Original Title: The Cure
Author: Arthur Hayes
Translated by: Ismay, BlockBeats
Editor's Note:
In this article, Arthur Hayes analyzes the rise and fall of ICOs in the cryptocurrency industry with a sharp perspective, offering insights on why ICOs can make a comeback. He points out that an over-reliance on centralized exchanges and VC-backed overvalued projects has become a shackle to the industry’s development, comparing the capital formation mechanisms of memecoins and ICOs, advocating that crypto projects should return to their decentralized and high-risk, high-reward roots. Through the interpretation 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 text:
Tension and pressure can sometimes infect both genders, leading to irrational behavior. Unfortunately, many companies in the Maelstrom portfolio have contracted the 'disease spread by centralized exchanges (CEXually Transmitted Disease).' The affected founders believe they must fully comply with the directives of certain well-known centralized exchanges, or the path to significant returns will be blocked. These centralized exchanges require: boosting this metric, hiring this person, allocating this portion of tokens to me, launching your tokens on this date... etc. Forget it; let’s just wait for our notification to launch. These 'patients' obsessed with the desires of trading platforms have almost entirely forgotten the users and the original intent of cryptocurrency. Come to my clinic, and I can cure you. This prescription is ICOs. Let me explain...
I have a three-point theory on why cryptocurrencies have become one of the fastest-growing networks in human history:
Government Capture
Large corporations, major tech companies, big pharma, the military-industrial complex, and other 'big XX' utilize their wealth and power to control most major governments and economies. Since the end of World War II, despite rapid and consistent improvements in living standards and life expectancy, this uplift has slowed for the 90% of the population who own little financial assets and have almost no political voice. Decentralization is the antidote to the extreme concentration of wealth and power.
Magical Technology
The Bitcoin blockchain and numerous blockchains derived from it are epoch-making magical technologies. Starting from an unremarkable beginning, Bitcoin has at least proven to be one of the most resilient monetary systems. For anyone capable of breaking into the Bitcoin network, that nearly $2 trillion in Bitcoin could be double-spent, akin to a massive bug bounty.
Greed
The growth of blockchain-driven cryptocurrencies and their tokens, both in fiat and energy value, has made users wealthy. The wealth of the cryptocurrency community was evident in the November elections in the United States. The US (and most other countries) is a political system where 'money buys power.' Cryptocurrency 'bandits' are among the industries that donate the most to political candidates, helping pro-crypto candidates win. Crypto voters can afford to 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 success in this industry; however, there are occasional cases of memory loss. This phenomenon is reflected in the changes in cryptocurrency capital formation. Sometimes, those seeking crypto capital cater to the community's greed and achieve great success. At other times, underfunded founders forget why users flock to cryptocurrency. Yes, they may believe in a government of 'the people, by the people, for the people,' or create stunning technology, but if users cannot become wealthy from it, the promotion speed of any products or services associated with 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 stimulating community greed. Instead, it has shifted towards high fully diluted valuations (FDV), low circulating supply, or tokens backed by venture capital (VC). However, VC-backed tokens have performed poorly in this bull market (2023 to present). 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 eventually purchase these projects on 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 dump tokens into illiquid markets, leading to catastrophic performance.
Why has our entire industry forgotten the third pillar of the cryptocurrency value proposition... making ordinary investors 'filthy rich'?
The Antidote to Meme Coins
The new issuance market for cryptocurrencies has transformed into the traditional model it was supposed to replace—a system similar to the profit chain of IPOs in traditional finance (TradFi). In this system, ordinary investors ultimately become the bag holders of VC-backed tokens. However, there are always alternatives in the crypto space. Meme coins are a class of tokens that have no practical use other than viral dissemination of meme content via the internet. If this meme becomes popular enough, you will buy it, hoping that someone will take over later. The capital formation of meme coins is egalitarian. The team releases the entire supply 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, thereby creating demand for the tokens.
