Each day, Coinrule will run through the state of the digital assets market for Blockbeat, your home for news, analysis, opinion and commentary on blockchain and digital assets.
In crypto, you can blink and a new narrative has come and gone. This cycle is no different. The time between liquidity cycling through different tokens also appears to be shortening. One of the reasons for this sensation has been the increasing number of tokens. In May, according to The Block, 455,000 tokens were released on Solana alone – but, does more token choice equal better market conditions?
The biggest catalyst for this surge in tokens has been the Solana token launchpad – Pump.Fun. Pump enables tokens to be created within a few clicks and at less than $5. Even following the protocol’s exploit last month, it has continued to break records. Last Thursday, they recorded their best day for revenue, generating $1.48 million and bringing the protocol’s lifetime revenue to over $32 million. According to data dashboard Dune, Pump saw the creation of approximately 430,000 tokens in May. This accounted for nearly 95% of Solana’s total.
In previous cycles, fewer tokens were created and fewer exchanges were available for trading, so liquidity was not as diluted. This led to tokens appreciating more as investors had less options to place their bets. Resultantly, their capital flowed to a select few. This strengthened in a fully flowing bull market where external capital was also flowing in. Profits taken from one token could only be distributed to a select few other viable options. Before the rise of stablecoins, this was even more prevalent.
This phenomenon was more “player vs environment” (PVE) compared to today’s “player vs player” (PVP), where investors are less loyal to their tokens and are increasingly becoming traders. Failures, such as Terra may have had a part to play. Investors may have realised even well established tokens can fail, or decline 96%, similar to Solana during the most recent bear market. They may as well, therefore, buy a $5,000 market cap meme token on Pump, for a potential 10x within a few minutes, instead of buying a $500 million DeFi token, that could also implode, where a 10x may still only be possible within several months.
Another factor potentially driving market participants to lower market cap tokens is the ever increasing valuations of tokens when they are trading on exchanges. Using data from New launches (part 1) – private capture, phantom pricing written by prominent crypto thought leader , Cobie, this trend is obvious. Ethereum, launched in 2015, was $35 million at its lowest public market fully diluted valuation. Solana’s, launched in 2020, was $240 million. Optimism’s, launched in 2022, was $1.7 billion. Starknet’s lowest valuation, launched in February this year, was just over $10 billion.
The private markets are increasingly capturing more and more of a tokens’ price growth, leaving less for the average investor. As shown by the growth of Pump and memes becoming the primary narrative of this cycle, it seems retail investors have had enough. With liquidity becoming increasingly fragmented across thousands of tokens, and higher valuations at launch, private market-funded tokens may not produce returns like they once did. As with society, participants’ attention spans are also shortening. Will this change in market dynamics lead to the trader approach, as opposed to the investor approach, surviving and thriving the best?
The views and opinions expressed in this article are those of the authors and do not represent those of City AM, its affiliates, or employees.