Sell Pressure So today - I will talk about the concept of Sell Pressure. There has been a lot of rambling on X about “revenue” - because Hyperliquid has a lot of revenue. But revenue doesn’t actually matter if it’s barely offsetting network inflation and insiders selling. Solana - for example needs about $13m of revenue a day to break even. So even if it generates more revenue than most chains it doesn’t really matter because that revenue does not overcome the sell pressure. Sell pressure is usefully defined as the amount of tokens that either get printed or sold every day to make a network function as intended. This includes the tokens sold to investors to build the network. One confusion about XRP - is that though the tokens go to Ripple Labs - that does not necessarily generate Sell Pressure. It only generates Sell Pressure if Ripple Labs doesn’t make money from selling its equity, issuing debt, or generating operating cash flow. And in crypto - some opportuniststic selling can give you a cash war chest to buy at key times to support the price, or drive momentum into key events. So just because a single entity gets a lot of the token, doesn’t necessarily mean that the entity will sell the token. Consider for example if Ripple Labs IPOed. And it got $2b of cash. For $2b of Ripple equity. That’s $2b that Ripple wouldn’t need to fund with XRP sales. In which case, XRP would skyrocket. Because sell pressure would be removed. (True of any coin with a IPO-able underlying equity that makes money) Many protocols even with high revenue or buybacks do not overcome the sell pressure of early investors. Early investors do not have a continuous link to a particular token, and are legally obligated to pile on sell pressure. This is different from a centralized entity like Ripple Labs, or Justin Sun in the world of Tron. VCs are not going to “do what it takes” to keep a token’s price up. They can’t. So even though their tokenomics are fine for many networks, they get crushed by sell pressure. This framework helps you understand most things in crypto Why “Cults” Are Good Cults do not sell. And - even more, in proof of work networks or stake networks - believers are willing to take a financial loss securing the network. This has happened on BTC before. And has happened on SOL as well. Meme coins are pure expressions in this desire not to sell The Morpheus Meme The Morpheus meme is the most important meme in crypto. “So Morpheus you’re telling me that someday I’ll be able to sell my BTC for $1m a coin?” “No Neo, I’m telling you when you’re ready. You won’t have to” Liquidity Is Good The thicker an order book, the more a coin can absorb sell pressure. That means that a coin being actively traded is essential to managing the impact of sell pressure. International Distribution is Good Unike stocks, Cryptocurrencies are open 24/7. If bad news comes out in Asia and the stock is illiquid, sell pressure can destroy the chart L1s Are Good L1s envision a world where their tokens are actually used as currencies rather than utility tokens. This is related to the Morpheus meme. Whether or not their belief makes sense, BTC maxis believe that BTC will become the world currency. XRP Army similarly thinks the world currency needs to be integrated with financial institutions — in a way that Bitcoin isn’t or cannot be. Once again - whether this makes sense or not isn’t particularly relevant. L1s are the technological manifestation of the morpheus meme. You don’t sell your BTC or XRP for dollars if you think dollars will be converted into a future BTC or XRP standard. The audacity of being an L1 is correlated with lower sell pressure Decentralization Can Be Bad Decentralization is very expensive. It’s possible that it generates more sell pressure than its worth. The alternative to be clear, is running a centralized cryptocurrency and bribing the government not to regulate you. This is also expensive but can be compared on the basis of the sell pressure it generates. If your end market enormously values decentralization as part of its “morpheus meme” then your coin can likely handle the sell pressure. BTC for example, is happy to absorb miner sales. But miners are often delusional idealists who sell far less BTC than they probably should if they were rational economic actors. And they tap debt and equity capital markets to fund mining operations which still tolerate this dilution likely more than they should because of greed/ idealism. On the flip side, I’d argue that the SOL community values decentralization far less. So the sell pressure exerted by its tokenomics are less easily digested The Founder’s Beliefs are Important Founders are huge potential sources of sell pressure. Justin Sun or CZ use TRX and BNB as personal war chests — and due to their periodic legal problems have massively benefited from being denominated in crypto vs having funds frozen in USD or CNY. This is an example where the founder is treating their currency in a way that minimizes sell pressure. If Hyperliquid didn’t have a plan to become an L1 - then you’d say “Jeff probably is going to end up selling a lot of HYPE.” Which goes back to the founder signaling that they believe in the Morpheus meme. Good founders need to genuinely believe you’ll be able to pay for an uber or groceries in their currency someday. Otherwise, they’re going to dump. And if you’re running an unregistered security, with no currency attributes. You’re not going to be able to pay for stuff in that in the vast majority of legal frameworks VCs are Mixed. It Depends On Their Source of Funds. If a VC is a family office or bolted on to a family office they do not need to generate DPI (sell pressure). So simply put VCs that aren’t the founders own money are going to generate a lot of sell pressure. Whereas VCs where its mostly internal capital are going to generate far less. If it’s CZ’s family office, he’s crypto pilled and won’t need to sell your token unless he wants to. Whereas if it’s some random VC they’re absolutely going to sell. Some funds have different structures like “permanent capital” and these are worth paying attention to. Ultra High Net Worth Individuals Are Usually Good When you see the son of some Saudi royal buying a coin - that is actually probably good (provided he becomes part of its belief framework). The children of the wealthy tend to have a hard time generating meaning because they lack economic scarcity and therefore a big chunk of self actualization. So things like NFTs, Bitcoin, or on the other side - ESG investments, can be serious areas of meaning generation for them. And they can just hold perpetually - which is great Whereas Retail Is Generally Not Great Retail investors have expenses and are subject to the real world economy. At the same time they can be more economically irrational and forgiving of network problems. But -- many cannot actually afford taking big losses and generate sell pressure during volatility, which is inevitable. Ideally you want economically well off retail - like retirees who are unlikely to actively trade their coins for this reason. Sufficient Ambition Tempered with Equity Dilution At some point — the currency that you’re investing in has to have a vision about how it’s going to be a functioning economic system. And this is often quite technically complex. The problem is - engineers are very expensive, and often do not really believe to the same level in the projects as the founders or the community. They just want a paycheck. So if you’re technologically grandiose you either need to have engineer zealots with high token comp. Or keep technical scope limited enough while keeping ambition levels high (in practice, this means having effective BD operations) Leveraged Buy Pressure Is Often Future Sell Pressure If someone is buying an asset on leverage - there’s a much higher chance equity gets wiped out that increases over time as interest payments burn. So when perps are overextended, or people are issuing debt to buy a coin — most of the time, that means that someone needs to dump Buy pressure and narratives are sexy but constantly changing whereas analyzing sell pressure can be a more repeatable process. “Who is going to puke this thing, in what amount, and why?”