Word-parroting and blind allegiance are characteristics of immature spaces like cryptocurrency. Within a few minutes of starting a conversation with a fellow kryptonite, I can usually identify which school of crypto thought that person subscribes to. I can further determine how indoctrinated a person is by listening to the level of righteous indignation in his or her voice when I point out that his or her favorite idiom is only half-true.
One bitcoin will always equal one bitcoin, but what one bitcoin can buy you fluctuates radically. Code is law, but laws can be changed. People may be here for the peer-to-peer electronic cash, but they aren’t here just for it. Market cap is a vanity metric, but it’s a vanity metric that really matters!
The popular phrase originated from none other than former bitcoin maximalist Richard Heart. On June 14th, 2021, the eccentric founder of the controversial but highly performant asset HEX tweeted, “Market cap is a vanity metric”. In the days, weeks, and months that followed, Heart’s many devoted fans adopted the phrase and repeated it ad nauseum. They explained, as Richard has in many videos, that market cap is how much 1 coin sold for multiplied by the coin’s circulating supply. This means that Joe Schmo could invent a cryptocurrency with a billion token supply and sell one to Jane Schmo for $10, to give the token a market cap of $10 billion. Obviously, that’s a little bit simplistic, but it’s not the point anyway.
Richard’s point is that most people don’t care about market cap because they can’t make money on it. Most people care a lot more about the price per token/coin. That’s why coins/tokens with a high supply tend to perform better than those with a much lower maximum supply.
Case in point
To examine this theory, let’s take a look at some well-known coins and tokens that performed best over the last year.
Best Performing Coins/Tokens March 1, 2021 – March 1, 2022
|Coin/ Token||% increase in 1 year||Price/ unit on 3/1/22||Market cap (3/1/22)||Circulating Supply||Max Supply||Price/unit on 3/1/21|
|SHIB||156,115.4%||$0.00002699||$15.92 billion||589.7 trillion||999.9 trillion||$0.0000000186|
|AXS||2,010.9%||$56.66||$4.03 billion||71 million||270 million||$1.6866|
|KDA||1,764.4%||$7.1446||$1.22 billion||171 million||1 billion||$0.409898|
|FLUX||1,706.7%||$1.5214||$346.52 million||227.8 million||440 million||$0.074019|
|HEX||1,518.6%||$0.14187||$19.41 billion||136.6 billion||None (fixed 3.69% annual inflation)||$0.008563|
|FLEX||1,086.2%||$4||$314.94 million||78.7 million||98.7 million||$0.360907|
|LUNA||990.6%||$89.03||$33.41 billion||375 million||788.6 million||$6.4872|
|SAND||771.7%||$3.2869||$3.7 billion||1.1 billion||3 billion||$0.255186|
|MATIC||656.7%||$1.5947||$12.05 billion||7.6 billion||None||$0.23296|
So, what do all of these top performing coins/tokens have in common?
- They all have a higher circulating supply than bitcoin
- They all have a higher max supply than bitcoin
- They all have a lower price per unit than bitcoin
- All but two of them had a price below $1 on March 1st, 2021
One might argue that these coins/tokens vastly outperformed the cryptocurrency market (which is up by 26.88% as a whole at the time of writing) because they offer greater utility than most. I’ll concede that’s true for some of them, but many are up simply because investors speculated that their value would increase and because they were able to secure large quantities with minimal capital. This is called unit bias, and it’s an important concept in finance and cryptocurrency.
Unit bias is the human tendency to prefer to own more of a less scarce asset. Despite popular opinion, unit bias is very real, and it affects even sophisticated investors. That’s why virtually all large publicly traded companies do stock splits when the price gets too high.
Just look at Tesla’s history of stock splits and its price performance after them to see for yourselves. When the world’s sixth largest company by market cap announced their 5:1 split in August 2020, shares rose 81% before the split even happened and another 42% in the months that followed. This means that if you’d held 1 share of Tesla stock on August 10th, 2020 (one day before the split was announced) – worth $283.71 at the close of the day – your share would have been worth $442.68 at the end of the month, and $705.67 at the end of the year.
Tesla isn’t alone. If stock splits didn’t result in adding zeros to a company’s valuation, why would Apple, Microsoft, Google, and Amazon (four of the world’s biggest companies) all do them? The short answer: They wouldn’t.
No one knows the importance of unit bias better than QuickSwap – whose native governance and utility token $QUICK has a meager 1 million max supply. As a result, QUICK’s price per unit is significantly higher than other DEX tokens, while its market cap pales in comparison. To rectify this, QuickSwap recently introduced a governance discussion about the possibility of doing a token split. Unsurprisingly, the DEX’s community (and QUICK token holders) pushed back.
