VC-Backed Tokens Surge on Exchanges Blamed for Market Downturn — We Used Data to Uncover the Truth...
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VC-Backed Tokens Surge on Exchanges Blamed for Market Downturn — We Used Data to Uncover the Truth...
VC-backed tokens have siphoned off more than half of the incremental capital, while exchanges have enhanced their willingness and capacity to absorb unlocking tokens, and the market hopes to provide more opportunities for truly valuable coins.
Navigating Web3 tides with focused insightsAuthor: Nan Zhi, Odaily Planet Daily
Recently, amid a broad market downturn, the view that exchanges have drained market liquidity by excessively listing "VC-backed tokens" has gained widespread traction. Anti-VC sentiment first emerged during the inscription era and became a rallying cry during the Meme coin boom; this latest market drop has intensified the conflict to unprecedented levels.
Has the VC ecosystem siphoned off market funds? Have exchanges amplified this trend? What do users expect from listing policies? This article by Odaily aims to provide answers.
Are "VC-Backed Tokens" Sucking Up Market Capital?
Before discussing whether exchanges should list VC-backed tokens, it's important to note that most users enter crypto by purchasing USDT or USDC. As such, stablecoin supply broadly reflects total market liquidity. Therefore, we can begin with a simple comparison between growth in stablecoins and growth in market capitalization of VC-backed tokens.
Where Did the New Capital Go?
One year ago, USDT’s circulating market cap stood at $83.2 billion and is now $112.7 billion—an increase of $29.5 billion. USDC rose from $28.4 billion to $32.6 billion, adding $4.2 billion. Together, these two stablecoins added $33.7 billion in new liquidity over the past year.
Consider ten recently listed VC tokens over the past six months, whose combined circulating market cap totals $5.47 billion (all figures in USD): PYTH ($1.1B), ENA ($950M), STRK ($900M), ZRO ($670M), ZK ($600M), ETHFI ($360M), DYM ($270M), ALT ($270M), ATH ($250M), EZ ($100M).
Additionally, in the second half of 2023, there were major launches like TIA ($1.17B) and SEI ($1.05B). These figures are already after recent weeks' declines of 20%–30%. Thus, we can preliminarily conclude that more than 50% of new capital inflows have been captured by dozens of VC-backed tokens.
Existing Tokens Also Draining Liquidity
ARB launched in March 2023 with an initial circulating supply of 1.275 billion tokens, valued at $1.25 each, giving it an initial market cap of $1.02 billion. Today, ARB’s circulating market cap is $2.5 billion, yet its price has dropped about 40%. If rising market cap indicates net capital inflow while holders continue to lose value, then capital must be flowing into unlocked portions held by insiders.
The Role of Exchanges
From the previous section, we see clear evidence that VC-backed tokens exert a strong capital-siphoning effect. But have exchanges exacerbated this trend?
On this question, Binance co-founder He Yi shared her thoughts on X: “Crypto is a free market where liquidity and trading volume are shared across platforms. Even if Binance doesn’t list new projects, they still exist and will draw capital across the industry. Beyond VC project unlocks, meme coins, on-chain scams, airdrop farming, and capital schemes also divert funds. After ETF approvals, traditional financial markets will further分流 capital originally headed into crypto.”
In short, her argument boils down to: “Even if one exchange refuses to list them, VC tokens will find outlets elsewhere,” and “capital fragmentation cannot be blamed solely on VC unlocks.” The latter point was addressed earlier through data identifying the main drivers of capital outflows. However, regarding the former, Odaily Planet Daily believes she overlooks two key factors: “user characteristics across different environments” and “differences in leverage ratios.”
In on-chain environments, aside from DeFi farmers or airdrop hunters, most traders exhibit aversion toward high-market-cap projects due to their low risk-reward ratio and the ease with which large holders can dump via AMMs. When a token reaches a circulating market cap of hundreds of millions or even billions, on-chain users often view it no differently than a scammy dog coin with 90% pre-mined supply—resulting in significantly lower willingness to buy.
Conversely, centralized exchanges offer much higher leverage—up to tens of times—which provides ample counterparty liquidity for large-scale selling. On-chain markets simply cannot match the depth offered by leveraged trading on centralized platforms.
Therefore, differences in “user behavior” and “leverage availability” across platforms significantly affect the ability and willingness to absorb unlocked VC tokens. If trading occurred exclusively off centralized exchanges, prices might rapidly correct to fair value rather than gradually decline post-unlock. Scenarios like rising market caps alongside falling prices might not occur so frequently. It would be inaccurate to claim that centralized exchanges play no role in this unlocking process.
Can Exchanges Do Better?
For exchanges, flagship projects like ZKsync and LayerZero are effectively mandatory listings—as long as teams aren't exit-scammers or hacked, delisting isn't feasible. However, for other tokens, user demands highlight numerous areas where exchanges could make better choices.
Give Opportunities to Value-Driven Projects
Some value-driven projects generate substantial profits and cash flow. Take the current sensation Pump.fun, for example, which reports annualized revenue of $219 million—many users eagerly anticipate its potential token launch and are willing to buy. Other examples include BananaGun and Whales Market, with valuations reaching $160 million and $40 million respectively.
These projects didn’t inflate metrics through VC coordination or bot-farmed interactions—they grew organically based on real user demand, evolving from small-cap to large-cap status. In the last bull cycle, SOL and MATIC were able to list on exchanges at market caps in the tens of millions and then grow further. This cycle, however, similar value-generating projects haven’t received comparable opportunities.
Compared to projects that abandon development immediately after launching a token, providing more opportunities to sustainable, value-based projects remains a core user demand.
Establish Clearer Listing Criteria
How should value projects be identified? Financial metrics offer a direct and effective method—not easily manipulated indicators like address count or interaction volume, but concrete data such as TVL and project revenue. Some worry this may incentivize projects to optimize solely for exchange listing, but traditional markets like U.S. equities don’t collapse due to clear standards—in fact, such frameworks help genuine value projects stand out instead of allowing superficial AI clones, coordinated schemes, or inflated-metric projects to dominate.
Going further, exchanges could even implement delisting criteria—ensuring “liquidity goes to those who need it”—and thereby promote healthier market development.
Improve Transparency and Disclosure
Information such as tokenomics performance and upcoming unlock schedules is currently unavailable on most exchanges. While the market generally does not consider this an exchange obligation today, greater transparency would empower users.
Long or short decisions ultimately rest with traders. But if exchanges clearly disclose deteriorating operational metrics or imminent large unlocks—and users still choose to buy—the responsibility lies with the buyer, eliminating grounds for blame-shifting.
Conclusion
Blaming all market declines on exchanges is certainly an oversimplification. Yet claiming complete innocence and merely lecturing users isn’t the best approach either. As the entities with the greatest influence and traffic in the industry today, exchanges still have many better options available when it comes to guiding healthy and sustainable growth for both the ecosystem and individual projects.
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