Crypto Needs to Radically Rethink Token Distribution

The biggest obstacle to mainstream blockchain adoption is the widespread feeling that the space is still too focused on speculation. To build a sustainable ecosystem and engage more users, protocols need to fundamentally rethink how tokens are distributed. The focus must shift from inflated valuations and speculative price action to long-term utility and transparency.

This year, the cryptocurrency market has witnessed a resurgence in token launches, with many adopting a “low volatility, high fully diluted value (FDV)” strategy. The plan is simple: launch at a high price, lead with a multi-billion dollar valuation, and generate excitement around the project’s potential. This game plan has been widely criticized but has proven irresistible for many projects that have gained traction. The problem? It’s completely artificial.

The “low float, high FDV” model involves assigning a high price to each token while releasing a small percentage of the total token supply (float). This creates a deceptively inflated FDV for the project, and many token holders fail to account for the remaining token supply that needs to be released into circulation.

While this approach can generate significant initial interest, many projects adopting this model see short-term benefits that dissipate over the long term. This is not a sustainable approach and distracts from what should be the primary focus of all crypto projects: long-term utility and protocol adoption. Bitcoin took years to build a user base; today, projects can do this with a single major launch.

The crypto industry needs to make bolder bets to refocus the industry on distribution and utility while avoiding price speculation.

There’s a better way to manage token launches — one that prioritizes long-term utility and organic growth over speculative gains. Protocols are starting to experiment with alternative models. For example, FRIEND, a blockchain-based social platform, launched with 100% free float and distributed all tokens to the community from day one. After taking a radically different approach on Lava Network, I’m convinced the industry needs to adopt a new standard for how blockchain projects should handle token distribution and valuation.

A Market-Derived Approach

By sharing experiences and insights from lessons learned at Lava, an access layer for blockchains, I hope we can inspire a shift toward more responsible and sustainable token launch practices. Together, we can build a stronger, more resilient blockchain ecosystem that benefits all participants.

This alternative token launch strategy is centered around a market-derived FDV via decentralized exchange (DEX) trading designed to reduce speculation and organically support a community of believers and long-term network participants. By providing a higher initial float and a capped supply, this approach allows for a greater focus on the intrinsic utility of a token and the real-world potential of the project rather than speculative pricing.

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This strategy has several key benefits:

Reduced Speculation: With a higher initial volatility, the market can more accurately price the token based on its utility and demand rather than speculative hype.

Organic Growth: A market-driven FDV creates a community focused on the long-term success and benefit of the project.

Transparency and Trust: By avoiding the pitfalls of inflated valuations, this approach builds greater trust with society and stakeholders, providing a more stable and predictable path forward.

Some may argue that a market-driven FDV approach could lead to slower initial growth or the risk of undervaluation, but the long-term benefits of a stable and sustainable protocol far outweigh these short-term concerns.

Recent commentary in the blockchain space has also highlighted the need for change. For example, a CoinDesk article by Azeem Khan rightly argued for a move away from inflated valuations to attract retail investors and stimulate the market for VC tokens. While this perspective acknowledges the shortcomings of high FDVs, it primarily focuses on engaging retail investors by keeping valuations low and creating market excitement.

However, this is not enough. A long-term sustainable approach should not just be about lowering valuations, but about creating real value and benefit that resonates with both retail investors and the wider community. The emphasis should be on transparency, realistic valuations and encouraging organic growth, not just immediate market excitement.

Building a Sustainable Blockchain Ecosystem

The blockchain industry is still in its infancy, and how token launches are managed today will shape the future of the ecosystem. A market-derived FDV approach is a call to action for other projects to prioritize transparency, long-term benefit, and community trust over short-term gains.

The blockchain industry is at a crossroads. Continuing down the path of low volatility, high FDV launches will only lead to more market volatility and frustrated investors. By adopting a market-derived FDV approach, projects can build stronger, more resilient ecosystems that benefit everyone involved. It’s time for the industry to focus on building real products — and less on the next shiny new token.

Note: The opinions expressed in this column are those of the author and do not reflect the opinions of CoinDesk, Inc. or its owners and affiliates.