LD Capital Comparison of Supply and Demand of LDO and RPL Tokens

LD Capital Comparison of LDO and RPL Tokens

Author: Yuuki, LD Capital

Currently, the staking rate of ETH has exceeded 20% and still maintains a good growth rate. We have detailed the basic market of LSD track and different targets in previous reports. This article aims to analyze the token selling pressure and demand brought by the non-secondary market trading of the top two LSD targets, Lido and RocketPool, from the perspective of funds. It provides reference for selecting targets for investment strategies with different investment horizons. (Due to the diversified positioning of its products, FXS cannot simply be attributed to the LSD track, and there are deviations in the fundamentals from LDO and RPL, so it is temporarily not discussed in the scope of this article.)

1. LDO Token Distribution and Selling Pressure Sources

The total issuance of LDO is 1 billion, and the current circulating supply is 879 million. In terms of token distribution, 40.2% belongs to the team and validators, 34.6% belongs to investors, and 25.2% belongs to the treasury (the current data statistics are from Tokenunlocks, not the initial token distribution). The next large-scale token unlocking of LDO will occur on August 26, 2023, with an unlock amount of 8.5 million LDO, owned by Dragonfly, and a token cost of $2.43. The following figure shows the distribution and unlocking situation of LDO:

Source: Token Unlocks, LD Capital

Lido has had a total of 5 rounds of financing, with the first round of financing being extremely low-cost (0.0085 USD/LDO) before the issuance. Specifically:

Source: LD Capital

The main issue affecting the secondary market price of LDO is that the majority of primary market investors’ shares have been unlocked and there has been continuous profit-selling, which has brought tremendous selling pressure to the secondary market. Among them, due to the extremely low cost of the first round of financing, with an average cost of about $0.0085, there has been an over 200-fold increase compared to the current price, which needs to be closely monitored. The table below summarizes the relevant addresses of token distribution for first-round investors and the current token balances:

Source: LD Capital

The table above summarizes over 90% of the addresses of first-round investors, and from the aggregated data, it can be seen that these low-cost investors are continuously selling tokens. The token distribution for first-round investors began unlocking linearly in December 2021 and will be completed by December 2022. Due to their extremely low cost, they are relatively insensitive to the current secondary market price. From the initial allocation, the balance in January 2023, and the current balance, it can be seen that first-round investors are selling approximately 7.41 million LDO tokens linearly each month. Currently, the total amount of unsold tokens from the first round of financing is 51.57 million, and at the above selling rate, the selling will continue for another 7 months.

From this perspective, in the absence of major changes in Lido’s fundamentals and a lack of incremental funds in the market, the secondary price of LDO will continue to be suppressed before the primary market investors’ shares are cleared. (Recently, due to the XRP winning the SEC case, the market has lowered its expectations of SEC regulations on Ethereum staking, and the LDO price has risen sharply along with XRP, SOL, ADA, and other “securities concept” tokens. The primary market investor Certus One sold 4 million LDO at a high price, and the current LDO price has dropped by 16.3% compared to the previous day’s high price)

2. Token Distribution and Supply-Demand Relationship of RPL

RPL currently has a fully circulating supply of 19.55 million tokens; the initial supply of RPL was 18 million, of which 9.72 million were raised through private financing, accounting for 54%, with a token price of $0.21; 5.58 million were sold publicly, accounting for 31%, with a token price of $0.98; and 2.7 million were allocated to the team, accounting for 15%. The public sale of RPL tokens was completed in January 2018, and due to the long period of time and the market experiencing bull and bear cycles, the primary market shares have been fully turned over. From the on-chain holding addresses, there is currently no selling pressure from primary market investors for RPL. The key point to focus on is the inflation brought about by its issuance. The following figure shows the distribution and inflation of RPL:

Source: Token Unlocks, LD Capital

Starting from October 2021, RPL will have a linear inflation rate of 73,302 tokens every 28 days, lasting for 10 years, with an annual inflation rate of 5%. The final total supply of RPL will reach 30 million tokens. 15% of the inflation will be allocated to oDAO (Oracle Node DAO), 15% to the Protocol DAO, and the remaining 70% to node operators, as shown below:

Source: LD Capital, Rocket Pool

In the emission of RPL, node operators account for 70% of the token inflation ratio. To obtain RPL emissions, operators need to stake RPL, with the staking ratio ranging from 10% to 150% of the value of their users’ ETH. The more RPL they stake, the more RPL emissions they will receive. Most large node operators stake to the maximum extent. Currently, the staking rate of RPL is 46.97% and is continuously increasing. From this perspective, RPL is somewhat similar to the leverage of staking ETH value on the platform. With the increase in the platform’s ETH staking amount or the rise in ETH price, RPL’s price will have strong support due to the platform’s staking mechanism. The following figure shows the increase in RPL’s staking rate:

Source: Rocket Pool, LD Capital

From a data perspective, there is no selling pressure from primary market investors for RPL. Since October 2021, RPL has had an inflation of 1.55 million tokens, but it has also generated 9.18 million tokens staked, resulting in a decrease of 7.63 million tokens in circulation. It can be inferred that as long as no decline in RPL’s business is observed, buying pressure brought about by the protocol will continue to exceed token inflation.