Yet another controversy overshadows Worldcoin — what is it now?

As Worldcoin struggles to capture the eyes of billions of people, concerns about the token’s value declining due to its large token supply and allegations of market manipulation are overshadowed.

Controversial cryptocurrency project Worldcoin has come under renewed criticism amid allegations of insider trading and market manipulation. An on-chain detective described it as “the biggest scam token of the bull run.”

According to DeFi Squared, only 2.7% of WLD tokens are currently in circulation. And despite being the 103rd largest cryptocurrency with a valuation of $648 million, its fully diluted market cap is a whopping $22.4 billion.

This reflects the fact that only 288.9 million WLD out of a total supply of 10 billion are currently in circulation. And as Into The Block noted earlier this month, this is extremely bad news for existing investors:

If Token A has a price of $1 but only 10% of its total supply is in circulation, then its market capitalization is based solely on the circulating supply. If the remaining 90% of tokens are put into circulation, the overall value must increase significantly to maintain a price of $1 per token. Essentially, as more tokens come into circulation, the value of each token can dilute.

In some ways, the concept behind Worldcoin’s token economy is understandable — even a little creepy. Anyone around the world can sign up to have their irises scanned. In return, they get a digital ID and some free WLD.

According to Worldcoin’s latest estimates, more than 6 million people have registered worldwide (world population 8.1 billion), which explains why so many cryptocurrencies have gone unclaimed to date.

However, DeFi Squared’s concerns are related to the insider access that was opened amid claims that the Worldcoin team “maintained a fully diluted valuation of $30 billion by controlling the price.” It claims that 100 million tokens were allocated to market makers, adding in their post:

It is common practice in the industry to create favorable pricing conditions by allocating supply to market makers.

The analyst went on to claim that “the vast majority of the ecosystem exists purely for VCs to sell,” and the timing of the good news coincided with the unlocks occurring as the project “intentionally supported a token price that should have been lower.”

One piece of good news for Worldcoin developer Tools for Humanity is that 80% of the tokens held by team members and investors will be unlocked over a longer period of time, effectively solving the dilution issue we mentioned earlier.

DeFi Squared concluded by saying that they plan to “short WLD” in the months following the start of unlocks.

The spokesperson for the project categorically denied the claims in this post and said:

The Worldcoin Foundation and its contributor, Tools for Humanity, take allegations of insider trading seriously, even if they are unfounded and without evidence, and have zero tolerance for such activity if it occurs.

Unease for regulators

Many countries around the world have banned Worldcoin permanently or temporarily, primarily due to data protection concerns. Regulators claim that potential users are not provided with detailed information about how their biometric information will be processed, there is no mechanism to revoke consent, and that the technology could ultimately harm children. As the Portuguese Data Protection Authority said:

Minors are particularly vulnerable as they may be less aware of the risks, consequences and guarantees of the processing of their personal data and of their rights and are subject to special protection under European and national legislation.

Led by Sam Altman, who also founded OpenAI, Worldcoin has repeatedly missed targets in terms of user acquisition, especially considering its goal of signing up one billion people by 2023. Making matters worse, consumers in major economies (China, India, and the US) are prohibited from accessing the globes and, in some cases, even owning WLD tokens.

It is difficult to know at this stage whether these negative developments for Worldcoin will be temporary and whether this technology will become more widespread as the need for digital identities becomes more evident.

But in the meantime, regulators are hitting the brakes hard because they worry about what the future might look like.