From the perspective of ordinary speculators, the most appealing aspect of meme coins is that if you enter early, you might leap several levels on the wealth ladder. However, every participant is aware that the meme coins they purchase have no actual value and will not generate any cash flow, meaning their intrinsic value is zero. Therefore, they fully accept the risk of potentially losing all their funds in pursuit of financial dreams. Most importantly, there are no thresholds or gatekeepers telling them whether they can purchase a certain meme coin, nor are there those shadowy 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 are valuable. Let's start with meme coins.
The intrinsic value of meme coins = the 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 memes.
If this is meme coin, then what is VC token?
The nature of VC tokens and the culture of traditional finance
Followers of traditional finance (TradFi) actually lack genuine skills. I can attest to this from my experiences working in investment banking, where the required skills were minimal, to sum it up: almost nonexistent. Many people want to enter traditional finance because you can earn 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 attitude, and I can train them to excel in any front-office financial service job. This cannot be said for roles such as doctors, lawyers, plumbers, electricians, or mechanical engineers. Entering those professions requires time and skills, yet the average income often falls below 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 about race and social class are more influential than in other professions. Once you are included in this unique circle, you perpetuate these norms, attributing more value to the traits you have or have not obtained. 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 do so, you will acknowledge that the time and energy you spent obtaining those qualifications were not worth it. In psychology, this is known as 'Effort Justification Bias.'
Let's use this framework to understand how VC novices raise funds and allocate resources.
To raise enough capital to invest in enough companies to hopefully find a winner (such as Facebook, Google, Tencent, ByteDance, etc.), top-tier venture capital firms require substantial capital. This funding mainly comes from endowment funds, pension funds, insurance companies, sovereign wealth funds, and family offices. These capital pools are managed by traditional finance (TradFi) professionals. These managers must fulfill their fiduciary duties to their clients and can only invest in 'appropriate' venture capital funds. This means they typically must invest in venture capital funds managed by 'qualified' and 'experienced' professionals.
These subjective requirements lead to a phenomenon: these VC partners often graduate from that small subset of elite universities worldwide (such as Harvard, Oxford, Peking University, etc.), and their careers usually begin at large investment banks (like JPMorgan, Goldman Sachs), asset management companies (like BlackRock, Fidelity), or major tech companies (such as Microsoft, Google, Facebook, Tencent, etc.). If you do not have such a background, the traditional finance employment gatekeepers will consider you lacking the necessary experience and qualifications to manage others' funds. This creates a highly homogeneous group—who look similar, speak similarly, dress alike, 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 may lose their jobs. However, if they choose the safe route and allocate funds to funds managed by 'appropriate and respectable' individuals, even if that fund fails, they can blame it on bad luck, preserving their positions in the asset management industry. If you fail alone, you get fired; but if you fail together with everyone, your job is usually safe. As the primary goal of traditional finance professionals is to keep their high-paying, low-skill jobs, they minimize career risk by choosing managers with seemingly 'appropriate' backgrounds to ensure their own safety.
If the selection criteria of 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 where the founders fit the 'founder' stereotype. For commercially-minded founders, their resume must include experience working at large consulting firms or investment banks and is expected to have attended certain elite global universities. Meanwhile, tech-focused founders need to have experience working in highly successful large tech companies and hold advanced degrees from universities known for producing excellent engineers. Finally, due to the social nature of humans, we are more inclined to invest in those who are closely related to us. Therefore, VCs in Silicon Valley only invest in companies located in the Bay Area, while Chinese VCs prefer to invest in companies headquartered in Beijing or Shenzhen.
The result is the formation of a homogenous environment akin to an echo chamber. Everyone appears similar in how they look, speak, think, believe, and live. As a result, everyone either succeeds together or fails together. This environment is precisely what traditional financial VCs aim for because their goal is to minimize professional risk.
After the ICO bubble burst, when crypto project founders were scrambling to raise VC funds, they were essentially making deals with 'the devil.' To secure funding from VC firms predominantly located in San Francisco, New York, London, and Beijing, crypto project founders had to make compromises.
The intrinsic value of VC tokens = the founder's educational background, employment history, family background, geographic location
Venture capital allocators primarily value the team, followed by the product. If the founder fits the stereotype, funding will continuously flow in. Because these founders inherently possess the 'right' background, a small portion of these teams will find product-market fit after spending hundreds of millions of dollars, giving birth to the next Ethereum. Because most teams ultimately fail, the decision logic of venture capital allocators goes unchallenged, as the founders they support are all recognized types that could potentially succeed.
