Understanding tokenomics is crucial for assessing the supply side of an asset, while the design of the underlying protocol or token influences the demand side. The interplay between these two facets determines the asset’s price movements.

In my December 2022 report, “The Curious Case of Token Unlocks,” I delved into various aspects of tokenomics, with a particular focus on token unlocks. Typically, token unlocks increase the supply, leading to an anticipated decrease in price, assuming constant demand. However, a surprising phenomenon known as “bullish unlocks” occurs when significant token unlocks do not cause a price correction but instead result in a bullish PA.

Several factors contribute to this dynamic. I want to highlight the impact of token supply concentration on price behavior. By looking at assets with a concentrated supply, we can attempt to predict their movements, at least to some extent.

For instance, consider a hypothetical asset XYZ with a total supply of 100M tokens. If its circulating supply is 20M tokens, with no unlocks scheduled for a year, and it’s trading at $0.50. The scenario changes if a small group controls 80% of this supply. They have significant influence over the price, capable of creating liquidity and driving up prices to distribute at higher prices.

The mechanism is straightforward. If 80% of the supply is locked, the effective circulating supply is only 4 million XYZ tokens. A small group purchasing XYZ in a market with thin order books can sharply push up the price. This PA attracts speculators, giving the controlling entity the power to set distribution prices. This is a simplified explanation, but it helps illustrate the concept.

Let’s apply this understanding to a real-world example.

ONDO, with a circulating supply of 1.44B and a total supply of 10B, includes tokens from a Coinlist sale and an ecosystem fund. Ninety percent of the sale allocation (200M) has been unlocked, with the remainder to be released linearly over 12 months. The ecosystem fund accounts for the rest of the circulating supply, currently used mainly for liquidity provision on CEXs. Thus, the effective circulating supply is approximately 190 million, and the market cap sits at $43.7M. Assuming most sale participants have sold, it’s plausible that the remaining supply is highly concentrated.

This concentration suggests current holders have a higher cost basis and little incentive to sell at current prices. Like electricity, price follows the path of least resistance. Given ONDO’s thin supply, no significant unlock in the near future, availability on major CEXs, and few underwater holders, it emerges as a strong candidate with upside potential with limited downside risk.