Why does the token issuance mechanism need to be changed immediately?

Origin of Token issue has low initial supply but high FDV

In Wu Blockchain's latest analysis of the status of projects with low initial supply, the team highlighted Bitcoin's role as an important tool to help the global market avoid the consequences of uncontrolled printing of money. As well as pointing out why Bitcoin is seen as a symbol of sustainability and transparency in the economy.

However, the paradox occurs in the field of web3/crypto. Instead of holding to the ideal against printing money, many crypto projects adopt a fixed-schedule token issuance mechanism. This leads to major problems in the way the market operates, such as the phenomenon of “low float, high FDV” (low circulating supply, high fully diluted capitalization).

This phenomenon creates a large discrepancy between the market cap and the FDV value, making it easier for investors to be misled about the actual value of the project.

When the floating amount of tokens is too low compared to the maximum total supply, the FDV is often exaggerated, giving the impression that the project has a very high value. However, when tokens are unlocked over time without a corresponding increase in demand, the token price tends to fall sharply due to selling pressure from the project team or investment fund. This not only reduces trust from the community, but also undermines the sustainability of the project in the long term.

In traditional finance (TradFi), market capitalization is calculated based on all stocks in circulation, including those locked up within 6—12 months IPOS. Factors that increase the total stock supply, such as options or restricted shares, usually do not have much effect. As a result, the FDV value in TradFi is only slightly higher than the market cap or there is no significant spread.

When companies issue more shares, this usually takes place through capital raisings or stock splits, and these changes are immediately reflected in the market price.

In contrast, in crypto, projects often adopt the model tokenomicswith a fixed total supply and a low initial initial supply. This creates a completely different FDV in crypto than TradFi, because crypto's FDV covers all tokens that may be issued in the future, rather than focusing only on the amount of tokens currently in circulation.

If the FDV definition of crypto is applied to TradFi, this value will include the entire number of potential shares that can be issued in the future. This makes the FDV in TradFi unlimited, as companies can easily raise the ceiling on shares allowed to issue through shareholder approval.

While most crypto projects try to emulate Bitcoin with a fixed aggregate supply and low initial supply, they ignore an important principle: issuing tokens based on actual needs instead of on a fixed schedule. This is the key point that leads to the imbalance in tokenomics of many projects.

Bitcoin's emissions are often misunderstood as purely time-based, such as a four-year halving cycle, but in fact, the mechanism is designed based on demand. There are three core points in this mechanism including:

1. Bitcoin emissions (block rewards) are tied to the number of blocks mined.
2. If the reward is not high enough to encourage miners, no new BTC is issued.
3. The price of BTC ultimately remains dependent on demand, as the supply mechanism has been fixed.

In contrast, most crypto projects now adopt a fixed-schedule token unlock mechanism, which creates a major imbalance in the balance of supply and demand. Rigid unlock schedules are unable to meet fluctuations in market demand, resulting in tokens often being issued at times when demand is insufficient or even declining. As a result, the token price is constantly falling.

Moreover, the scheduled unlock mechanism also causes conflicts of interest among stakeholders, including project teams, investors, and communities. This undermines trust in the project and leads to poor post-TGE performance of many tokens with an investment fund behind it, causing great damage to its reputation and ability to attract users in the long term.

The only way to fix this problem is to switch to a demand-based token issuance mechanism. This ensures that tokens are issued only when there is additional demand from the community or market. This mechanism offers two main benefits:

1. Balance of demand: Tokens are issued only when there is additional demand, preventing scheduled inflation.
2. Synchronization of benefits:Only when the community or market creates additional demand will token unlock be activated. This puts the project team, investors and the community “in the same boat.”

Although the demand-based token issuance mechanism can increase risk for project teams and investors especially the risk of not being able to unlock tokens when demand is insufficient. However, part of this risk also motivates projects to focus on building real value, rather than simply seeking to maximize short-term benefits.

Without the necessary changes in tokenomics, web3 will forever be a zero-sum game where internal groups benefit the most while the community is disadvantaged. In the worst case scenario, this model could turn crypto into a form of financial fraud disguised by promises of decentralization and fairness.

Resolving solutions

Only mint more tokens when there is demand from the market

Fair Release 1.0is a tokenomics model oriented towards sustainability and fairness, ensuring tokens are issued only when there is additional demand from the market. This model offers many outstanding advantages:

• Equitable distribution: Ensure all stakeholders, including the team, investors, and the community, benefit from each release.
• Inflation Control:Prevents uncontrolled issuance of tokens, protects the value of tokens from being diluted.
• Build long-term trust:Facilitate sustainable participation from the community without undermining trust.

The Fair Release model has three versions suitable for different projects:

1. Ponzi Version (no revenue): Issue new tokens equal to the amount burned.
2. HODL Version (with revenue): Issue new tokens and use the revenue to offset inflation, keeping the token price stable.
3. Moonshot Version (with revenue): Uses a portion of the revenue to raise the token price, creating an “up-only” effect.