It is evident that when choosing an investment team, cryptocurrency expertise is merely a distant factor considered afterward. This marks the beginning of the disconnect between VCs and the ultimate retail investors. The primary goal of novice VCs is to keep their jobs, while ordinary retail investors hope to buy into a coin that skyrockets by tens of thousands of times, turning their fortunes around. Such returns were once possible. If you bought ETH at approximately $0.33 during the Ethereum presale, you would have achieved a 9,000 times return at current prices. However, the current mechanism for capital formation in crypto has rendered such returns nearly impossible.
VC investors make money by flipping those worthless, illiquid SAFTs (Simple Agreements for Future Tokens) between funds, raising the valuation with each flip. When these troubled crypto projects eventually land on centralized exchanges (CEX) for their initial listings, their fully diluted valuations (FDV) often exceed $1 billion. To achieve a 10,000 times return, the FDV needs to grow to an extremely exaggerated number—one that exceeds the total value of all fiat currency-denominated assets... and this is just discussing one project. This is why retail investors are more willing to gamble on a meme coin with a market cap of $1 million instead of a VC-backed project with an FDV of $1 billion. The behavior of retail investors actually aligns with the logic of maximizing expected returns.
If retail investors have already begun to reject the VC token model, what makes ICOs inherently more attractive?
The intrinsic value of an ICO = the virality of the content + potential technology
Meme:
A project team that can launch a product that aligns with current cryptocurrency trends and has visual appeal, feel, and a clear objective possesses 'meme value.' When this 'meme' is attractive and spreads, the project gains attention. The project's goal is to attract users at the lowest possible cost and then sell them products or services. A project that resonates deeply can quickly lead 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 products. In this model, the community's trust in the project team is implicit; they believe that as long as they provide financial support, the team will create valuable products. Therefore, potential technology can be assessed in several ways:
1. Has the team previously developed meaningful products in the Web2 or Web3 fields?
2. Is the technology the team plans to develop technically feasible?
3. Can this potential technology solve a globally significant problem and ultimately attract millions or even billions of users?
Technical founders who meet the above criteria may not necessarily belong to the same category as the 'elite' that VC firms would invest in. The cryptocurrency community does not place much importance on family background, past professional experience, or specific educational qualifications. While these conditions may be a bonus, they are meaningless if this background has not led the founding team to previously deliver excellent code. The community is more willing to support Andre Cronje than a former Google employee with a Battery Club membership who graduated from Stanford.
Although most ICOs (99.99%) will nearly go to zero after one cycle, a few teams can develop technology that attracts users based on their 'meme effect.' Early investors in these ICOs have the chance to achieve 1,000 times or even 10,000 times returns. This is precisely the game they want to play. The speculation and volatility of ICOs are characteristics rather than defects. If retail investors want safe, boring investments, they can opt for stock trading platforms in global traditional finance. In most jurisdictions, IPOs (Initial Public Offerings) require companies to achieve profitability, while management must make various statements to assure the public that they will not commit fraud. However, the problem for ordinary retail investors with IPOs is that they cannot deliver life-changing returns because venture capital firms have already divvied up the profits in the early stages.
If ICOs can evidently fund technologies with the potential for viral dissemination and global impact, how can we make them 'great again'?
ICO Roadmap
In its purest form, ICOs allow any team with an internet connection to showcase their projects to the crypto community and gain funding support. Teams 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. Investors—well, or rather 'speculators'—can send cryptocurrency via an on-chain address and receive distributed tokens after a specified time. Every aspect of the ICO, such as timing, fundraising amount, token price, type of technology being developed, team composition, and the geographical location of investors, is entirely decided by the ICO team, not controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries dislike ICOs—they see no reason for their existence. However, the community loves ICOs because they offer a diverse array of projects initiated by people from various backgrounds, providing those willing to take high risks the opportunity for maximum returns.
