Count this as yet another disillusioning token sale, but this time even a Turing Award winning founder, the backing of famed VC Union Square Ventures, and strong pre-sale momentum wasn't enough to sustain the offering price.
Algorand, the project that concluded its first public token sale in June with much fanfare and a handsome amount of $60 million raised, was the worst performer of July on Binance, having the a negative monthly return of -61.8%.
As staggering as the drop is, however, it's hardly a surprise to some traders and investors that The Block spoke with. Some experts predict that the price has more room to fall. The main reason cited is that there are simply too many tokens circulating at too high of a valuation.
Too many tokens
The project’s long term plan is to have a maximum circulating supply of 10 billion ALGO. 3 billion of that supply will be released in public auctions over the next five years, with a yearly cap of 600 million tokens sold. Although this figure for circulating ALGO sounds enormous, there is a catch - public investors can receive a 90% refund by returning ALGO after a year long lock-up period.
This means that for investors who purchase at auction, the downside of buying ALGO is somewhat protected. In the worst case, they can always return the majority of their purchased ALGO after a year.
“That's when Algorand started to create a lot of buzz, especially among Asian investors,” said cryptocurrency market maker Altonomy co-founder Ricky Li.
This intense buzz led to a skyrocketing valuation for ALGO tokens. As it closed its first public sale at $2.40 per token, investors were reportedly valuing the company at a fully diluted market cap of $24 billion: $2.40 per token multiplied by the 10 billion total token supply.
“This is simply just too many tokens for this specific token,” said Li. “It’s basically betting on it reaching Ethereum-level hype, at least close to that, to be able to justify this amount of volume in retail interest.” And for comparison, ethereum is valued at $23.8 billion at the time of writing.
Even Algorand itself thought that the widely circulated $24 billion valuation figure was wrong, according to a person familiar with the matter. Although it does not yet seem like the company has made any clarifications.
As a result, the high valuation and the large number of tokens are too much for the retail market to absorb, even given the intense market interest in this protocol, since it was founded by MIT professor and Turing Award winner Silvio Micali and backed by well known venture capital firms like Union Square Ventures. The price drop simply reflected the high number of tokens, several market observers told The Block.
And more tokens to come?
When Algorand conducted its first auction, the company defined “Circulating Supply” as “the quantity of Algos available to transact freely” and its total amount was 10 billion. However, some investors, who spoke with The Block under the condition of anonymity, raised doubts at this definition, questioning whether there are tokens from undisclosed sales that will eventually enter the market as well.
It is stated on Binance that Algorand did not conduct a private token sale, except for two rounds of equity fundraising for a total of $66 million. However, Li, whose company specializes in trading altcoins, said it has seen a steady flow of Algo coming to the trading desk every week recently, and almost all of them are selling. It is unclear where this flow of Algo is coming from.
In addition, a letter allegedly sent from the Algorand Foundation to “early backers who participated in the original Algorand Foundation auction” was also disclosed recently, warning these "early backers" to not participate in the early redemption program that the foundation recently launched to reduce the circulating supply of Algo.
As Alogrand, at times regarded as a leading project in the space, faces deep price fall-off, Li pointed out that uncertainties around Algo are also harmful to the general altcoin market. "Overall the altcoin space, volatility and liquidity have been dropping,” said Li.
Algorand did not respond to to The Block’s request for comments before publication.
source https://www.tokentalk.co/The Block/algorands-token-price-plummeted-618-in-july-despite-turing-award-winning-founder-and-union-square-ventures-backing-5d4ca5b049613cd83c46747d
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