The next FTX is, unfortunately, out there. The crypto market is almost entirely driven by speculation and aggressive marketing, and many projects are still highly overvalued. Even more, there are crypto projects with dubious algorithms and unsustainable tokenomics. Given enough time, these cryptos are likely to be the next FTX.
Algorithmic stablecoin projects, major centralized exchanges, and cryptos with disproportionate token distribution present the highest risk in the current environment. Algorithmic stablecoin projects are mostly a ticking time bomb unless they are sufficiently overcollateralized. At the same time, many major centralized exchanges could face a bank run, and it is self-explanatory that cryptos with inadequate token distribution could be rug-pulled very quickly.
With that in mind, here are three such projects:
At first glance, Toncoin (TON-USD) seems like a promising project. It is a layer 1 blockchain with a proof-of-stake consensus allowing sharding. Moreover, the network has features that allow users to connect to the blockchain via its own DNS and decentralized VPNs. Even non-blockchain websites can be integrated with the project using readable names.
Of course, the blockchain looks robust, and there is nothing fundamentally bad about the project. However, the most significant problem with Toncoin is its token distribution. An FTX-tagged wallet that owns 36.58% of Toncoin’s supply could soon dump a third of the entire circulating supply. This could cause TON’s value to plummet unless enough buyers reinforce the project’s value. That’s unlikely to happen with that many tokens.
Boba Network (BOBA-USD)
If you thought Toncoin was a bad case of token distribution, look into the Boba Network (BOBA-USD). This cryptocurrency has a market capitalization of $36 million, and the same FTX address holds $29 million of the token. Sure, the diluted market cap of BOBA is much higher, and some of the tokens could be “locked” in theory, but I would not risk holding this token.
Moreover, unlike Toncoin, said FTX wallet’s holdings are publicly available on Etherscan, and most people are aware of the risks of this token. As a result, the buying pressure from retail crypto investors is virtually zero. Thus, I don’t see BOBA holding even a tenth of its value if the wallet decides to sell. If you hold BOBA, I strongly recommend selling it before the FTX wallet does.
STEPN (GMT-USD) is a crypto project that rewards people for physical activity, or at least it used to. During the ultra-loose monetary policy period in 2021, STEPN users were paid tens of dollars for just walking. Unfortunately, there’s really nothing called “free” money, and the project plunged due to its Ponzi-like business model.
In order to earn, users would first have to buy non-fungible tokens. The project relied on the inflow of funds from NFT sales to reward STEPN users, but once people became less interested in NFTs, the project naturally started to decline. STEPN had $10.36 million of profit in Q3, down 90% from Q2 2022.
While that’s enough justification for selling the token, there’s more. The FTX wallet I previously talked about holds $17.2 million of the Ethereum (ETH-USD) -based GMT token, which has a fully diluted market cap of $50 million. Therefore, GMT should be considered among the top tokens if you are looking to sell the next FTX.
On Low-Capitalization and Low-Volume Cryptocurrencies: InvestorPlace does not regularly publish commentary about cryptocurrencies that have a market capitalization of less than $100 million or trade with a volume less than $100,000 each day. That’s because these “penny cryptos” are frequently the playground for scam artists and market manipulators. When we do publish commentary on low-volume crypto that may be affected by our commentary, we ask that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
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On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.