Viewpoint: How does the 'VCToken' that 'no one cares about' 'return to its peak'?

Author: Azeem Khan, CoinDesk

Compiled by: Felix, PANews

One undeniable fact in Web3 over the past year has been the massive surge of MemeTokens. This has resulted in a clear distinction between MemeTokens and VCTokens (Tokens issued by venture-backed companies).

Although the author disagrees with the view that Memecoin will kill VCToken in the long run, it is clear that many VCToken markets are currently stagnant. How did we get to this point? What needs to be done to revive the VCToken market?

More importantly, especially when MemeToken starts to weaken, what does a savvy founder willing to go against the grain do to revitalize the VCToken market? To answer this question, it is necessary to trace the root cause that led to this step.

The intersection of Web3 companies and centralized exchanges lies at the heart of it all. For founders and venture capitalists, successful token issuance is essential. Centralized exchanges can be categorized based on their volume and liquidity. The goal of categorization is to list your token on exchanges with the highest volume and liquidity, in order to increase trading activity and improve market positioning. But what does it take to achieve this? It’s a complex process.

In short, as you can imagine, top centralized exchanges are very picky. Each exchange has different standards, but one key factor they value is high valuation. High valuation indicates that the founders have successfully raised a lot of funds, making their token issuance appear more promising. An important indicator in valuation is Fully Diluted Valuation (FDV), which is calculated by multiplying the token price by the total supply. If a company achieves a high FDV, it will be considered a high-profile project worthy of listing on exchanges with better volume and liquidity. Although exchanges also consider other factors when choosing to list a token, high valuation is a crucial factor.

Although this strategy has been successful in the past, venture capitalists, especially those with abundant capital, have found a way to exploit the pattern loophole, which is to help more companies raise funds at high valuations. This practice has worked for a while, and a few have made substantial profits, but it has also disrupted the market. Now, it seems that every company is raising tens of millions or even hundreds of millions of dollars, usually with valuations of over $1 billion.

But this strategy has a major drawback: artificially inflating the value of tokens before they are listed. This practice limits retail investors who can only trade with a few hundred dollars. If there is not enough upward space, retail investors do not think it is worth participating, especially for short-term traders seeking quick profits. It is this market gap that MEME Token intervenes and “replaces” VCToken.

In contrast, MemeToken has flourished due to its potential for high returns, attracting traders who have lost interest in VCToken. MemeToken is expected to gain huge returns in the short term, which is incomparable to VCToken. However, the problem with MemeToken is the lack of Intrinsic Value beyond memes. Therefore, the cycle of MemeToken is often shorter and will ultimately become worthless.

To revitalize the VC token, it is necessary to rethink the current financing model. This means getting rid of overinflated valuations and adopting a model that appeals to retail investors. This requires brave founders willing to challenge traditional notions of the past few years and develop a new model that enables founders to successfully make money for retail investors and sparks imitation from others. But what does this new model look like?

Currently, Web3 founders are encouraged to raise as much funding as possible to achieve artificially high FDV. However, founders can also create hype while only raising the necessary funds. This approach keeps valuations at lower levels, making tokens more easily accepted by retail investors and providing greater pump potential.

Certainly, this strategy needs to be more refined, such as explaining to retail investor why your Token is priced lower than competitors, and the need to collaborate with a broader Web3 ecosystem. However, once retail investor realizes that you have left them with room for value, your VCToken may soar like this year’s MemeToken. Given the scarcity of original thinking in Web3, others are likely to emulate.

You may be wondering how founders can list Tokens on larger exchanges without artificially increasing FDV. In fact, centralized exchanges are disappointed with the current financing strategy and are opposed to unnecessary high FDV Tokens. The exchange is shifting its focus on listing, as its business model relies on users buying and selling Tokens. If users cannot see the potential pump space for Tokens, they will not trade, and the exchange will not profit. Therefore, the exchange is now waiting to provide investors with projects that are reasonably valued and truly valuable.

All in all, under the wave of the rise of MEME Token, the stagnation of VCToken highlights the need for a change in financing strategy. Abandoning overvalued valuation and adopting the method of attracting retail investors for trading can revitalize the VCToken market. This change is not easy, but it is crucial for the long-term healthy development of the ecosystem. Innovative founders who embrace this challenge will lead the narrative, creating a trend of balancing the interests of investors and exchanges, ensuring a vibrant future for VCToken.

Related reading: Real or prejudice, is the low circulation and high FDV of “VCToken” a sin?