Original Title: The Cure
Author: Arthur Hayes
Compiled 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 into why ICOs could make a comeback. He points out that excessive reliance on centralized exchanges and VC-backed high-valuation projects has become a shackle for industry development, contrasting the capital formation mechanisms of meme coins and ICOs, advocating for crypto projects to return to their decentralized roots and the high-risk, high-reward nature. Through interpreting technological potential and virality, Arthur Hayes once again demonstrates his foresight for the future development of the industry.

The following is the original content:

Nervousness and stress can sometimes infect both genders, leading to irrational behavior. Sadly, many companies in the Maelstrom portfolio have contracted the 'CEXually Transmitted Disease' caused by centralized exchanges. The affected founders believe they must fully comply with the directives of certain well-known centralized exchanges, or the road to huge returns will be blocked. These centralized exchanges demand: boost this metric, hire this person, allocate this portion of tokens to me, list your token on this date... etc., forget it, let's just wait for our notification before launching. These 'patients' obsessed with the desires of trading platforms have nearly forgotten the original purpose of users and cryptocurrencies. Come to my clinic, I can cure you. The prescription is ICO. 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

Big corporations, big tech, big pharma, big military-industrial, and other 'big XX' have used 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 enhancement has slowed for the 90% of the population with very few financial assets and almost no political power. Decentralization is the antidote to the concentration of wealth and power.

Magical Technology

The Bitcoin blockchain and the many blockchains that followed are epoch-making magical technologies. From an unassuming start, Bitcoin has at least proven itself to be one of the most resilient monetary systems. For anyone who can break into the Bitcoin network, that nearly $20 trillion worth of Bitcoin can be double-spent, like a massive bug bounty.

Greed

The fiat and energy value growth of blockchain-driven cryptocurrencies and their tokens is making users wealthy. The wealth of the cryptocurrency community was evident in the U.S. elections in November. 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-cryptocurrency candidates win. Cryptocurrency voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.

The memory loss of capital formation

Most cryptocurrency practitioners instinctively understand the reasons for success in this industry; however, there are occasional instances 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, capital-strapped founders forget why users flock to cryptocurrencies. Yes, they may believe in a government of 'the people, by the people, for the people,' or they may create stunning technologies, but if users cannot get rich from it, the promotion speed of any cryptocurrency-related product or service 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, the focus has shifted to 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 present). In my article (PvP), I noted that the median performance of tokens issued in 2024 is about 50% lower than that of mainstream assets (Bitcoin, Ethereum, or Solana). Ordinary investors ultimately face high prices and are deterred when purchasing these projects via centralized exchanges (CEX). Consequently, the internal market-making teams of trading platforms, airdrop recipients, and third-party market makers sell tokens into illiquid markets, leading to disastrous performances.

Why has our entire industry forgotten the third pillar of cryptocurrency's value proposition... making ordinary investors 'filthy rich'?

The antidote to meme coins

The new issuance market for cryptocurrencies has become the traditional model it was supposed to replace—a system similar to the initial public offering (IPO) profit chain 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 going viral through meme content on the internet. If the meme is compelling enough, you buy into it, hoping someone will take over later. The capital formation of meme coins is democratized. Teams release the entire supply directly at issuance, and the fully diluted valuation (FDV) typically starts at just a few million dollars. By launching on decentralized exchanges (DEX), speculators place extremely high-risk bets on which meme can penetrate the industry’s collective consciousness to create buy 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 up the wealth ladder. But every participant knows that the meme coins they are purchasing have no real value and will not generate any cash flow, thus 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 prices rise 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.

The intrinsic value of meme coins = The virality of meme content

This concept is very intuitive. As long as you are an active participant 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) actually do not possess real skills. I feel this deeply as I recall my experiences working in investment banking, where the required skills were woefully few and can be summarized as: almost none. Many people want to enter traditional finance because you can earn a lot of money without needing substantial knowledge. Just give me a young person who knows a bit about high school algebra and has a good work ethic, and I can train them to handle any front-office financial service job. This, however, does not apply to professions like doctors, lawyers, plumbers, electricians, mechanical engineers, etc. Entering these professions takes time and skill, yet the average income is often lower than that of a junior investment banker, salesperson, or trader. The wasted intellectual resources in the financial services industry are 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 entry into 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 into this unique circle, you perpetuate these norms to give more value to the qualities you have or have not acquired. For example, if you worked hard and incurred huge 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 don’t, you admit that the time and effort you put into obtaining those qualifications were not worth it. In psychology, this is known as 'Effort Justification Bias.'

Let's use this framework to understand how rookie venture capitalists (VCs) raise funds and allocate resources.

To raise enough capital to invest in enough companies to find a winner (like Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms need substantial capital. This funding mainly comes from endowment funds, pension funds, insurance companies, sovereign wealth funds, and family offices. All of these capital pools are managed by traditional finance (TradFi) people. These managers have to fulfill their fiduciary responsibilities to their clients and can only invest in 'appropriate' venture capital funds. This means they mostly have to invest in VC funds managed by 'qualified' and 'experienced' professionals.

