Original Title: The Cure
Author: Arthur Hayes
Translation: Ismay, BlockBeats
Editor's Note:
In this article, Arthur Hayes analyzes the rise and fall of ICOs in the cryptocurrency industry with sharp insights, offering perspectives on why ICOs could return to their peak. He points out that the over-reliance on centralized exchanges and venture capital-backed high-valuation projects has become a shackle for the industry's development. He compares the capital formation mechanisms of meme coins and ICOs, advocating for a return to the decentralized and high-risk, high-reward essence of crypto projects. Through interpretations of technological potential and viral dissemination, Arthur Hayes once again demonstrates his foresight regarding the future development of the industry.
The following is the original content:
Tension and stress can sometimes infect men and women, leading to irrational behavior. Unfortunately, many companies in the Maelstrom portfolios have contracted the "CEXually Transmitted Disease" propagated by centralized exchanges. The affected founders believe they must fully comply with the directives of certain well-known centralized exchanges, or else the path to massive returns will be blocked. These centralized exchanges demand: pump this metric, hire this person, allocate me this portion of tokens, launch your token on this date… etc., never mind, just wait for us to notify you to launch. These "patients" obsessed with the desires of trading platforms have almost completely forgotten the users and the original intent of cryptocurrency. Come to my clinic, I can cure you. The prescription is ICOs. Let me explain…
I have a three-point theory on why cryptocurrency has become one of the fastest-growing networks in human history:
Government Capture
Large corporations, big tech, big pharma, the military-industrial complex, and other "big XX" have used their wealth and power to control most major governments and economies. Since the end of World War II, although the improvement in living standards and life expectancy has been rapid and consistent, this improvement has slowed for the 90% of the population who own very few financial assets and have almost no political voice. Decentralization is the antidote to the highly concentrated wealth and power.
Magical Technology
The Bitcoin blockchain and the many subsequent blockchains are epoch-making magical technologies. From a humble beginning, Bitcoin has at least proven itself to be one of the most resilient monetary systems. For anyone who can break the Bitcoin network, that nearly $20 trillion in Bitcoin could be double-spent, like a huge bug bounty.
Greed
The growth of the fiat and energy value of blockchain-driven cryptocurrencies and their tokens has made users wealthy. The wealth of the cryptocurrency community was evident in the November elections in the U.S. The U.S. (and most other countries) is a political system where "money buys power." The "bandits" of cryptocurrency are among the industries that donate the most to political candidates, helping pro-crypto candidates win. Cryptocurrency voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.
Memory Loss in Capital Formation
Most cryptocurrency practitioners instinctively understand the reasons for the industry's success; however, there are occasional lapses in memory. This phenomenon is reflected in the changes in cryptocurrency capital formation. Sometimes, those seeking crypto capital cater to the greed of the community and achieve great success. At other times, cash-strapped founders forget why users flock to cryptocurrency. Yes, they may believe in a government of "the people, by the people, for the people," and they may create stunning technology, but if users cannot get rich from it, the promotion of any product or service related to cryptocurrency will be too slow.
Since the end of the ICO frenzy in 2017, capital formation has become less pure, gradually deviating from the path of igniting community greed. Instead, there are high fully diluted valuations (FDV), low circulating supplies, or tokens backed by venture capital (VC). However, VC-backed tokens have performed poorly in this bull market (2023 to date). In my article "PvP," I pointed out that the median performance of tokens issued in 2024 is about 50% lower than mainstream assets (Bitcoin, Ethereum, or Solana). When ordinary investors finally buy these projects through centralized exchanges (CEX), they are deterred by the high prices. As a result, the internal market-making teams of trading platforms, airdrop recipients, and third-party market makers sell the tokens into illiquid markets, leading to disastrous performance.
Why has our entire industry forgotten the third pillar of the cryptocurrency value proposition… to make ordinary investors "filthy rich"?
