- A proposal suggests burning a significant portion of Hyperliquid’s tokens, initiated by two investors.
- The rationale centers on addressing perceived inaccuracies in reported token supply figures.
- Cryptocurrency data aggregator, CoinGecko, is considering changes to alleviate these concerns.
Leading cryptocurrency data platform, CoinGecko, is exploring the implementation of a new data point in response to ongoing discussions about optimal methods for displaying token supply information.
This potential change could significantly impact cryptocurrency valuations, which are heavily influenced by market capitalization and fully diluted valuation (FDV).
Market capitalization reflects the total value of currently circulating tokens, while FDV represents the potential value of all tokens, including those not yet released.
“Reliance solely on these top-line figures can be misleading, and the industry needs greater standardization,” stated Pratik Kala, Research Head at Apollo Crypto, in an interview.
CoinGecko, alongside competitor CoinMarketCap, has historically provided market capitalization and FDV data for a vast number of cryptocurrencies.
Critics argue this isn’t sufficient, and CoinGecko is responding, according to co-founder TM Lee.
“We are closely following the debate around unallocated tokens and are actively exploring solutions,” Lee communicated.
“It’s crucial to acknowledge that any such adjustments will inherently involve a degree of subjectivity. Project teams will likely have differing opinions on what constitutes ‘unallocated’.”
CoinMarketCap had not provided a response to requests for comment at the time of publication.
Hyperliquid’s Token Reduction Initiative
The debate gained momentum following a proposal by crypto investors Hasu and Jon Charbonneau to eliminate 45% of Hyperliquid’s token supply. Both are invested in the exchange.
Hyperliquid, a decentralized exchange for leveraged cryptocurrency trading, boasts a total trading volume exceeding $2.8 trillion.
Hasu and Charbonneau contend that a substantial portion of Hyperliquid tokens are unlikely to ever circulate, unnecessarily depressing the token’s price without providing tangible benefits.
Hyperliquid introduced HYPE in November. As of Wednesday, it traded around $47, with a market capitalization and FDV of roughly $12.6 billion and $46.8 billion, respectively, based on a circulating supply of 270 million tokens and a total supply of 1 billion.
Charbonneau and Hasu argue that standard market capitalization and FDV calculations are often inaccurate.
In Hyperliquid’s case, they state, “Standard FDV estimations significantly overestimate HYPE’s true valuation and supply.”
This stems from approximately 45% of HYPE being held in the Assistance Fund (tokens from buybacks) and the Future Emissions and Community Rewards fund (intended for future growth), from which tokens are unlikely to be released.
Their suggestion involves burning these tokens and removing the 1 billion supply limit. New tokens could then be introduced via staking rewards or tokenholder voting.
“Given HYPE’s current supply characteristics, it is unfairly undervalued. Addressing this issue would greatly benefit the token,” they asserted.
Numerous figures in the crypto space have voiced support for the idea, expressing dissatisfaction with the conventional token release model, which often involves reserving a large portion of tokens for internal spending.
Tokenomics and Valuation Challenges
Why are market capitalization and FDV frequently criticized as being misleading indicators?
Market capitalization can understate a token’s real supply, since tokens reserved for creators and investors are generally expected to enter circulation eventually.
FDV presents the opposite problem by including tokens, like community governance tokens, that may never be used.
“This results in a wide, often unhelpful, valuation range for investors,” explained Chris Russi of Point-Slope Capital.
Russi believes experienced crypto investors are aware of this issue and adjust their investment strategies accordingly. However, as crypto adoption increases, professional investors who “don’t focus exclusively on this sector may, out of convenience or lack of awareness, take FDV at face value.”