GSR Study Reveals Flaws in Low-Circulation, High-FDV Token Launch Models

Authors: Josh Riezman, Slater Santer (GSR)

Compiled by Deep潮 TechFlow

Shenchao Summary: The market is rejecting token issuance models with low circulating supply and high valuations—median price declines have exceeded 80% within a year. This GSR study uses data to dissect the root causes and offers several actionable alternative approaches, providing valuable insights for project teams and early investors.

• The GSR research team collaborated with the consulting team to analyze every token listing on major exchanges since 2013, covering over 2,300 issuances, including performance, circulating supply, FDV, and sector information for each listing.
• Since the ICO era, the circulating supply has been halved. The median circulating supply at listing dropped from 38% in 2017 to 13% in 2020 and has only partially recovered since then.
• As issuance valuations rise, the median circulating supply steadily declines: 97% of tokens with an FDV under $10 million, compared to 14% of tokens with an FDV over $1 billion.
• The worst-performing launches were in the billion-dollar range. Tokens with an FDV exceeding $1 billion had a median return of -81% after one year. Launches with less than 20% circulating supply declined by approximately 75% after one year, while those with 30% to 50% circulating supply declined by about 45%.
• This is no longer just an issue in the crypto space. The stock market has converged on the same pattern: companies remain private longer, insiders accumulate positions before the public can buy, and IPOs have underperformed the broader market over a three-year holding period since 2019.
• GSR is an active participant in token launches and secondary markets. Our services include market making and liquidity provision, launch and listing advisory, and OTC execution and block trading for foundations, teams, and early investors, managing concentrated positions.

The reality of low-circulation, high-FDV tokens has been verified hundreds of times. A token launching with a high fully diluted valuation and a minimal percentage of circulating supply may rise in the short term, but over time, it inevitably experiences sustained dilution. However, we aim to gain a deeper understanding of the dynamics behind this process—for both our clients and ourselves: Does circulation determine average post-launch returns? Is there a correlation with FDV? And what might a solution to this model look like?

The GSR research team collaborated with the consulting team to compile every listing on major exchanges since 2013, creating the first such dataset covering over 2,300 token launches. Our findings are not entirely optimistic. By tracking every single token listing ever recorded, our dataset includes both dead and delisted tokens, ensuring the numbers are not skewed by survivorship bias. The median token price falls below its offering price within three days and drops by 50% within 90 days. Clearly, recent token launches have disappointed buyers. Why does this structure inevitably lead to such outcomes, and what might a better issuance model look like?

The ICO era had many issues, but it put tokens into the hands of the public. During initial listings in 2017 and 2018, the median circulating supply was 38% to 41%. When stricter regulations pushed fundraising toward private sales, the model reversed: venture capital rounds set valuations, and token allocations and airdrops replaced public sales; by 2020, the median circulating supply at listing had dropped to around 13%. Since then, it has only partially recovered, remaining mostly in the low to mid-teens to low twenties over most years.

However, looking solely at the circulating supply figure understates the issue, as circulating supply must be evaluated in relation to valuation. Releasing 5% of a token with a market cap of less than $50 million has a far smaller impact than releasing 5% of a token with a $1 billion market cap.

The median circulating supply at listing steadily decreases as the fully diluted valuation (FDV) increases: 97% for tokens under $10 million, 28% for tokens between $10 million and $100 million, 16% for tokens between $500 million and $1 billion, and 13% for tokens over $1 billion. Higher valuations correlate with thinner circulating supplies. This is clearly not coincidental—it is an entrenched pattern in our industry.

When only a small portion of the supply is trading, modest demand can drive up the entire token’s value. Everyone within the issuance benefits on day one: venture capitalists are valued at the listing price, the team’s holdings are valued at the listing price, and the exchange lists a flagship asset. The only participants who benefit more when the token is priced lower are the buyers.

Then, the unlock schedule arrives, and the supply previously excluded from circulation begins entering the market according to the predetermined schedule, flooding a price discovered by only a small portion of the supply. None of this requires anyone to act with malicious intent—this structure itself ensures that incentives will produce the same outcome.

