When analyzing a blockchain project, one of the most crucial aspects to consider is the dilution of the project's token, which is directly influenced by token unlocks. This is essential for forecasting how the token economy will evolve.
In this post, we will use the Cenit simulator as our token terminal to maximize the returns on our investments, focusing on Celestia tokenomics, considering in particular the impact of the upcoming token unlocks and token emissions.
Celestia's tokenomics revolves around its native asset, TIA, which plays a pivotal role in its modular blockchain network. The use cases of TIA include payments for blobspace, bootstrapping new rollups, proof-of-stake, and decentralized governance.
Developers use TIA to pay for data availability on the network and may also use it as a gas token and currency for their chains. Staking TIA is crucial for network security and governance, allowing the community to influence network parameters and manage the community pool.
Based on the recent surge in Celestia's token price, primarily driven by speculative factors, we propose a hypothetical scenario. This scenario assumes that there are sufficient fees and rewards paid in TIA to stakers, such that the buying pressure they generate approximates the simulated price to the current market price.
To justify a token price similar to the current one observed in the protocol, we estimate a monthly fee input of approximately $2 million USD. This estimate is the average over the first year, with a linear increase and the revenue is allocated to stakers. This figure is further supplemented by the primary allocation of token emissions to stakers.
In crafting this scenario, which reflects the present market conditions to a degree, it is crucial to highlight that our analysis is centered solely on the intrinsic value of the token. This approach deliberately omits speculative elements. With this foundation, we will examine the effects of different token unlocks and emissions.
Every scenario is available in our simulation engine here
The vesting schedule for the tokens is as follows:
Public Allocation: Accounting for 20% of the initial token allocation, this segment was fully unlocked at launch. It is subdivided into:
R&D and Ecosystem: This comprises 26.8% of the initial token allocation. Of this, 25% is unlocked at launch, with the remaining 75% being gradually unlocked from the second until the end of fourth year. These tokens are designated for the Celestia Foundation and core developers, earmarked for research, development, and various ecosystem initiatives including protocol maintenance, development, and support programs for rollup developers, infrastructure, and node operators.
Early Backers: Series A&B: Representing 19.7% of the initial token allocation, 33% of these tokens are unlocked at the end of first year. The remaining 67% will be progressively unlocked during the second year.
Early Backers: Seed: This category constitutes 15.9% of the initial token allocation, with 33% becoming available at the end of first year. The rest, 67%, is scheduled for a gradual unlock during the second year.
Initial Core Contributors: Amounting to 17.6% of the initial token allocation, this group sees 33% of its tokens unlocked in the first year. The remaining 67% will be incrementally unlocked from the second and the third year, primarily involving the team.
It's important to note that in the first year, approximately 30% of the token circulating supply originates from the airdrop, not factoring in inflation, which is a big share of it.
At the close of the first year, there is a surge of approximately 70% in the number of tokens, which significantly affects the token economy.
In our simulation, although the market capitalization stays constant, we observe a sudden drop
in price from $16 to $11, translating to a roughly 30% decrease in token value.
Between the 12th and 24th months, the token supply expands steadily by about 82%. During this period, the price continues to fall, reaching around $8.
This decline is attributed to a shift in the market's buying and selling balance, leaning towards selling due to a substantial influx of tokens from investors that liquidate. The selling rate escalates from approximately 1.1 million tokens per month to over 7 million, a shift that the demand generated by the value proposition of the protocol struggles to counterbalance in time.
From the 24th to the 60th month, the rate of inflation due to unlocks averages around 12%, marking a more moderate increase. The token's organic price starts to stabilize within the $7 to $8 range. This stability is largely due to an increase in demand that helps balance out the reduced rate of inflation.
In the first year, besides the substantial rate of token unlocks, additional token emissions further dilute the holdings of original token holders. According to the original documentation, "TIA inflation starts at 8% annually and decreases by 10% every year until it stabilizes at a long-term issuance rate of 1.5%." These emissions are primarily allocated towards staker incentivization.
Let's examine the impact of this inflation on the organic token price. With no inflation:
With Inflation
Initial Impact on Price Stability:
Initially, we observe a more consistent token price. In the early months, a 10% inflation rate significantly influences the circulating token supply, which is around 25% of the total. This 10% inflation effectively adds 33% more tokens into circulation. The majority of this is selling pressure, stemming from the stakers selling their rewards.
Long-Term Economic Impact:
Throughout the simulation, the overall market capitalization remains relatively stable with an upwards trajectory, ending in the range of 7 to 8 billion USD. However, the final token price settles between $5.5 to $6, which is roughly 25% lower than in the original scenario without inflation.
Continued Dilution and Long-Term Outlook:
This decrease in token value is substantial, and it's important to note that at this final stage, the inflation rate is still hovering around 5%. With several years remaining before the inflation rate diminishes to about 2%, further adverse effects on the value of the tokens for holders can be anticipated.
We have studied the Celestia tokenomics, the effect of the token unlocks for the token holders and the dilution coming from inflation in the long term. This analysis has provided valuable insights into the dynamics of token value and anticipates some risks for the current TIA holders.
For those interested in further analyzing the potential impacts of different economic configurations on the Celestia ecosystem, the opportunity to modify numerous variables and hypotheses in the simulation is available here. Additionally, the intrinsic value of any project's tokenomics can be thoroughly examined using the Cenit simulation software. Start for free today.
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