For projects that do not generate the same revenue as Ponzinomics projects, the Fair Release model can still work at a basic level to ensure fair and inflation-free token unlocking. The way it works is as follows:

1. At the time T³: The initial liquidity pool contains TOKEN and USDT, valuing the TOKEN at the starting price.
2. Between T₂ and T₂: A quantity of TOKENS is consumed (e.g. through community interaction) and burned, reducing circulating supply and pushing the TOKEN price higher.
3. At the time of T₂: An equivalent amount of TOKENS is reissued to restore the number of tokens that have been burned, bringing the TOKEN price back to its original level. The number of new tokens is distributed fairly to stakeholders (teams, VCs, communities...).

Impact:

• Total circulating supply did not change after each issuance round, and the TOKEN price returned to its old level.
• The issuance of tokens is carried out in a transparent and fair manner among stakeholders.

However, version 1.0 still has limitations such as diluting community ownership. Since the amount of tokens burned mostly comes from the community, only a portion of the tokens that are issued belong to them. Although this mechanism is more reasonable than scheduled unlock, the benefits are still skewed towards internal parties.

Generate more revenue for the project

Fair Release 2.0improve the Ponzi model by adding revenue-generating capabilities to the project, which helps protect token prices more sustainably. The steps to perform are as follows:

1. At the time of T1: The initial liquidity pool contains TOKEN and USDT, valuing the TOKEN at the starting price.
2. Between T₂ and T₂: A quantity of TOKENS is consumed and burned, reducing the circulating supply and increasing the price of TOKENS. At the same time, the project generates revenue in USDT.
3. At the time of T₂: The amount of newly issued tokens exceeds the amount burned — including the inflation portion — distributed to stakeholders, causing the TOKEN price to fall below the initial level.
4. At the time of T₃: Revenue is used to buy back and burn excess tokens, bringing the price and circulating supply of TOKENS back to their original levels.

Impact:

• There is no dilution of community ownership.
• Token prices are protected through buyback and burn mechanisms, ensuring stability.

Fair Release 2.0 completely addresses the problem of community dilution of the Ponzi version, while providing a lasting incentive for the community to continue to participate.

The most optimal way of the present moment

Fair Release 3.0is an upgraded version of the HODL model, incorporating a mechanism for using revenue to boost token prices. This version not only protects the token price, but also creates an “up-only” effect. The steps to perform are as follows:

1. At time T³:The initial liquidity pool contains TOKEN and USDT, which values TOKEN at the initial level (same as previous versions).
2. Between T₂ and T₂: A quantity of TOKENS is consumed and burned, reducing the circulating supply and increasing the price of TOKENS. At the same time, the project generates revenue in USDT.
3. At the time of T₂: The amount of newly issued tokens exceeds the number burned, with the inflation share distributed to stakeholders. This causes the TOKEN price to fall below the starting level (like the HODL version).
4. A portion of the revenue is used to buy back and burn excess tokens, bringing the price and circulating supply back to their original levels. The remaining revenue is pumped directly into the liquidity pool to boost the TOKEN price.

ImpactTo the supply of projects will be as follows:

• After each token issuance round, the TOKEN price is not only protected, but also increases.
• Create a strong incentive for the community to continue to hold and participate in the project, and attract more new investors.
• Project teams and VCs have benefits tied to token growth, rather than just looking for a quick exit.

Highlights of the Moonshot version: This version requires more accurate calculations for optimization.

• Inflation Rate:Ensure that the amount of tokens issued is sufficient to stimulate demand but not exert major downward pressure.
• Revenue allocation: Determine the appropriate ratio between the portion used for buybacks and the portion used to raise the token price.

When implemented carefully, this model creates a sustainable development cycle: the more participants, the higher the token price, which promotes a positive feedback loop.

Many attribute the current underperformance of the crypto market to factors such as lack of liquidity, stagnation in innovation or the depletion of compelling stories. However, few realize that the real problem lies in the unfair distribution of assets, which increases the divide between retail investors and large organizations such as VCs or project teams.

Web3 is built on a decentralized mindset, aiming for a more equitable distribution of power and property. But without improving how assets and benefits are distributed, crypto won't be able to surpass traditional financial models, even with sufficient liquidity, technical breakthroughs, or compelling stories.

Fair Release is not only a solution to the problem of “low float high FDV” but also lays the foundation for equity and sustainability in token issuance. This model adheres to basic economic principles, addresses demand issues at the root, and provides long-term incentives for all stakeholders.

Fair Release 3.0, the Moonshot version, takes this idea to a new level, with the ability to not only keep the token price stable, but also increase its value over time.

This model is expected to create a “flywheel effect”, promote community engagement and attract new investors, while bringing the benefits of the project team and the community to the same goal.