The Antidote of Meme Coins
The new issuance market for cryptocurrencies has turned into the traditional model it was supposed to replace—a system similar to the IPO profit chain in traditional finance (TradFi). In this system, ordinary investors ultimately become the bag holders of VC-backed tokens. However, in the crypto space, there are always alternatives. Meme coins are a type of token that has no real utility other than viral dissemination of meme content through the internet. If the meme goes viral enough, you buy it, hoping someone will take over later. The capital formation of meme coins is egalitarian. The team releases the entire supply directly at issuance, and the starting fully diluted valuation (FDV) is usually only a few million dollars. By launching on decentralized exchanges (DEX), speculators make extremely high-risk bets on which meme can enter the collective consciousness of the industry, thus creating buying demand for the token.
From the perspective of ordinary speculators, the most attractive aspect of meme coins is that if you enter early, you might leap several levels on the wealth ladder. But every participant knows that the meme coins they purchase have no real value and will not generate any cash flow, so their intrinsic value is zero. Therefore, they fully accept the risk of losing all their funds in pursuit of financial dreams. Most importantly, there are no barriers or gatekeepers telling them whether they can buy a certain meme coin, nor are there those shady capital pools waiting to dump newly unlocked supplies when the price rises high enough.
I want to create a simple taxonomy to understand the different types of tokens and why they have value. Let's start with meme coins.
Intrinsic Value of Meme Coins = Virality of Meme Content
This concept is very intuitive. As long as you are an active individual in any online or offline community, you can understand the meaning of a meme.
If this is what meme coins are, then what are VC tokens?
The Nature of VC Tokens and the Culture of Traditional Finance
Followers of traditional finance (TradFi) do not actually possess real skills. I know this well because I recall my experience working in investment banking, where the skills required were minimal, to sum it up: almost none. Many people want to enter traditional finance because you can make a lot of money without mastering substantive knowledge. Just give me a young person who knows a bit of high school algebra and has a good work ethic, and I can train them to handle any front-office financial service job. This does not apply to professions like doctors, lawyers, plumbers, electricians, mechanical engineers, etc. Entering these professions requires time and skills, but the average income is often lower than that of a junior investment banker, salesperson, or trader. The waste of intellectual resources in the financial services industry is frustrating, but I and others are merely responding to societal incentives.
Because traditional finance is a low-skill but high-income industry, the barriers to entering this rare club often depend on other social factors. Your family background and the university or boarding school you attended are more important than your actual intelligence. In traditional finance, stereotypes based on race and social class are more influential than in other professions. Once you are admitted to this unique circle, you perpetuate these norms to ascribe more value to the traits you have or have not acquired. For example, if you worked hard and took on massive debt to enter a top university, you are likely to hire people from the same university because you believe it is the best choice. If you do not, you would be admitting that the time and effort you spent to gain those qualifications were not worth it. In psychology, this is known as "Effort Justification Bias."
Let’s use this framework to understand how novice venture capitalists (VCs) raise funds and allocate resources.
To raise enough capital to invest in enough companies in hopes of finding a winner (like Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms need a large amount of capital. This funding primarily comes from endowments, pension funds, insurance companies, sovereign wealth funds, and family offices. And these capital pools are managed by traditional finance (TradFi) people. These managers have a fiduciary duty to their clients and can only invest in "appropriate" venture capital funds. This means they mostly have to invest in venture capital funds managed by "qualified" and "experienced" professionals.
These subjective requirements lead to a phenomenon: these VC partners often graduate from a small number of elite universities worldwide (like Harvard, Oxford, Peking University, etc.), and their careers typically begin at large investment banks (like JPMorgan, Goldman Sachs), asset management firms (like BlackRock, Fidelity), or large tech companies (like Microsoft, Google, Facebook, Tencent, etc.). If you do not have such a background, the gatekeepers of traditional finance will consider you lack the necessary experience and qualifications to manage other people's money. Thus, this circle forms a highly homogeneous group—they look similar, speak similarly, dress similarly, and even live in the same global elite communities.
