Kaiko’s Analyst Focus on The Sandbox- The Cryptonomist

Research by analysts at Kaiko, the leading provider of data on the crypto market, has led to interesting results for The Sandbox (SAND), Axie Infinity (ASX) and DYDX in particular. 

Specifically, ASX, the native token of the Axie Infinity gaming platform, increased by more than 100% from its “token unlock,” which saw 1.8% of the total token supply flood the market. 

SAND, on the other hand, The Sandbox’s native token, is rallying toward a 12% supply unlock in three weeks. Unlocks are typically bearish catalysts for the price of a token, so Kaiko’s research team examines what happened, with a specific focus on investor behavior around three major unlocks.

The three tokens analyzed by Kaiko with major upcoming unlockings 

As anticipated, token unlocks are considered bearish events that allow early investors, developers, and employees the opportunity to sell their acquired tokens. Early token holders are incentivized to sell because their cost base is so low, often observing triple-digit returns once they have the opportunity to cash out.

During an unwinding, a token will experience strong selling pressure as markets are flooded with supply. Therefore, it is critical for investors to have a deep understanding of the quantity and schedule for releases, especially during a bear market when liquidity is tight. 

In general, investment funds are the top sellers because their main objective is profitability, while project users and employees are more likely to be holding the tokens. However, not all token releases are cut from the same cloth, and investors are beginning to realize this.

Special attention has been paid to this by Kaiko, exploring market behavior before, during, and after a large token unlock to understand how investors react to an influx of supply.

The year started on a bullish note for cryptocurrencies as a whole, but the most interesting factors were the gains made by tokens facing upcoming unlocks, bucking the downward trend we saw in 2022 around token unlocks. 

Three tokens in particular with major upcoming unlocks, AXS, DYDX, and SAND, significantly outperformed the broader market. Specifically, DYDX hit the headlines yesterday for delaying their imminent release.

Kaiko’s analysis of Sandbox (SAND) and Axie Infinity (ASX): a sharp rise 

AXS and SAND are up 50% and 46%, respectively, against ETH since the beginning of the year. Kaiko uses ETH rather than USD to understand the relative market performance of each token during a general bullish rally. AXS in particular rose 40% in the hours before its release on the 23rd.

This performance goes against the trend in 2022, which saw tokens facing unlocks underperform the market. What is even more interesting is that the two tokens listed above, AXS and SAND, were victims of this trend during their 2022 unlocks.

So what is the difference in 2023 that justifies such a change in trend, with the result that these tokens outperformed the market before the unlocks? Furthermore, the question arises whether this trend can be expected to continue for the next few unlocks. 

Before making a reasonable hypothesis about what might happen, Kaiko examined factors such as token allocation, investor behavior after the unlockings, and market dynamics in spot markets.

Indeed, on token allocation, it is attested that AXS, SAND, and DYDX are all facing imminent unlocks, but a key differentiator in these unlocks is to whom the tokens are distributed. 

Therefore, one can see how the different allocations continue to influence the selling pressure on the token once liquidity is released during the unlocks.

Kaiko’s focus on The Sandbox (SAND)

SAND functions as an exchange unit in the Sandbox metaverse, as well as serving as a governance token for Sandbox DAO. Unfortunately for SAND holders, the token is at the behest of a significant upcoming unlock program, with over 44% of the supply yet to be unlocked. 

12% of the offer will be unlocked on 14 February this year, similar to August last year. The unlock of SAND last year should be a good indicator of investor behavior this time, as the percentage of distribution allocation remains the same. About 50% of the unlock is allocated to investors and advisors.

In August, we saw these investors sell en masse as soon as they had the chance, creating huge selling pressure for SAND, which underperformed ETH by 20% that month. 

Again, let’s look at the SAND-USDT pair on Binance, which is the market with the highest volume.

As noted, the day after the release, 14 August, nearly 75% of all significant trades were sell orders as investors tried to cash in SAND. That selling pressure continued in the days following the release, as sell orders dominated purchases. 

The allocation of SAND unlocks is skewed toward investors, and as a result token performance suffered during unlocks. Since the token allocation is the same for the 14 February unlock, similar underperformance would be expected as selling pressure increases.

This same unblock schedule is scheduled every 6 months until 2025, with the same allocation for investors, so SAND holders seem to face serious headwinds until then.