These subjective requirements have led to a phenomenon: these venture capital partners often graduate from a small number of elite universities around the world (such as 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 don't have such a background, the gatekeepers of employment in traditional finance will consider you lacking in necessary experience and qualifications, thus incapable of managing others' funds. Consequently, 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 take the safe route and allocate funds to a fund managed by 'appropriate and proper' individuals, even if the fund fails, they can blame it on bad luck and keep their position in the asset management industry. If it’s a solo failure, you lose your job; but if it’s a collective failure, your job is usually safe. Since the primary goal of traditional finance individuals 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 management partners fit a certain accepted stereotype, then these managers will only invest in companies or projects where the founders fit the 'founder' stereotype. For business-oriented founders, their resumes must include work experience at large consulting firms or investment banks and are expected to have attended certain elite global universities. Technical founders, on the other hand, need to have experience working at highly successful large tech companies and hold advanced degrees from recognized institutions known for producing excellent engineers. Finally, because humans have a social attribute, we are more inclined to invest in those who are closer to us. Therefore, VCs in Silicon Valley only invest in companies located in the Bay Area in California, while VCs in China prefer companies headquartered in Beijing or Shenzhen.

As a result, a homogeneous echo chamber environment has formed. 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 ICO hype bubble burst, when crypto project founders were rushing around to raise venture capital, they were essentially making deals with the 'devil.' To secure funding from venture firms predominantly located in San Francisco, New York, London, and Beijing, the founders of crypto projects had to make changes.

The intrinsic value of VC tokens = The founder's school background, employment history, family background, geographic location

Venture capital allocators prioritize the team first, then the product. If the founders fit the stereotype, funds will continuously flow in. Because these founders inherently possess the 'right' background, a small portion of the team will find product-market fit after spending hundreds of millions, thereby birthing the next Ethereum. Since most teams ultimately fail, the decision 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, professional capability in cryptocurrency is only considered a distant cause after the fact. This marks the beginning of the disconnect between venture capitalists and ultimate retail investors. The primary goal of rookie VCs is to keep their jobs, while ordinary retail investors hope to reverse their fortunes by buying into coins that surge 10,000x. Such returns used to be possible. If you bought ETH at around $0.33 during the Ethereum presale, you would have achieved a 9000x return at current prices. However, the current mechanisms of capital formation in crypto make such returns nearly impossible.

Venture capital investors make money by flipping those shitty, illiquid SAFTs (Simple Agreements for Future Tokens) between funds and inflating valuations with each flip. When these troubled crypto projects eventually land on centralized exchanges (CEX) for their initial listing, their fully diluted valuation (FDV) often exceeds $1 billion. To achieve 10,000x returns, the FDV needs to grow to an incredibly exaggerated number—one that exceeds the total value of all fiat-denominated assets... and we are only discussing a single project. This is also why retail investors prefer to gamble on a meme coin with a market cap of $1 million rather than a project supported by the 'most respected' VC group with an FDV of $1 billion. The behavior of retail investors 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 ICO = Virality of content + Potential technology

Meme:

A project team that can launch a product that aligns with the current cryptocurrency trends, with visual appeal, feel, and clear goals, possesses '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 swiftly bring users to the top of its growth funnel.

Potential Technology:

In the early stages of a project's lifecycle, ICOs (Initial Coin Offerings) typically occur. 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 funding support, they will create valuable products. Therefore, potential technology can be evaluated in several ways:

1. Has the team developed meaningful products in the Web2 or Web3 space?

2. Is the technology the team plans to develop technically feasible?

3. Does this potential technology address a globally significant problem, ultimately attracting millions or even billions of users?

Technical founders who meet the above conditions may not necessarily be the same type of people that venture capital firms would invest in. The cryptocurrency community does not place as much value on family background, past work experience, or specific educational qualifications. These conditions are icing on the cake, but if these backgrounds have not led the founding team to deliver excellent code previously, they are meaningless. The community is more willing to support Andre Cronje rather than a former Google employee who graduated from Stanford and is a member of the Battery Club.

Although most ICOs (99.99%) nearly go to zero after one cycle, there are still a few teams that can develop technology that attracts users based on their 'meme effect.' Early investors in these ICOs have the opportunity to achieve returns of 1000x or even 10,000x. This is precisely the game they want to play. The speculation and volatility of ICOs are characteristics, not defects. If retail investors want safe, boring investments, they can choose the stock trading platforms of global traditional finance. In most jurisdictions, IPOs require companies to become profitable, and management must make various statements to assure the public they will not commit fraud. But for ordinary retail investors, the problem with IPOs is that they cannot provide life-changing returns because venture capital firms have already taken their share of the profits in the early stages.

If ICOs can clearly fund technologies with viral meme potential and possible global impact, how do we make them 'great again'?