For managers who need to allocate funds to venture capital funds, the dilemma is: if they take the risk of investing in funds managed by non-traditional backgrounds and that fund fails, they might lose their job. But if they choose the safe route and invest in funds managed by "appropriate and decent" people, even if the fund fails, they can blame it on bad luck, thus preserving their position in the asset management industry. If you fail alone, you will be unemployed; but if you fail together with others, your job is usually not affected. Since the primary goal of traditional finance people is to keep their high-paying, low-skill jobs, they minimize career risk by choosing seemingly "appropriate" background managers to ensure their own safety.
If the selection criteria for venture capital funds are based on whether the managing partner fits a certain accepted stereotype, then these managers will only invest in companies or projects whose founders fit the "founder" stereotype. For business-oriented founders, their resumes must include experience at large consulting firms or investment banks and are expected to have attended certain specific elite universities worldwide. Meanwhile, technical founders need to have experience working at highly successful large tech companies and hold advanced degrees from universities recognized for producing excellent engineers. Finally, because humans are social beings, we are more inclined to invest in those who are closer to us. Therefore, Silicon Valley VCs only invest in companies located in the California Bay Area, while Chinese VCs prefer companies headquartered in Beijing or Shenzhen.
The result is a homogeneous environment that resembles an echo chamber. Everyone looks, speaks, thinks, believes, and lives similarly. Therefore, everyone either succeeds together or fails together. This environment is precisely the ideal state for traditional finance venture capitalists, as their goal is to minimize career risk.
After the bubble burst of the ICO craze, when cryptocurrency project founders were scrambling to raise venture capital, they were essentially making deals with the "devil." To secure funding from venture capital firms primarily located in San Francisco, New York, London, and Beijing, the founders of crypto projects had to make changes.
Intrinsic Value of VC Tokens = Founder's Educational Background, Employment History, Family Background, Geographic Location
Venture capital allocators prioritize the team first, and then the product. If the founder fits the stereotype, funding will flow in continuously. Because these founders inherently possess the "right" background, a small portion of the teams will find product-market fit after spending hundreds of millions of dollars, thus birthing the next Ethereum. Since most teams ultimately fail, the decision-making logic of venture capital allocators goes unchallenged, as the founders they support are all recognized as potentially successful types.
It is evident that when selecting investment teams, cryptocurrency expertise is only a distant consideration. This marks the beginning of the disconnect between venture capital and the ultimate retail investors. The primary goal of novice venture capitalists is to keep their jobs, while ordinary retail investors hope to reverse their fortunes by buying coins that skyrocket in value. A thousandfold return was once possible. If you bought ETH at around $0.33 during the Ethereum presale, you would have realized a 9,000-fold return at the current price. However, the current mechanisms of cryptocurrency capital formation have made such returns nearly impossible.
Venture capital investors profit by flipping those worthless, illiquid SAFTs (Simple Agreements for Future Tokens) between funds, raising valuations with each flip. When these troubled crypto projects finally land on centralized exchanges (CEX) for their initial listing, their fully diluted valuation (FDV) often exceeds $1 billion. To achieve a thousandfold return, the FDV needs to grow to an extremely exaggerated number—one that even surpasses the total value of all fiat-denominated assets… and this is just for one project. This is why retail investors are more willing to gamble on a meme coin with a market cap of $1 million rather than a project supported by the "most respected" venture capital groups with an FDV of $1 billion. The behavior of retail investors actually aligns with the logic of maximizing expected returns.
If retail investors have begun to reject the VC token model, what makes ICOs inherently more attractive?
Intrinsic Value of ICOs = Virality of Content + Potential Technology
Meme:
A project team that can launch a product that aligns with the current cryptocurrency trends, possessing visual appeal, feel, and a clear goal, has "meme value." When this "meme" is attractive and spreads, the project gains attention. The goal of the project is to attract users at the lowest possible cost and then sell them products or services. A deeply resonant project can quickly funnel users to the top of its growth funnel.
