Thread by @amrali0fx

#Week_1: #Tokenomics Day 5: On the meme of market caps & unlocks by @cobie

terms repeated in the previous summaries: Mcap: price multiplied by the amount of tokens that are currently in circulation.

FDV: price multiplied by the total amount of tokens that will ever exist

2- Smth interesting here, we can consider Market Cap as a measure of public $ buying= demand, while FDV is a measure of supply.

As demand increases for unlocked coins= market cap UP, FDV increases proportionally, even though demand for the locked ones didn't necessarily increase

3- let's introduce a new term: Bullish unlock?
if unlocks increase supply but not demand, how does a bullish unlock happens?

locked tokens can have an active market of their own, ppl buy or sell locked coins with a discount to the market price, Consider it OTC for an allocation,

4- As Lightspeed VC Amy Wu’s proposal to @SushiSwap, or the rumor of citadel buying from the smart ass @stablekwon UST OTC instead of going to the market, or the bailout proposal from Jump to terra at the beginning of the $UST crisis,

Imagine the following:

5- when initial seed investors were sitting at 100x profit, some sold their locked position for a 10x profit to another VC, and this VC in turn sold their position for a 5x, As they expected the unlock event to be bearish

The tokens that are now coming “unlocked”--

6- have a cost basis not too far away from the current market price, the expected bearish unlock event became actually neutral now, this removal of a bearish catalyst can result in a net bullish event even.

So basically weak hands have sold to higher conviction investors,

7- then an unlock event is effectively just the removal of “fear”.
This is kind of what happened with SOL SAFTs which were being sold for 66-80% discount prior to the Dec 2020 unlock.

So How to identify whether an unlock is bullish or not?
Without participating in the OTC market

8- the main way to figure out if an unlock may be bullish is just to evaluate “is this project good?” – good proxies are perhaps active users, TVL or product-market fit.

Generally, as prices go parabolic, the valuation of locked coins and valuation of open market coins detach-

9- because smart money is less likely to buy inflated valuations

** Unlock schedules**
the remaining supply of Bitcoin will be released in the next 120 years, If we were to plot a graph of Bitcoin’s tokens becoming unlocked through the process of mining 👇

10- On the other hand, projects that raised with private sales and issued tokens behind locked vesting to investors may have a supply schedule that looks like this 👇the supply starts above 0 (maybe they did a Public sale or an airdrop) and then unlocked in large tranches yearly

11- The most common forms of vesting schedules for team or investor tokens in crypto that I have seen are usually of the format X years locked, Y years unlocking linearly where 0.5<x<1 and 1<y<3.
Founders can make vesting terms more favourable if they struggle to raise money.

12- Why does this matter?
Cuz for example: coins with high FDV with upcoming catalysts might occasionally be good trades, since locked tokens could be off the market for a while and other traders may be scared by the high FDV.

Knowing both market cap and FDV is important to:--

13- so you can compare both to similar “peer” projects, also it gives a good estimate on locked coin holders’ cost basis because it can help inform whether there is additional bid demand from professional investors, or lots of high-profit multiples itching to be sold.

14- In Sum:
Crypto valuation models are difficult because the ceiling is very high and direct financialisation of everything with 24/7 liquid markets is kinda new.

Also it can be misleading by comparing to Highly valuated similar projects,

15- Some projects will try to force price-agnostic demand through gatekeeping mechanisms such as “you must own this to participate”, mostly recognisable in gamefi,

Here public valuation detaches the most from private valuation and also from reality.

16- If a project has a higher valuation than some of the world’s bigger tech companies, just a year or two since being founded, it’s probably worth wondering: who is holding this massive new wealth, what price did they get it for, and who are they going to sell it to?

17- My takes:
- consider Mcap as demand and FDV as supply
- discover the otc market for private investor to determine the bearish/bullish unlock events.
- Crypto valuation models are different cuz the ceiling is very high and tokenization of everything with 24/7 liquid markets

the link to the full article: cobie.substack.com/p/on-the-meme-…
thanks for @cobie and his public contributions

@cobie i wanted to ask in that part, why u considered that? if the gamefi projects (must own nft for p2e or shoes to m2e or whatever) it is a feature for a sector in the space, and this is how it works, why it will reflect in bad detached valuations? why we compare it with others