Disclaimer: As a builder of the Deworker protocol, I am not only a regular web3 asset investor but also a project team member. Therefore, I will discuss the high FDV issue and solutions from these two perspectives.
This week I read three excellent articles discussing the low liquidity high FDV issue, authored by Cobie, Haseeb, and BinanceResearch. I recommend you read these three articles first to get some background information.
What Exactly Are We Opposing When We Oppose High FDV?
When discussing high FDV projects in the community, there is often an unspoken agreement not to step on each other's toes. You play your Ponzi, I play my Ponzi, and we both hope the other will join our Ponzi. This contradiction is particularly evident between whale VCs/project teams and community participants. It is also evident between whale VCs and small and medium-sized VCs.
The reason for opposing high FDV is that the vast majority of people have not made any profits from high FDV projects. Further, most projects do not provide available entry for community participation. Ordinary community members, apart from receiving the value dump of high FDV on the secondary market, have no other way to participate in the project. If you carefully observe all the projects in the web3 community, the vast majority of community participants are forced to participate in the high-buy-low-sell game, so they cannot obtain any benefits.
Why Do Community Members Participate in Volume Brushing and Airdrop Activities?
Many people in the community like to participate in on-chain volume brushing activities to deliberately create the illusion of a thriving ecosystem to meet the requirements of the project team. One of the reasons is that the community has no other way to make money except in this way. Therefore, this field is becoming increasingly fierce. When someone shouts "electronic beggars," they may not have thought about the underlying reasons.
Why Do Low Liquidity and High FDV Always Appear Together? Why Doesn't the Community Complain About High Liquidity and High FDV Projects?
Because the former causes a mismatch of value and compresses the profit space for investors. Only a very few people can benefit. The high liquidity of the latter represents the real needs of the community, such as BTC/ETH.
The former can only create high FDV by believing that controlling low liquidity can maintain its high control and that low liquidity makes it easier to create fake FDV. Therefore, low liquidity is just a tools to create high FDV.
As the community discusses this phenomenon, solutions will be slowly emerge, and this trend has begun to sprout in the community. From the earliest fair launch methods of BRC20 projects, the community has started to vote against low liquidity and high FDV with their feet. This is why tokens like Sats on BRC20 have emerged, which is entirely a game spontaneously formed by the community. I didn't expect it to have such achievements later, and then it started the acceleration of BTC L2, Runes, ARC20, BVM, etc. People hope to find a permissionless gameplay from the BTC ecosystem. However, due to the limitations of BTC, the value empowerment of these innovative projects is very slow and still under exploration.
When discussing the losses of high FDV projects, some people criticize MEME projects, saying that they often do not allow the majority of community participants to profit. However, don't forget that the loss of profit is the same. The loss of profit caused by low liquidity and high FDV projects has an extra layer of black box (artificial control of low liquidity). The gameplay of most memes is still relatively fair, and people are also willing to have fun from this relatively fair game.
How Many Projects Deserve High FDV?
If we let the community vote on which projects deserve high FDV, and if we further clarify the requirements for projects that have changed the world, changed the industry, and proposed new paradigms, perhaps only a few projects will be recognized by people. I wonder if people still remember the Silicon Valley investment market before the AI craze. The valuations of many startups have shrunk significantly, some by more than 50%. Why is this? Because people suddenly discovered that money in the market has become scarce, and projects cannot create real value. Even companies that are about to go public cannot create significant value for people. Therefore, many Silicon Valley projects have reduced their financing or been acquired. I think this situation will happen in the crypto field soon.
Will the Low Liquidity and High FDV Issue Affect the Direction of This Bull Market?
Each bull market will introduce a large amount of external capital. If you look back at previous bull markets, you will find several characteristics of bull markets.Innovation in technology paradigms and community participation methods, such as smart contracts and ICO or DeFi and farming activities.Technology paradigms bring new value growth points, and the innovation of participation paradigms gives community participants an entry point into the value rocket.This round is no exception. If the community and external participants do not have an entry point to participate in the value increase, either the bull market will be too short or it will be necessary for these conditions to be met before the same scene as the previous bull market can appear.
Advices from CZ
CZ proposed a point of view during the last bear market. He believes that startups should obtain external funding support in a gradual manner rather than raising tens of millions or hundreds of millions of dollars in financing at the beginning. Because the creation of a new projects is a gradual process, so financing should be the same. In addition, this gradual approach can also allow external investors to participate gradually. Many high-FDV projects that received large amounts of funding at the beginning did not develop well and did not generate the expected value. This is a benign cooperative relationship between investors and teams. This is a process of market game and return to value investment.