Potential Technology:
ICOs (Initial Coin Offerings) typically occur early in a project's lifecycle. Ethereum raised funds before developing its product. In this model, the community's trust in the project team is implicit, believing that as long as they provide financial support, the team can create valuable products. Therefore, potential technology can be assessed in several ways:
- Has the team developed meaningful products in the Web2 or Web3 space?
- Is the technology the team plans to develop technically feasible?
- Can this potential technology solve a globally significant problem, ultimately attracting millions or even billions of users?
Founders who meet these criteria may not necessarily be the same type of "elites" that venture capital firms would invest in. The cryptocurrency community does not place as much importance on family background, past work experience, or specific educational qualifications. While these conditions may be a bonus, they are meaningless if they do not lead the founding team to deliver excellent code in the past. The community is more inclined to support Andre Cronje than a former Google employee who graduated from Stanford and is a Battery Club member.
Although most ICOs (99.99%) will nearly go to zero after one cycle, a few teams can develop user-attractive technology based on their "meme effect." Early investors in these ICOs have the opportunity to achieve 1,000-fold or even 10,000-fold returns. This is the game they want to play. The speculation and volatility of ICOs are characteristics, not flaws. If retail investors want safe, boring investments, they can choose stock trading platforms in the global traditional finance sector. In most jurisdictions, IPOs (Initial Public Offerings) require companies to be profitable, and management must make various statements to assure the public that they will not commit fraud. However, the problem with IPOs for ordinary retail investors is that they cannot provide life-changing returns because venture capital firms have already divided the profits in the early stages.
If ICOs can clearly provide funding for technologies with viral meme potential and global impact, how can we make them "great again"?
ICO Roadmap
In its purest form, an ICO allows any team with an internet connection to showcase their project to the crypto community and secure funding. The team will launch a website detailing team members, the product or service they plan to build, why they are qualified, and why the market needs their product or service. Subsequently, investors—well, or "speculators"—can send cryptocurrency to a blockchain address and receive distributed tokens after a certain period. All aspects of the ICO, such as timing, fundraising amount, token price, type of technology being developed, team composition, and the location of investors, are entirely decided by the ICO team, rather than being controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries dislike ICOs—they have no reason to exist. However, the community loves ICOs because they offer a diverse range of projects initiated by people from various backgrounds, giving those willing to take high risks the chance to achieve the highest returns.
ICOs are making a comeback because the entire industry has gone through a complete cycle. We once enjoyed freedom but burned our wings in the process; then we felt the oppression of the authoritarian control of VCs and centralized exchanges (CEX), loathing the overhyped garbage projects they forced upon us. Now, in the budding bull market driven by massive money printing from the U.S., China, Japan, and the EU, cryptocurrency market speculators are indulging in the speculative trading of useless meme coins, and the community is once again ready to fully engage in high-risk ICO trading. Now is the time for "quasi-wealthy" crypto speculators to cast their nets wide, hoping to catch the next Ethereum.
The next question is: what will be different this time?
Timing:
Now, with frameworks like Pump.fun, token launches can be completed in just a few minutes, and with higher liquidity decentralized exchanges (DEX), teams can raise funds through ICOs and complete token delivery within days. This is a stark contrast to the previous ICO cycle, where it could take months or even years from subscription to token delivery. Now, investors can immediately trade newly issued tokens on platforms like Uniswap or Raydium.
Thanks to Maelstrom's investment in the Oyl wallet, we have the privilege of previewing some potentially game-changing smart contract technologies built on the Bitcoin blockchain. Alkanes is a brand-new meta-protocol designed to bring smart contracts to Bitcoin through the UTXO model. I cannot fully understand how it works, but I hope those who are smarter and more skilled than I can check out their GitHub repository and decide for themselves whether it is worth building on. I am very much looking forward to Alkanes driving explosive growth in ICO issuance within the Bitcoin ecosystem.
Liquidity:
As retail crypto speculators are infatuated with meme coins, they have a strong desire to trade highly speculative assets on decentralized exchanges (DEX). This means that after tokens are delivered to investors, unverified project ICO tokens can be traded immediately, allowing for true price discovery.
