Prepare for Massive Token Unlocks in Crypto Market, Analysts Caution
The crypto sphere is gearing up for a significant influx of token unlocks worth a whopping $17 billion before the end of April, triggering concerns over potential devaluation and market oversaturation.
Recent developments have exacerbated these worries, with a recent market upheaval witnessing nearly $10 billion in long liquidations, amplifying liquidity strains within the market.
Trouble Ahead for TGEs and Market Saturation, Say Analysts
In the aftermath of a historic crypto liquidation event spurred by US President Donald Trump's tariff policies, industry experts, led by Bybit CEO Ben Zhou, estimate the cumulative liquidations post-tariffs to be much higher—ranging between $8 to $10 billion, significantly surpassing reported figures.
Analysts caution that the market is becoming increasingly reluctant to accommodate new project launches that lack unique value propositions.
"The market is no longer tolerating projects that offer no tangible value," cautioned a leading analyst.
While pointing out the challenges faced by numerous projects post-token-generating-events (TGEs), recent reports suggest that crypto investors are shifting their attention from meme coins to alternative coins with substantial real-world utility.
According to a study by DeFi researcher Monk using data from Messari, several blockchain projects, notably Starknet, Mode, Blast, zkSync, Scroll, and Dymension, have experienced notable declines in performance since their token launches.
Interest Shifts to New Chains Post-TGE. Source: X
Amidst these struggles, Hyperliquid emerges as a standout success story, with its HYPE token witnessing a remarkable 1100% surge in price. This highlights the rarity of victories in a landscape dominated by struggling projects.
History indicates that large-scale token unlocks often trigger price downturns, with a research study by Keyrock Research revealing that 90% of token unlocks result in price decreases, as the augmented supply tends to exceed demand levels. An influx of tokens into the market from vested schedules often prompts early investors and insiders to cash out, intensifying selling pressures.
Arthur, Defiance Capital's founder and CIO, underscores these challenges by pointing out significant drops in the total value of assets locked among these chains post-token launches.
“This indicates weak demand for tokens and difficulties attracting and retaining users and liquidity,” Arthur emphasized.
Analysts Unpack the Struggles of New Chains
Recent data from DefiLlama demonstrates substantial declines in the total value locked for projects like Scroll and Blast, surpassing 80% since their TGEs. This trend hints at a market oversaturation in block space.
According to a senior executive at Defiance Capital, the emergence of new Layer 1 (L1) and Layer 2 (L2) chains is posing difficulties in setting themselves apart. This challenge intensifies as established networks like Solana (SOL) and other prominent L2 solutions continue to flourish.
“The Solana Singularity. 2024’s batch of L1s and L2s launched, surged, and slumped. TVL drained; speculation waned, and no lasting demand. Meanwhile, Solana continues to thrive,” remarked a user, DefiBanked.sol on X.
The user highlighted Solana's robust fundamentals, including exceptional speed (400ms block times) and minimal transaction fees. Moreover, Solana boasts a thriving ecosystem spanning DeFi and NFTs, meme coins, and real-world assets (RWAs), enhancing its appeal over newer chains.
The struggles faced by recent blockchain debuts showcase a mounting intolerance towards redundancy. Projects failing to demonstrate their unique value propositions risk fading into obscurity. In contrast, established networks with robust use cases, user adoption, and liquidity stand tall.
Therefore, developers and investors need to pivot towards innovation to avoid getting lost in the competitive landscape. Without a clear and compelling use case, new chains run the risk of becoming casualties in an unforgiving market environment.