The Cure
Arthur Hayes
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(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
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The grippy and the rod sometimes infect men and women and produce irrational behavior. It’s unfortunate that many Maelstrom portfolio companies caught a CEXually Transmitted Disease. My stricken founders believe they must do whatever some prominent CEX says, lest their path to orgasmic returns is blocked. The CEX says: pump this metric, hire this person, give me this token allocation, list your token on this date … hold on, never mind … we will tell you when to list. These sick fucks in the throes of passion all but forgot about their users and why crypto exists. Come into my clinic; I can cure you. The remedy is the ICO. Let me explain…
I have my own three-pronged theory about why crypto is one of the fastest-growing networks in human history.
Government Capture — Big business, big tech, big pharma, big military, and big [Fill in the Blank] have used their wealth and power to capture most large governments and economic blocs. While the standard of living and lifespan gains have been rapid and consistent since the end of WW2, they have slowed for the 90% of the population that owns very few financial assets and ultimately possesses little to no political agency. Decentralization is the antidote to a dystopian concentration of wealth and power.
Magical Tech — The Bitcoin blockchain and the plethora of blockchains that spawned in its wake are pieces of magical new technology. From an innocuous beginning, Bitcoin, at least, has proven to be one of the most battle-tested monetary systems. There is an almost $2 trillion bug bounty in the form of Bitcoins that can be double-spent for anyone who can hack the network.
Greed — The rise of the fiat and energy value of cryptos that power blockchains or the tokens created via these blockchains made users rich. The riches of the crypto cohort were on display this November during the US election. The US, like most other nation-states, features a pay-for-play political system. The crypto banditos were one of the largest contributors to political candidates of any industry, which resulted in wins for pro-crypto candidates. Crypto voters were able to shower largesse upon political campaigns because Bitcoin is the fastest-growing asset in human history.
Most crypto folks intrinsically understand why the movement has succeeded; however, a bit of amnesia occasionally creeps in. This manifests itself in the way crypto capital formation changes over time. At certain points, those seeking crypto capital pander to the community’s greed with great success. At other times, capital-starved founders forget why users flock to crypto. Yes, they might believe in a government by and FOR the people, and yes, they might create badass tech, but without users getting rich, uptake of any crypto-focused product or service will progress too slowly.
Since the ICO mania ceased in 2017, capital formation has become less pure, straying away from stoking the community’s greed. In its place, we have high fully diluted value (FDV), low circulating supply, or float venture capital (VC) backed tokens. VC coins so far have performed terribly this bull cycle (2023 to the present). In my article “PvP”, I pointed out that 2024 vintage tokens, on a median basis, underperformed the majors (Bitcoin, Ether, and/or Sol) by ~50%. Retail, which could finally purchase these projects via a primary centralized exchange (CEX) listing, baulked at paying these high prices. As such, the exchanges’ internal market-making teams, airdrop recipients, and 3rd party market makers dumped tokens into an illiquid market, causing the disastrous performance. Why did we as an industry forget about the 3rd pillar of crypto’s value proposition … making retail rich as fuck?
The Memecoin Antidote
The crypto new issue market transformed into what it was supposed to replace. That system resembles TradFi’s initial public offering (IPO) racket. Retail is the ultimate VC coin bag holder, but there is always an alternative in crypto. Memecoins are tokens with no use case other than their ability to disseminate memetic content in a viral manner across the internet. If the meme slaps, then you buy it in hopes that someone else after you will follow. Capital formation for memecoins is egalitarian. The team releases the complete supply at launch, where the opening FDV is in the single-digit millions of dollars. Starting on decentralized exchanges (DEX), punters take extremely risky bets on which meme will bubble up into the industry’s collective consciousness and thus create buying pressure for the token.
From a normie punter’s point of view, the best part about memecoins is that if you get in early, you can advance a decile rung or two on the wealth ladder. But every participant is cognizant that the memecoin they purchase does nothing productive, will never generate any cash flows, and thus is intrinsically worthless. Therefore, they are entirely ok with losing all their money in pursuit of their financial dreams. Most importantly, there are no gatekeepers telling them they can or cannot buy this or that memecoin, nor are their shady pools of capital waiting to dump their recently unlocked supply if 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 memecoins.
Memecoins’ Intrinsic Value = Memetic Content Virality
This is very easy to understand intuitively. You just need to be a socially active human in any community, online or offline, to understand a meme.
If that’s what memecoins are, what are VC coins?