QuickSwap’s Reddit discussion forum on this topic is ripe with QuickSwap enthusiasts who insist that unit bias simply isn’t that big of a deal and that “scarcity” is more important than having a lower price per token. Of course, they’re wrong. As the above table illustrates, 7 out of the 9 top performing tokens from March 1, 2021 – March 1, 2022 started out the year under $1. This isn’t a coincidence.
In QuickSwap’s community Telegram group, Roc Zacharias – one of QuickSwap’s co-founders – commented, “I am surprised at the amount of people on the discussion who don’t want a split. It’s very odd to me. There are many positives, and very few negatives.”
The reason for this negative reaction is simple human nature. People always fear change, but in this case, they really shouldn’t.
SHIB outperformed the entire market by tens of thousands of percent, and what can you do with SHIB? I’m not against it. In fact, I’m thrilled that many people made money on the asset, but at the end of the day, the token does nothing. The Shiba Inu team has a DEX and is planning to launch both an L2 and a collateralized stablecoin that pairs only with SHIB, BONE, and their other ecosystem token, but until that’s all complete, its value is purely speculative, and people bought it because they could get a lot of it without making a large initial investment.
No one cares that SHIB’s market cap is $15.92 billion, putting it on par with Polygon’s MATIC and DOGE – both of which have real utility today. Further, no one cares that SHIB’s astronomical market cap rivals that of well-known corporations like Pinterest and Dish Network. For that matter, what utility do those (or any) stocks even offer?
What does utility have to do with it?
SHIB proves that utility doesn’t drive adoption or market cap, speculation does. To illustrate my point, let’s look at the popular television series Billions. In season 5, episode 8, about 8 minutes into the episode, three “Axe Cap” traders admire the work of an artist who Axe commissioned and is visiting their office. The artist asks one of them, “What do you like?” To which he responds, “No [flippin’] idea. I don’t know anything about the underlying commodity.” Another trader chimes in with, “Don’t need to. Just that it can go up in value.” The original trader then comments, “It’s speculation with an option for manipulation.” The artist doodles something on a piece of scrap paper and asks the traders what they’ll give him for it. They pay him $3200, and a market cap is born.
The traders can’t do much with a signed piece of scrap paper, but they can hold onto it with the hope that it will someday be worth more than what they paid for it. This is the same in art as it is in the stock market and in cryptocurrency.
DEX token utility
In the discussion about the possibility of a token split for QUICK, many of those who are opposed to the proposition say that QuickSwap should focus on adding utility to the token to drive value. What they fail to see is that other DEX tokens with significantly higher supply and market cap don’t have more utility than QUICK.
Here, let me show you:
|DEX Token||Token Price||Market Cap||Use Case(s)|
As you can see, utility doesn’t seem to matter. UNI – the DEX token with the highest market cap – has the least utility of them all! QUICK has as much or more utility than many other popular DEX tokens. Adding additional use cases alone won’t help it gain adoption as long as price per unit remains so high by comparison.
A History of Token Splits
Stock splits might be a successful method for driving a company’s valuation up, but what’s the precedent for them in crypto? It turns out, there are some!
Pointed out again by Roc Zacharias, Polkadot is one example of a wildly successful token split. Three weeks after the project’s 100:1 redenomination, DOT rose from a sub-100 market cap coin to the number seven position.
When Gains Network migrated their token from GFARM2 to GNS, they did a 1:1000 token split, which is one of the options QuickSwap laid out for QUICK in their governance discussion. GNS did a 6x after splitting despite dismal market conditions.
Comparing DEX Tokens
As they discuss the possibility of a token split, QUICK holders should consider their competitors’ token supplies to get an idea of what kind of gains (or losses) the token stands to make.