In our dataset, the median listing price fell below the issuance price within 3 days, dropped by approximately one-fifth to one-quarter within a month, and neared a 50% decline by day 90. For projects listed with an FDV exceeding $1 billion, the median dollar investment was reduced to just $0.19 after 360 days.

The low circulating supply, high FDV model is often seen as unique to the crypto space. However, in recent years, public equity markets have also drifted toward the same structure: companies like SpaceX remain private for a decade, with insiders and late-stage funds accumulating stakes amid continuously rising valuations, ultimately going public only to release a small fraction of the company’s shares to public demand. On a three-year buy-and-hold basis, every IPO cohort since 2019 has underperformed the broader market, with recent cohorts among the worst-performing on record.

The issuance of cryptocurrencies is like the modern IPO problem, but with faster unlocking and less disclosure.

Within the crypto space, issuances with less than 20% circulating supply retain approximately $0.23 to $0.26 per dollar one year after launch. Issuances with a circulating supply between 30% and 50% retain about $0.55—more than double the former. This relationship breaks down at the high end, as near-full-circulation issuances are primarily low-market-cap tokens and memecoins; however, within higher-demand project tiers, broader distribution of circulating supply outperforms supply structures designed to create scarcity.

There is no one-size-fits-all solution, and we are skeptical of anyone promoting a single fix. However, from our experience with hundreds of launches, actionable levers are clear.

First, the issuance price should benefit both holders and traders. In this industry, enduring communities belong to only a few assets that the public can access early and at low prices. Simply put, if you enable your holders to profit, you naturally build a community. Selling the first public allocation at the highest private valuation does the opposite—it recruits holders into a position destined to disappoint them. This also drives away traders. A token that declines continuously from day one offers traders no room to operate: no two-way liquidity, no reason to establish short positions, and no buyers when holders want to sell. These two groups are complementary: traders provide the liquidity and price volatility that holders need, while holders provide the fundamental demand that makes the market worth trading. An issuance priced solely for insiders loses both. Projects should sell to the community earlier and at lower prices, rather than exposing the public to risk at the peak.

Second, ensure sufficient circulating supply to enable more accurate price discovery. This ratio should be significantly higher than the low of 13% to 20% seen between 2020 and 2022, and must be evaluated in conjunction with valuation—not in isolation. For reference, typical stock IPOs usually have around 30% circulating, with 50% considered high; in the crypto space, it is rarely appropriate for major assets to have more than half circulating at launch. The goal is to achieve a circulating supply large enough to make the first-day price meaningful.

Finally, expand the scope and timing of participation. Access opportunities are just as important as liquidity. We’ve seen recent growth and popularity in co-investment platforms that enable small investors to participate under venture capital terms, along with reputation-based allocation for real users, public sale channels, on-chain auctions, and fully diluted fair launches. Each approach involves trade-offs, but all are moving in the right direction toward broader participation.

In addition, the legal and regulatory environment has significantly improved. In Europe, MiCA has enabled issuers to offer tokens directly to the public. In the United States, the draft CLARITY Act considers permitting capped direct sales to retail investors. If passed, this legislation would greatly weaken the argument that securities laws necessitate a private placement model, making issuance structures a choice rather than a constraint.

Each issuance is different. Factors such as stage, sector, jurisdiction, placement strategy, community, and release design all influence what constitutes a reasonable circulating supply and valuation. The answer for a $50 million project is not the same as for a $5 billion project.

GSR collaborates with token issuers, foundations, and investors to provide issuance and listing advisory services, including guidance on circulating supply, valuation, allocation, and release schedules, alongside market-making and liquidity services for listed markets, as well as OTC execution and block trading services for participants managing concentrated positions or positions in the process of release.

Our industry keeps relearning the same lesson. Projects that build a durable holder base are those that set issuance prices so the public can win, release sufficient supply to ensure price authenticity, and allow insiders to benefit more slowly—working alongside the community, not ahead of it.