TradFi acolytes have no real skills. I know this to be true as I reflect upon what skills were required, TLDR, not many, to do my previous job at an investment bank. The reason why so many people want to work in TradFi is because you make a lot of money without having to know anything of substance. Give me any hungry young person with an okay grasp of high school algebra and a good work ethic, and I can train them to do any front office financial services job. That cannot be said about any of these professions, for example, doctors, lawyers, plumbers, electricians, mechanical engineers, etc. It takes time and skill to enter into any of these professions, but on average, they make less money than an associate investment banker, salesperson, or trader. The amount of intelligence wasted in financial services is depressing, but I and others are just humans responding to societal incentives.
Because TradFi is a less skilled profession but highly paid, admission into this rarified club is restricted based on other social factors. Who your parents are and where you went to university or boarding school matters more than your raw intelligence. Adhering to racial and social class-based stereotypes matters more in TradFi than in other professions. If you are admitted into the exclusive club, you perpetuate these norms to give value to your earned and unearned characteristics. E.g., if you busted your ass and took on a mountain of debt to get into a top-ranked university, then you will hire others from your university because you believe it’s the best. If you don’t, then you are admitting to yourself that all that time and effort you spent acquiring credentials was not worth it. In human psychology, it’s called the Effort Justification Bias.
Let’s apply this framework to understand how a VC muppet raises money and allocates it.
To amass sufficient capital to invest in enough companies in order to find a winner (e.g. Facebook, Google, Tencent, Bytedance etc.), the top VC firms need a fuck-ton of capital. This capital comes from endowments, pension funds, insurance companies, sovereign wealth funds, and family offices. All of these pools of capital are managed by TradFi peeps. The managers must meet their fiduciary duty to their clients by investing only in “suitable” VC funds. That means, by and large, they must invest in VCs managed by “qualified” and “experienced” professionals. These subjective requirements mean that principals are educated in the same small set of elite global universities (Harvard, Oxford, Peking, etc.) and all started their careers at large bulge bracket investment banks (JPM, GS), asset managers (Blackrock, Fidelity), or big tech firms (Microsoft, Google, Facebook, Tencent, etc). If you don’t have this background, you don’t possess the requisite experience and pedigree that enables you to intelligently invest other people’s money, according to the TradFi employment gatekeepers. It is a homogeneous blob of folks who look the same, talk the same, dress the same, and live in the same global elite enclaves.
The dilemma facing an allocator to VC funds is that if they take a chance and invest in a fund managed by folks with non-standard backgrounds and that fund blows up, the allocator could lose their job. But if they play it safe, invest in funds managed by “fit and proper” individuals, and this fund blows up, they can chalk it up to bad luck and remain employed in the asset management business. If you fail alone, you lose your job. If you fail with others, you keep your job. Because the primary goal of a TradFi muppet is to retain their highly paid, low-skill job, they will minimize career risk by playing it safe and allocating funds run by folks with the “appropriate” background.
If VC funds are selected based on how well the managing partners fit into an accepted stereotype, then that same manager will only invest in companies or projects where the founders fit the stereotype of a “founder”. The business-focused founder’s CV must contain stints at large consulting or investment banking firms, and they are expected to have attended one of a particular set of global elite universities. The technical founders must have experience working for highly successful big tech companies and hold advanced degrees from universities that everyone knows produce great engineers. Finally, because we are social beings, we feel more comfortable investing in folks who are within close proximity. Silicon Valley VCs invest only in companies based in the Bay Area of California. Chinese VC firms expect their portfolio companies to be based in Beijing or Shenzhen.
The net result is an echo-chamber of sameness. Everyone looks, talks, feels, believes, and lives in the same place. Therefore, everyone succeeds or fails together. This is the perfect milieu for a TradFi VC muppet whose goal is to minimize career risk.
When crypto project founders begged for VC capital to fund their mostly worthless projects in the wake of the ICO mania bubble bursting, they made a deal with the devil. To raise capital from VCs, mostly based in San Francisco, New York, London, and Beijing, crypto project founders had to change.
VC Coin Intrinsic Value = Founders’ University, Employment History, Family, Location
VC allocators believe in the team first, then the product. If founders fit the stereotype, then capital is free-flowing. Because they are innately blessed with the “right” stuff, a small percentage of teams will figure out product-market fit after blowing a few hundred million dollars, and the next Ethereum will be born. Since most teams fail, the VC allocator’s decision matrix goes unquestioned because they only backed founders who everyone agrees are the type expected to succeed.