Explore community participation paths
As I mentioned earlier, the community participation method of most projects now is only one - to accept liquidity dumping in the secondary market, especially for projects with FDV of hundreds of billions, you can't see any other community participation methods at all. We should return to the POW method. The POW I am referring to is not just the ASIC mining like BTC, but a broader proof of value creation by participants. Including providing liquidity contributions, data contributions, bandwidth contributions, node contributions, computing power contributions, and game time contributions. We often say that Web3 is a sharing economy. If the community cannot participate in "sharing," it cannot be called a Web3 project. Projects that only use blockchain technology and obtain high-FDV financing cannot be called Web3 sharing economy.
Public goods investment in developer ecosystem and infrastructure construction
Now if developers want to develop some interesting or experimental products, they must have a certain amount of financial support, especially many projects need 1 year or more to generate value, so external financial support is essential. Now if startups want to get external funding support, besides raising funds from investors, are there any other better ways? There used to be public goods like Gitcoin, but now its voice is very weak. We need to consider establishing other methods to provide funding support for developers. With a certain amount of financial support, more possibilities will be created, and it will also bring about technological paradigms. And more projects will compete more fiercely, and the overall valuation of projects will also decrease, because each project wants to obtain external funding.
Reverse ICO method
Solana Co-founder Toly proposed a project construction method, the basic method is Dev launch product, then the community Launch a meme coin and control the dao, the dao offers devs a bunch of coins to integrate coin into product. In fact, this method has been tried in the preliminary stage. For example, the launch methods of projects such as Shib and degen are very similar to what Toly said, and they can reduce the legal risks in some countries.
About reverse ICO: BRC-20's Sats was once loved by the community because of its wide participation and fair launch mechanism. Later, some teams claimed to use it as the token for new projects, which also aroused the cheers of the community. I think we can go further. If some teams want to create interesting products, but because of the lack of community support, they can consider donating and participating channels to the community like Degen of Base.
“Long Spoon” and contribution power
We can also try another fundraising method. As far as I know, Many community members are trying to build it. This method can be tried in both the BTC community and the EVM community. It can be called a "Long Spoon" ,The general method is as follows: Community A can first create such a rule like this: community members have special rights, that is everyone can donate "contribution power" to others ,but this power can only be donated and cannot be minted by oneself unless it is power given by others. Then people who have this power can decide how much power to give to a certain builder according to their own preferences or some consensus.
For example, I have 100 powers and decide to give 40 powers to developer A, 50 powers to developer B, and 10 powers to a KOL who promotes the project. This method is reflected to a certain extent in the Degen project on Base. But I think we can further improve this idea, such as how to decide who has the contribution power and how much contribution power they should have. Finally, if developer A receives 100 powers donated by the community, he can mint them and sell them on the secondary market.
This model has been reflected to a certain extent in some projects in the Base community. I hope that projects in the BTC ecosystem such as Sats can also consider this method.
About expanding the community members' participation paths in the project
Many AI projects in this cycle are impressive, especially in expanding community participation. They allow community members to earn by contributing computing power. For example, the well-known TAO project enables participants to create subnets and become miners for rewards. Another project, Gensyn, focuses on decentralized computing, rewarding participants who provide computing power. The Mor project incentivizes both model developers and liquidity providers, combining DeFi farming to address liquidity issues and reward LLM developers.
We are building the Deworker protocol, distributing tokens daily using a PoW model with a fixed halving period, ensuring calculable and predictable daily output. To address liquidity and investor participation, Deworker allocates 25% of daily output to LP Node Miners and 60% to those providing computing power and data. Additionally, 5% is allocated to upper-layer application developers (workspace contributors). Approximately 90% of the total network rewards go to external participants, with the remaining 10% distributed by the DAO.
Whether it’s TAO, Mor, Gensyn, or Deworker, they all share a common focus on community participants' contribution/reward paths. This aligns with their project goals, requiring external contributions of computing power, data, and liquidity. They are practical examples of the Web3 shared incentive concept.
Conclusion
All solutions need active participation from all parties, be it whales, VCs, exchanges, incubators, project teams, or community participants. Addressing low liquidity and high FDV issues before the bull market peak is crucial for a better market environment. We are also pleased to see Binance’s new initiatives post-research report, providing more opportunities for quality mid-sized projects, fostering a diverse market landscape. Let's work together and look forward to the results.