1 Key Reason Why Cardano, Polkadot, and Solana Are Plunging Today

The crypto sector has had a rather dismal overall outing today, with most major cryptocurrencies seeing stark declines as we move into late afternoon trading. Among the three tokens investors may be watching closely today are Cardano (CRYPTO: ADA), Polkadot (CRYPTO: DOT), and Solana (CRYPTO: SOL), which declined 5.9%, 5.8%, and 2.5%, respectively, over the past 24 hours. Previously, Solana was down more than 3% on the day, but has since recovered some of its earlier losses.

A great deal of selling pressure seen among risk assets such as cryptos today can be ascribed to comments from Federal Reserve Chairman Jerome Powell, who indicted the rate of interest rate cuts moving into the end of the year could be slower than the market has been pricing in. These comments led to a sharp sell-off among certain risk assets that are more difficult to value, with higher expected growth and cash flows over the long term.

However, the three tokens in question -- Cardano, Polkadot, and Solana -- each have one unique catalyst investors appear to be focusing on in a big way today. Here's what that is, and why investors should care.

Big token unlocks could create supply/demand imbalances

Like stocks, which can see the number of shares increase via a number of factors over time, dilution can exist in the crypto sector as well via similar means. Aside from initial coin offerings (similar to initial public offerings in the stock market), in which a certain number of tokens are set aside to be publicly traded up front, token unlocks are commonplace in the crypto sector. These token unlocks essentially add additional tokens into the ecosystem as a way to compensate early investors or the community behind a given project.

As it happens, Cardano, Polkadot, and Solana each have upcoming token unlocks the market appears to be pricing in right now.

In the case of Cardano, an upcoming token unlock of more than 37 million tokens is expected to hit the market over the next couple of weeks (around 0.1% of total supply). Solana will see a token unlock of more than 524 million tokens (0.11% of total supply), and Polkadot's token unlocks will amount to around 0.2% of total supply.

While these numbers may seem small in the grand scheme of things, and they most likely are, it's also true that there needs to be a buyer of these newly issued tokens on the market, should those who receive these tokens look to sell. Added liquidity in the market can be a good thing over the long term, but it's also true that some valuation discount may be applied on the basis of these projects' market capitalizations being spread out across more tokens.

What will these unlocks mean for these three projects?

Today's declines more than account for the relatively small number of newly issued tokens coming onto the market for these specific projects. However, concerns around demand for Cardano, Polkadot, and Solana in the face of additional unlocks on the horizon could lead some investors to take a more measured approach to these projects over the near term.

As is the case with many such near-term headwinds, I do think many investors will view these unlocks as just that (short-lived headwinds that will be quickly priced in). But I also think that any disruptions to supply and demand for high-profile DeFi projects such as these three could lead to greater distortions in their value, particularly if investors sour on projects that are overly inflationary, favoring more stable projects with diminishing mining rewards or even deflationary supply.

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Chris MacDonald has positions in Solana. The Motley Fool has positions in and recommends Cardano and Solana. The Motley Fool has a disclosure policy.