ICOs are making a comeback because the entire industry has undergone a complete cycle. We enjoyed freedom but burned our wings in the process; then, we felt the oppression of the authoritarian control exerted by VCs and centralized exchanges (CEXs), growing weary of the overvalued junk projects they forced upon us. Now, amid a nascent bull market driven by massive money printing from the US, China, Japan, and the EU, cryptocurrency market speculators are indulging in pointless meme coin speculative trading, and the community is ready to wholeheartedly engage in high-risk ICO trading again. Now is the time for 'quasi-wealthy' crypto speculators to cast a wide net for capital, 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 deliveries within days. This is in stark contrast to the previous ICO cycle, where it could take months or even years from subscription to token delivery. Now, investors can trade newly issued tokens immediately on platforms like Uniswap or Raydium.
Thanks to Maelstrom's investment in the Oyl wallet, we have had 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 grasp how it works, but I hope that those who are smarter and more skilled than I am can look at their GitHub repository and decide for themselves whether it is worth building upon. I eagerly anticipate that Alkanes can drive explosive growth in ICO issuance within the Bitcoin ecosystem.
Liquidity:
Due to retail crypto speculators' obsession with meme coins, they have a strong desire to trade highly speculative assets on decentralized exchanges (DEX). This means that after the tokens are delivered to investors, unverified project ICO tokens can be traded immediately, allowing for true price discovery.
Although I am not fond of Solana, I have to admit that Pump.fun has indeed had a positive impact on the industry because 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 go-to platform for 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 would choose to trade on Spot.dog.
Spot.dog has signed some truly outstanding partnerships right from the start. For example, the 'crypto purchase button' on the social trading platform Stocktwits (with 1.2 million monthly active users) is powered by Spot.dog. Additionally, Iggy Azalea's **$MOTHER Telegram trading bot** also has a unique partnership with—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 are interested in 'going all in' on Spot.dog's governance token, I will tell you the time!
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 it easier to raise funds through ICOs.
Blockchain Speed:
In 2017, popular ICOs often resulted in the Ethereum network crashing. Gas fees skyrocketed, making it impossible for ordinary users to use the network at a reasonable cost. By 2025, the cost of block space on Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. Current order processing capabilities have 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.
Due to the extremely low cost of each transaction on Aptos, it has the potential to become the preferred blockchain platform for ICOs.
Average transaction fee (USD):
• Aptos: $0.0016
• Solana: $0.05
• Ethereum: $5.22
The Necessity of Saying 'No'
I propose a method to solve the 'CEX-related disease'—ICOs. However, now the project parties need to make the right choices. But to prevent them from misunderstanding this, ordinary crypto investors need to firmly 'say no.'
Say 'no' to the following:
• VC-backed projects with high FDV (Fully Diluted Valuation) and low circulating supply
• Tokens listed at overvalued prices on centralized exchanges for their initial launch
• Those who promote so-called 'irrational' trading behavior
Indeed, there were many obvious 'garbage projects' in the ICOs of 2017. Among the most destructive ICOs was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after its launch, EOS nearly vanished. In fact, that is not entirely accurate; EOS's market cap still stands at an astonishing $1.2 billion. This indicates that even a 'garbage project' like EOS, issued at the peak of a bubble, still retains significant value. As someone who loves financial markets, I must admit that the structural design and execution of the EOS ICO were a 'work of art.' Project founders should study how Block.one raised the most funds in history through an ICO or token sale.
I mention this to illustrate the logic of risk-adjusted investment: if investment shares are allocated correctly, even projects that should go to zero may retain some value after the ICO. Early investment in ICOs is the only way to achieve 10,000 times returns, but there’s no paradise without hell. To pursue 10,000 times returns, you must accept that the value of most investments may be close to zero after the ICO. However, this is much better than the current VC token model. Nowadays, 10,000 times returns in VC tokens are almost impossible, but it is not uncommon to see a 75% loss after one month of trading on a CEX. Ordinary investors have subconsciously noticed the poor risk-reward ratio of VC tokens, so they have turned to memecoins. Let's create fervent support for new projects again through ICOs and give investors the possibility of acquiring great wealth, bringing ICOs back to their peak!
