- Two Hyperliquid investors want to burn 45% of the protocol’s tokens.
- They say it would address a widespread issue: misleading token supply metrics.
- Data provider CoinGecko is eyeing a change that would address critics’ concerns.
CoinGecko, one of the two major providers of cryptocurrency price data, is considering adding a new metric amid a fresh debate over the best way to represent token supply.
The decision could significantly influence how cryptocurrencies are valued by investors who often rely on two basic metrics: market capitalisation and fully-diluted value, or FDV.
The former refers to the value of all tokens in circulation, and the second refers to the value of all tokens in existence, including those that may never enter circulation.
“Looking at those topline numbers is misleading and the industry needs to clean up to standardise the approach,” Pratik Kala, head of research at Australian investment firm Apollo Crypto, told DL News.
CoinGecko and competitor CoinMarketCap have long provided market capitalisation and FDV figures for the thousands upon thousands of cryptocurrencies in existence.
But that’s not enough, critics complain. And CoinGecko has listened, according to co-founder TM Lee.
“We have been monitoring this debate around unallocated tokens, and yes our team is currently working towards something in this direction,” he told DL News via email.
“However it is important to note that such adjustments are necessarily subjective. Project teams will debate what is considered unallocated or not.”
CoinMarketCap did not return DL News’ request for comment in time for publication.
Hyperliquid’s token burn
The debate kicked off last week, when two notable crypto investors, the pseudonymous Hasu and Jon Charbonneau, proposed burning 45% of all Hyperliquid tokens. Both are investors in Hyperliquid.
Hyperliquid is a decentralised exchange offering leveraged trading for cryptocurrencies. It has accumulated more than $2.8 trillion in trading volume since inception.
About 45% of all Hyperliquid tokens are unlikely to enter circulation, weighing on the token’s price with little added benefit, Hasu and Charbonneau argue.
Hyperliquid launched HYPE in November. As of Wednesday, the token was trading around $47. With 270 million tokens in circulation and a total supply of 1 billion, HYPE’s market capitalisation and FDV were above $12.6 billion and $46.8 billion, respectively.
But market capitalisation and FDV figures are often flawed, according to Charbonneau and Hasu.
In Hyperliquid’s case, “standard FDV calculations wildly exceed what we consider to be reasonable measures of HYPE’s current valuation and supply,” they wrote.
That’s because roughly 45% of all HYPE sits in two pots from which tokens are unlikely to enter or re-enter circulation: the Assistance Fund, which holds HYPE tokens acquired through a buyback mechanism, and the Future Emissions and Community Rewards fund, which are meant to be spent to support Hyperliquid’s future growth.
Charbonneau and Hasu have proposed effectively destroying all those tokens and removing the token’s 1 billion supply cap. Brand-new tokens could enter circulation via staking rewards or tokenholder votes.
“Given HYPE’s current supply dynamics, it’s one of the most unfairly penalised tokens on the market today. It stands to benefit heavily from remedying this,” they wrote.
Prominent crypto entrepreneurs lauded the proposal, saying they were frustrated with the standard token release playbook, in which cryptocurrencies are launched with a large tranche set aside for tokenholders to spend as they please.
Tokenomics
So why are market capitalisation and FDV criticised for being misleading?
In the former’s case, it’s because the metric often under-represents a token’s supply. That’s because vesting tokens set aside for a token’s creators and investors will almost certainly enter circulation.
FDV has the opposite problem, by also including tokens — such as community tokens that are meant to provide investors with a say in a protocol’s direction — that may never be used.
“The result: a mile-wide valuation range that is largely unhelpful for investors,” Chris Russi, chief investment advisor at Point-Slope Capital, told DL News about the two metrics.
Russi said he believes most crypto-native, long-term investors are familiar with the issue and invest accordingly. But as crypto goes mainstream, there are many professional investors who “don’t spend 100% of their time in the space may take FDV at face value out of convenience or ignorance.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.
