- Zora's token keeps falling in value.
- It's valuation is now $450 million below that of the firm that issued it.
Traders are ditching onchain social network Zora’s token and creating a huge rift between the token’s value and its issuer.
The price of Zora has plummeted 55% since it launched six days ago, sending the value of all tokens — both those on the market and yet to be released — to around $150 million.
That’s $450 million less than the valuation of Zora Labs, the firm behind the network. Following a fundraising round in 2022, the venture fetched a valuation of $600 million.
The gap between these valuations could spell trouble for venture firms that have backed Zora Labs. Although crypto firms usually clarify that equity and tokens are separate assets, investors, as a matter of practice, often factor token prices into their valuations.
At a minimum, the split in values sows confusion for the project, and spurs questions about the management of Zora Labs.
Zora is a blockchain and crypto app that lets users create tradable tokens based on their social media posts. It started life as a suite of tools for artists and businesses to create NFT collections, but pivoted to its current model after NFTs fell in popularity.
The situation at Zora is one that’s become increasingly common among crypto projects that previously raked in tens of millions of dollars in funding from venture firms.
Scrappy risk-tolerant retail investors used to pile into the tokens of promising DeFi projects in droves, pushing the sector to an all-time high of $192 billion in 2021.
But in recent years, they’ve soured on DeFi tokens.
Common complaints include unsustainably high valuations, and the teams and investors behind projects cashing out large allocations of promised tokens ahead of public launches.
In Zora’s case, investors noted how the token started trading before an official announcement had been released from Zora Labs, potentially giving insiders an unfair advantage.
Zora Labs, or its co-founder and CEO Jacob Horne, immediately responded to a request for comment.
Many also complained about the large amount of the Zora token set aside for insiders.
Many of Zora’s biggest backers, who promoted the network in the leadup to its token launch, have now gone silent.
It’s not the only project to see a disconnect between the valuation of its token and its issuer.
Wormhole, a crypto bridge, raised $225 million at a $2.5 billion valuation in late 2023. Its token now trades two-thirds below that valuation after a brutal drawdown.
For fun?
To be sure, Zora Labs said when it launched its token that buyers shouldn’t treat it as an investment.
“$ZORA is for fun only and not for investment purposes,” a post on the official Zora X account.
But launching a token for fun hadn’t always been Zora’s plan. The firm had wanted to hand over some control through a decentralised autonomous organisation, or DAO, CoinDesk reported in 2022.
Many interpreted this as confirmation that Zora would eventually issue a governance token, a key piece of DAO infrastructure.
So it came as a surprise when Zora characterised its long-awaited token not as a governance token but as a “memecoin.”
It isn’t clear why Zora should be classed as a memecoin, either. The token isn’t based on a celebrity, popular character, or online joke — defining features of other popular memecoins.
Part of the reason for the Zora token’s poor performance could be these dashed expectations, and that it doesn’t give holders any governance rights over the Zora protocol.
Biggest beneficiaries
Despite the Zora token offering no governance rights, the project’s investors and team members are still set to receive huge sums.
The firm’s investors will receive a little over 26% of the token supply — almost $40 million at current prices.
Zora Labs’ biggest investors include Haun Ventures, a crypto venture firm led by Andreessen Horowitz alumni Katie Haun, and Coinbase Ventures, the crypto exchange’s investment arm.
Current and future team members will receive just under 19% of the supply — about $29 million worth.
Crypto projects routinely set aside tokens for team members as part of employment compensation packages.
Current Zora job postings state employees are offered equity as part of their packages. The job postings don’t mention whether tokens are also included.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