ICO Roadmap

In its purest form, an ICO allows any team with an internet connection to showcase its project to the crypto community and obtain 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. Then, investors—well, or 'speculators'—can send cryptocurrency via on-chain addresses and receive the distributed tokens after a certain period. Every aspect of the ICO, including timing, fundraising amount, token price, type of development technology, team composition, and the regions where investors are located, is entirely decided by the ICO team and not controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries hate ICOs—they have no reason to exist. However, the community loves ICOs because they provide a diverse array of projects initiated by people from various backgrounds, giving those willing to take high risks the opportunity for the highest returns.

ICOs are making a comeback because the entire industry has gone through a complete cycle. We enjoyed freedom but burned our wings in the process; then we felt the oppression of VC and centralized exchanges (CEX) dictatorial control, abhorring the high-valuation junk projects they aggressively marketed. Now, in the nascent bull market driven by massive currency printing in the U.S., China, Japan, and the EU, crypto market speculators are indulging in the speculation of utterly useless meme coins, and the community is once again ready to wholeheartedly invest in high-risk ICO trading. Now is the time for 'near-wealthy' crypto speculators to cast a wide net in hopes of catching the next Ethereum.

The next question is: What will be different this time?

Timeline:

Nowadays, with frameworks like Pump.fun, tokens can be launched in just a few minutes, combined with decentralized exchanges (DEX) that offer higher liquidity, teams can raise funds through ICOs and complete token delivery within days. This is starkly different from the last 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 had the privilege of previewing some potentially game-changing smart contract technologies built on the Bitcoin blockchain. Alkanes is a brand new meta-protocol aimed at bringing smart contracts to Bitcoin through the UTXO model. I can't fully grasp how it works, but I hope those smarter and more skilled than I can take a look at their GitHub repository and decide for themselves whether it's worth building upon. I am very much looking forward to Alkanes potentially driving 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 once the tokens are delivered to investors, unverified project ICO tokens can be traded immediately, enabling real price discovery.

Although I do not like Solana, I have to 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 in just a few minutes. Continuing this trend of financial and crypto trading democratization, Maelstrom invested in a project aimed at becoming the preferred platform for spot trading meme coins, all cryptocurrencies, and newly issued ICOs.

Spot.dog is building a meme coin trading platform to attract Web2 users. Their 'secret sauce' is not the technology but the distribution channel. Most current meme coin trading platforms are designed for crypto traders. For example, Pump.fun requires users to have some knowledge of Solana wallets, token swaps, slippage, etc. Meanwhile, 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.

Spot.dog initially secured some outstanding partnerships. For example, the 'cryptocurrency purchase button' on the social trading platform Stocktwits (with 1.2 million monthly active users) is powered by Spot.dog. Additionally, the sole partner of Iggy Azalea’s **$MOTHER Telegram trading bot** is—yes, Spot.dog.

I bet you speculators must be very eager to know when your tokens will be launched, right? Don't worry, when the time is right, if you're interested in 'going all in' on Spot.dog's governance token, I will let you know 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 habit will make fundraising through ICOs easier.

Blockchain Speed:

In 2017, popular ICOs often caused the Ethereum network to crash. Gas fees soared, making it difficult for ordinary users to use the network at reasonable costs. By 2025, the block space costs of 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, speculative 'degen' supporters, their fundraising capability will no longer be limited by slow and expensive blockchains.

Due to Aptos's extremely low transaction costs, it has the opportunity 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 solution to the 'CEX-related disease'—the ICO. However, now the project parties need to make the right choices. But to prevent them from missing this point, ordinary crypto investors need to resolutely 'say no.'

Say 'no' to the following situations:

• VC-backed projects with high FDV (Fully Diluted Valuation) and low circulation

• Tokens launched at high valuations on centralized exchanges

• Promoting so-called 'irrational' trading behavior

There were indeed many obvious 'junk projects' in the ICOs of 2017. The most destructive ICO was undoubtedly EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after its launch, EOS almost vanished. However, this is not entirely accurate, as EOS still has a market cap of $1.2 billion. This indicates that even a 'junk project' like EOS, issued at the peak of the bubble, still has value that has not yet reached zero. 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 ICOs or token sales.

I mention these to illustrate the risk-adjusted investment logic: if investment shares are allocated correctly, even projects that should go to zero may retain some value post-ICO. Early investment in ICOs is the only way to achieve 10,000x returns, but there is no heaven without hell. To pursue 10,000x returns, you must accept that most investments may be worth close to zero after the ICO. However, this is much better than the current VC token model. Nowadays, achieving 10,000x returns in VC tokens is nearly impossible, but it is not uncommon to see losses of 75% a month after listing on a CEX. Ordinary investors have subconsciously sensed the poor risk-reward ratio of VC tokens and have turned instead to memecoins. Let us create fervent support for new projects once again through ICOs, giving investors the potential to gain immense wealth, and bring ICOs back to their peak!