It’s immediately clear that crypto acumen is a distant afterthought in terms of selecting which teams to fund. This is where the disconnect starts between the VC funding the project and the ultimate retail bag holder. VC muppets want to stay employed. Retail punters want to stop being broke-ass plebes by buying a coin that pumps 10,000x. 10,000x returns were possible back in the day. If you bought Ether at ~$0.33 in the presale, you are up 9,000x at current prices. However, the current crypto capital formation process renders it almost impossible to generate those types of returns.
VC investors make money by passing the hot potato of dogshit illiquid SAFTs (sale of future token agreements) from fund to fund and, at every turn, increasing the valuation. By the time the stinking turd of a crypto project makes it to a CEX for a primary listing, its FDV is often north of $1bn. To generate a 10,000x return requires the FDV to grow to a big fucking number. A number so big that it’s larger than the entire value of all fiat-denominated assets combined … and we are talking about only one project. This is why retail would instead roll the dice on a $1mm market cap memecoin than a $1bn FDV project backed by the most “esteemed” cohort of VCs. Retail is behaving in an expected return-maximizing fashion.
If the VC coin model is being rejected by retail, what is it about ICOs that intrinsically made sense,
ICO Intrinsic Value = Memetic Content Virality + Potential Tech
Meme:
The team that delivers a project whose look, feel, and stated purpose jives with the current crypto zeitgeist possesses memetic value. If the meme slaps and goes viral, then the project gains attention. The goal of a project is to acquire users as cheaply as possible and then sell those users a product or service. A project that is top of mind will get users into the top of their funnel.
Potential Tech:
An ICO happens early in the lifecycle of a project. Ethereum raised money first and built later. There is an implicit trust that the team building this project will create something valuable if only the community funds them. As such, the potential tech is evaluated in a few ways:
1. Has the team built something substantial either in Web2 or Web3?
2. Is what the team proposes to build technically possible?
3. Does the potential tech address a problem of global significance that can eventually attract millions or billions of users?
The technical founder(s) that can deliver on the aforementioned points are not necessarily the same lot in whom a VC muppet would invest. The crypto community doesn’t place as much weight on family connections, previous employment, or specific educational credentials. These things are nice to have, but if they didn’t result in a particular founding team previously shipping good code, then they don’t matter. The community will back Andre Cronje any day over some ex-Googler who graduated from Stanford with a membership at the Battery.
While most ICOs, meaning 99.99%, will go to near zero after one cycle, a handful of teams can build tech that gets value from the users onboarded because the meme slapped. The early investors in these ICOs then have a real shot at 1,000x and maybe 10,000x returns. That’s the game they want to play. The speculative, volatile nature of ICOs is a feature, not a bug. If retail investors wanted safe, boring investments peddled by their betters, they can trade on the plethora of global TradFi stock exchanges. In most jurisdictions, an IPO requires company profitability. Management must also make various representations to ensure the public they aren’t cooking the books. The problem with IPOs for most retail punters is they won’t generate life-changing returns. The VCs have already squeezed out the juice along the way.
If ICOs so obviously fund projects with viral memetics and potentially globally impactful technology, how do we make them great again?
ICO Roadmap
In their purest form, an ICO allows any team with an internet connection to pitch the crypto community and receive funding. A team launches a website that details who they are, what they will build, why they are qualified, and why the market needs their product or service. Then investors … ahem, punters, can send crypto to an address on-chain, and after a certain period, tokens will be given to investors. The various aspects of the ICO, i.e., timing, amount raised, token price, type of tech to be built, team composition, and investors’ location, are determined not by any gatekeeper (VC fund or CEX) but solely by the team conducting the ICO. This is why ICOs are detested by centralized intermediaries … there is no need for them. However, the community loves ICOs because they provide many projects put forward by folks from diverse backgrounds, ultimately allowing those who wish to strap on the most risk to the highest possible returns.
ICOs are coming back because the industry has gone full circle. We experienced freedom but singed our wings. Then we felt the jackboot of totalitarian VC and CEX control and detested the overvalued crap they stuffed down our throats. With a budding bull market at our backs powered by printed money from the US, China, Japan, and the EU, an engaged band of degens captivated by useless memecoin speculative trading, the community is once again ready to dive headfirst into risky ICO trading. It is time for pre-rich crypto punters to cast their capital far and wide in hopes they bag the next Ethereum.
The next question is, what will be different this time around?
Timing:
Now that listing a token takes minutes using frameworks like Pump.fun, and we have more liquid DEXs, a team will raise funds via an ICO and deliver tokens within days. This is different than in the previous ICO cycle, where months or years passed between subscription and delivery of tokens. You can immediately trade your newly issued tokens on platforms like Uniswap and Raydium.