Although I am not a fan of Solana, I must admit that Pump.fun has indeed had a positive impact on the industry, as the protocol allows non-technical users to issue their own meme coins and start trading within minutes. Continuing this trend of democratizing finance and crypto trading, Maelstrom has invested in a project aimed at becoming the preferred platform for spot trading of meme coins, all cryptocurrencies, and newly issued ICOs.
Spot.dog is building a meme coin trading platform to attract Web2 users. Their "secret sauce" does not lie in technology but in distribution channels. Most current meme coin trading platforms are designed for crypto traders. For example, Pump.fun requires users to have a certain knowledge of Solana wallets, token swaps, slippage, etc. In contrast, ordinary users who follow Barstool Sports, subscribe to r/wsb, trade stocks on Robinhood, and bet on their favorite teams through DraftKings will choose to trade on Spot.dog.
From the outset, Spot.dog has signed some outstanding partnerships. For instance, the "crypto buy button" on the social trading platform Stocktwits (with 1.2 million monthly active users) is powered by Spot.dog. Additionally, the exclusive partner of Iggy Azalea's MOTHER Telegram trading bot is—yes, Spot.dog.
I bet you speculators are eager to know when their tokens will launch, right? Don't worry, when the time is right, if you're interested in "going all in" on Spot.dog's governance token, I'll let you know when!
UI/UX:
The crypto community is already very familiar with non-custodial browser wallets like Metamask and Phantom. Crypto investors are accustomed to loading their crypto browser wallets, connecting them to dApps, and then purchasing assets. This usage habit will make fundraising through ICOs much easier.
Blockchain Speed:
In 2017, popular ICOs often led to the Ethereum network being paralyzed. Gas fees skyrocketed, and ordinary users could not use the network at reasonable costs. By 2025, the cost of block space on Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. The current order processing capacity has improved by several orders of magnitude compared to 2017. If a team can attract a large number of enthusiastic "degen" supporters, their fundraising ability will no longer be limited by slow and expensive blockchains.
With Aptos having extremely low transaction costs, it has the opportunity to become the preferred blockchain platform for ICOs.
Average transaction cost (USD):
• Aptos: $0.0016
• Solana: $0.05
• Ethereum: $5.22
The necessity of saying "no."
I propose a solution to the "diseases related to centralized exchanges (CEX)"—the ICO. However, now the project parties need to make the right choices. To prevent them from misunderstanding this, ordinary crypto investors need to firmly "say no."
Say "no" to the following situations:
• Projects supported by venture capital, with high FDV (fully diluted valuation) and low circulation
• Tokens that are highly valued upon their initial listing on centralized exchanges
• Those who advocate so-called "irrational" trading behavior
There were indeed many obvious "garbage projects" in the ICOs of 2017. Among them, the most destructive ICO was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after its launch, EOS almost disappeared from the scene. In fact, this is not entirely accurate; EOS's market cap still stands at a staggering $1.2 billion. This indicates that even "garbage projects" like EOS, issued at the peak of the bubble, still retain significant value. As someone who loves financial markets, I must admit that the structural design and execution of the EOS ICO can be considered a "work of art." Project founders should study in depth how Block.one raised the most funds in history through ICOs or token sales.
I mention this to illustrate the risk-adjusted investment logic: if investment shares are allocated correctly, even projects that should have gone to zero may retain some value after the ICO. Early investment in ICOs is the only way to achieve 10,000-fold returns, but there is no heaven without hell. To pursue a 10,000-fold return, you must accept that most investments may approach zero in value after the ICO. However, this is much better than the current venture capital token model. Nowadays, achieving a 10,000-fold return in venture capital tokens is nearly impossible, but it is not uncommon to see a 75% loss a month after listing on a CEX. Ordinary investors have subconsciously realized the poor risk-reward ratio of venture capital tokens, and thus have turned to memecoins. Let’s create fervent support for new projects through ICOs again, giving investors the possibility of acquiring immense wealth, and let ICOs return to their peak!
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