
-> If I pay $1/token for a 1T supply token, does that mean it’s worth $1T? There’s not enough liquidity to go around

20b/x

@yugalabs @thedefiedge @CryptosEngineer 4. What does this all mean? Aka how does that affect you?

- For traders/public: FDV matters, but if you can time your exits through understanding “unlocks” and “demand drivers”, you can still find strong returns on high FDV low MC projects and hopefully get out on time

21a/x

@yugalabs @thedefiedge @CryptosEngineer Examples: $SAND, started at $0.80, peaked at $8, now trades at ~$3

#APECOIN has a strong war chest to do further fundraising or debt financing for more acquisitions. Token unlocks are timed with growing ecosystem utility, resulting in gradual upward price momentum.

21b/x

@yugalabs @thedefiedge @CryptosEngineer For teams who are fundraising:

MC matters in proportion to your FDV.

The higher the "returns multiple", the more likely investors will sell down your tokens

-> Negative price action over time will cause new retail / traders / investors to shy away from your project

22a/x

@yugalabs @thedefiedge @CryptosEngineer Understand your project's value timeline.

Distribute well to the community.

And let the "little guys" win so you build a strong following & micro-influencer network.

E.g. Top NFT projects that understand communities & deliver value. #BAYC #moonbirds #RTFKT #AzukiZen

22b/x

@yugalabs @thedefiedge @CryptosEngineer IMO, $APE could've done the community token distribution better by rewarding longer timeframe holders, encouraging "holding" ecosystem NFTs to get "airdropped" tokens over time, growing interest in existing NFTs, and pursuing DAO-like "bounties" to reward community holders.

23/x

@yugalabs @thedefiedge @CryptosEngineer Investors:

Don't force your projects to do a high-FDV public sale.

Allow more tokens to be released to the public.

Sell down your tokens early if you intend to "recover capital"

Counter-intuitive but it builds the reputation & provides better access for you / fund.

24/x

@yugalabs @thedefiedge @CryptosEngineer 5. Recap: What to look out for in MC/FDV projects

(i) Tokenomics

Compare the project's roadmap against token unlocks to get a better gauge of a token's price action over time.

A good project may not deliver returns if the investors dump on you.

25a/x

@yugalabs @thedefiedge @CryptosEngineer (ii) Team

Are they doxxed/not?

What is their background?

Track record of execution/product building? e.g. #YugaLabs #moonbirds #RTFKT vs "Insert shit coin/nft project"

Most projects will start centralized before they become decentralized. Most fail before phase 2.

25b/x

@yugalabs @thedefiedge @CryptosEngineer (iii) Investors/Funds

Do they have a reputation for dumping or 💎🙌?

Do they add or extract value?

Note: An anon team is fine if the investors are strong.

Why? Project founders are usually doxxed to investors.

Top funds have strong DD, bg checks, & rug safeguards.

25c/x

@yugalabs @thedefiedge @CryptosEngineer How do I know these things?

Angel & Private investor in cutting edge projects that delivers value to the public, investors, & crypto.

Network of reputable funds, angels, & builders who share advice.

Builder of reputable projects with strong value delivery.

26/x

@yugalabs @thedefiedge @CryptosEngineer Prior to crypto, I worked in TradFi private equity & strategy consulting.

But when I started in #Web3 I had no background nor information in the space.

Tuition fees were paid for with $.

Now I share this with you so you may avoid my pitfalls.

We are still early.

27/x

@yugalabs @thedefiedge @CryptosEngineer If you've learned something from this thread and liked it.

Do like and retweet the first tweet.

I deeply appreciate it.

Follow me for more insights and deep dives into #Crypto and #NFT projects.

https://twitter.com/DonParzival/status/1518139870786441216?s=20&t=3FOf2g0yQQW3VcWwtb-osA