Because of Maelstrom’s investment in the Oyl wallet, we got a front-row preview of some potentially game-changing smart contract tech being built leveraging the Bitcoin blockchain. Alkanes is a new metaprotocol that aims to bring smart contracts onto Bitcoin using the UTXO model. I cannot claim to understand how it works. But I would like those smarter and more skillful than me to take a look at their GitHub repos and decide for themselves if this is something they wish to build on top of. I would love for Alkanes to power an explosion of ICO issuance on Bitcoin.
Alkanes wiki, repo, and specifications.
Liquidity:
Because retail crypto degens have fallen in love with memecoins, there is a strong desire to trade super speculative assets on DEXs. This means there is sufficient liquidity to trade an unproven project’s ICO immediately after tokens are delivered to investors, allowing for true price discovery.
Even though I’m a Solana hater, I must acknowledge that pump.fun has been a net benefit to the industry due to the protocol’s ability to allow non-technical normies to issue their own memecoin and begin trading in minutes. Following this theme of democratization of finance and crypto trading, Maelstrom has invested in what it believes will become the go-to place to trade memecoins, all cryptos, and ultimately newly issued ICOs on a spot basis.
Spot.dog is building a memecoin trading platform to onboard web2 normies. Their secret sauce is not their tech but their distribution. Currently, memecoin trading platforms are designed for crypto traders. Pump.fun, for example, requires a decent knowledge of Solana wallets, swapping, slippage and more. The punter who follows Barstool Sports, follows r/wsb, trades stocks on Robinhood, and bets on their favorite team using DraftKings will trade on Spot.dog instead. Spot.dog out of the gate has signed some kick-ass partnerships. The “crypto buy button” on Stocktwits, a social trading platform with 1.2 million monthly unique visitors, is powered by Spot.dog. The sole partner for Iggy Azalea’s $MOTHER Telegram Trading Bot is … you guessed it, Spot.dog. I bet all you degens want to know wen token? Don’t worry, I’ll tell you when it’s time to YOLO into Spot.dog’s governance token if you so desire.
UI/UX:
The crypto community is quite familiar with using non-custodial browser-based wallets such as Metamask and Phantom. Crypto investors are comfortable loading up their crypto browser wallet, connecting it to a dApp, and purchasing assets. This will make it much easier for ICOs to receive funds.
Blockchain Speed:
In 2017, it was not uncommon for a hot ICO to render the Ethereum network inoperable. Gas fees would spike, and no one could use the network affordably. In 2025, the cost of block space on Ethereum, Solana, Aptos and other Layer-1’s will be extremely cheap. The current order throughput is orders of magnitude higher than in 2017. If a team can garner a broad base of support from avid degen speculators, their ability to raise funds will not be hampered by a slow and expensive blockchain.
Given the insanely low per-transaction cost of using Aptos, there is an opportunity for them to become the preferred chain where ICO launches.
Average transaction fee in $:
● Aptos: $0.0016 — Source
● Solana: $0.05 — Source
● Ethereum: $5.22 — Source
Just Say No
I presented the cure to a CEXually transmitted disease in the form of the ICO. Now, project founders must do the right thing. But just in case they didn’t get the message, retail crypto investors need to “Just Say No.”
“Just Say No” to:
- VC-backed high FDV, low float projects
- Primary listings of overvalued tokens on CEXs
- Folks who tout trading behavior they deem “irresponsible.”
There was obvious dogshit that ICO’d in 2017. My award for the most value-destructive ICO goes to EOS. Block.one raised $4.1 billion in crypto to build EOS. EOS launched and was never to be heard from again. Actually, that’s incorrect; surprisingly, EOS still retains a $1.2 billion market cap. That goes to show that even a piece of utter dogshit like EOS, with an ICO that marked the peak of the bubble, is still worth a lot more than zero. For the record, as someone who loves financial markets, I believe the structure and execution of the EOS ICO were a thing of beauty. Founders take note and study how Block.one raised the most money using an ICO or token sale ever.
I say that to point out that on a risk-adjusted basis if you size your bets correctly, even things that should go to zero still retain some value post-ICO. Investing early in ICOs is the only way you will hit 10,000x returns, but there is no heaven without hell. To shoot for the 10,000x, you must accept that most of your investments will trade near zero post-ICO. But that’s better than the current VC coin setup, where 10,000x is almost a mathematical impossibility, but you can still be down 75% a month after a CEX launch. The retail punter is unconsciously aware of the bad risk-return profile of VC coins and shunned them for memecoins. Let’s again create fanatical support amongst users for new crypto projects by allowing them the possibility of vast riches and making ICOs great again!
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