|Token||Dex TVL||Token price||% change 1 year||Market Cap||Circulating Supply||Max Supply|
|UNI – all chains & versions||$7.53 billion||$10.28||-69.95%||$4.72 billion||459 million||1 billion|
|CAKE||$4.56 billion||$6.72||-42.24%||$1.83 billion||272 million||658.5 million|
|SUSHI – all chains||$3.99 billion||$3.44||-80.82%||$824.48 million||239.5 million||240.7 million|
|JOE*||$1.51 billion||$1.13||+1,756%||$198 million||175.4 million||500 million|
|1INCH||$20.36 million||$1.50||-62.38%||$81.41 billion||1.45 billion||1.5 billion|
|OSMO*||$1.67 billion||$10||+139.96%||$2.8 billion||282.5 million||1 billion|
|BOO*||$1.11 billion||$22.57||+36.54%||$133.2 million||5.9 million||13.666 million|
|SUN||$919.39 million||$0.01||-99.93%||$131.23 million||10.5 billion||19.9 billion|
|DYDX*||$995.21 million||$5.75||+436.71%||$486.23 million||84.6 million||1 billion|
|QUICK||$825 million||$170.73||-29.73%||$71.7 million||~420k||1 million|
*tokens marked with an asterisk are less than one year old. Their % change is represented by their change from the date of their inception to March 1, 2022.
What the data tells us…
- Of the ten DEX tokens evaluated, 6 are at a loss and 4 are in profit
- The 4 DEX tokens that are in profit are all under one year old
- 1 billion is the mode, or most common max supply
- When we exclude the two tokens with obvious outlier supplies (SUN and QUICK, in opposite directions), we can see that there is little to no correlation between the price per unit and a token’s max supply
- From the chart above this one, we can see that there is little to no correlation between an asset’s utility and its market value
From this data, it sure looks like “number go up is the only thing that matters in crypto”, which, ironically, is another one of Richard Heart’s favorite sayings. Just ask any Hexican.
What this means for QUICK…
If a token’s value isn’t relative to its circulating supply, max supply, or even its utility, the sky is the limit with a potential token split for QUICK. How fitting given that the DEX’s mascot is a dragon.
Average of DEX tokens, excluding obvious outliers:
$10.28 + $6.72 + $3.44 + $1.13 + $1.5 + $10 + $22.57 + $5.75 = $61.39
/ 8 = $7.67
If QuickSwap does a 1:100 token split, QUICK’s max supply will be 100 million, and it’s circulating supply will be approximately 42 million. If QUICK’s price increases to the average DEX token price of $7.67, QUICK’s market cap will be $7.67 x 42,000,000 = $322.14 million. That would put QUICK’s market cap below UNI, CAKE, SUSHI, 1INCH, DYDX, and OSMO, but above JOE, BOO, and SUN.
If QuickSwap does a 1:1000 token split, QUICK’s max supply will be 1 billion, and it’s circulating supply will be approximately 420 million. If QUICK’s price increased to the average DEX token price of $7.67, QUICK’s market cap would be $7.67 x 420,000,000 = $3.22 billion. That would put QUICK’s market cap below UNI’s but above everything else.
It is, but also it isn’t – hypocrisy abounds
It appears as though I’ve inadvertently proven that Richard Heart is right (as he reminds everyone, he so often is). Indeed, “market cap is a vanity metric”, but like most idioms, this one is only half true.
You can’t make money on market cap. You can’t place orders on the market cap chart, and no cryptocurrency lets you sell a large portion of the market cap without murdering the price. Yet, Hexicans response to being “gatekept” by data analytics sites that rank cryptocurrencies by market cap demonstrates that though market cap is a vanity metric, it’s one that really matters.
Put very simply, market cap matters because high market cap is necessary for institutional money to enter, which is why the largest funds who are now involved in cryptocurrency hold only “blue chip” assets. Further, market cap matters because it means exposure. Being listed on page one of data analytics sites can help to attract the attention of institutional and retail investors. Market cap is a vanity metric, but vanity matters as Richard Heart certainly knows, it’s all about the glory.
You can’t please everyone
I’ve spent years studying and analyzing the collective behaviors of crypto enthusiasts, and the only thing I can say for certain is that there is no winning here. No matter what you do, someone will always find fault with it.
QuickSwap’s community would be wise to vote in favor of a 1:1000 token split because that leaves the most room for QUICK’s price, QUICK’s market cap, and the QuickSwap ecosystem to grow. Of course, a token split alone isn’t enough to hold QUICK’s price up in perpetuity, but I happen to know that the team behind the DEX has much bigger plans waiting just around the bend. This token split is just phase one in a larger plan to fully decentralize Polygon’s biggest DEX. Whether QuickSwap reaches its potential or not is now in the hands of the community. Let’s hope for the sake of all QUICK holders that they know what they’re doing.
As for other DEX tokens, it will be interesting to watch how those that are under a year old now perform after their initial hype dies down. I’m particularly looking forward to observing PulseX (a fork of UniSwap v2 that will be deployed on PulseChain – Richard Heart’s fork of BSC with a fork of the entire system state of Ethereum embedded in it) through its first year of operations.
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