Original Title: The Cure

Original Author: Arthur Hayes

Original Translation: Ismay, BlockBeats

Editor's Note: In this article, Arthur Hayes sharply analyzes the ups and downs of ICOs in the cryptocurrency industry, providing insights into why ICOs can return to their peak. He points out that excessive reliance on centralized exchanges and VC-backed overvalued projects has become a shackle for the industry's development, comparing meme coins with the capital formation mechanisms of ICOs, advocating that crypto projects should return to their decentralized roots and high-risk, high-return principles. 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 both men and women, leading to irrational behavior. Unfortunately, many companies in the Maelstrom portfolio have contracted the 'CEXually Transmitted Disease' spread by centralized exchanges. The affected founders believe they must completely obey the directives of certain well-known centralized exchanges; otherwise, the path to massive returns will be blocked. These centralized exchanges demand: boost this metric, hire this person, allocate me this portion of tokens, launch your token on this date... and so on. Never mind, let's wait for our notification to launch. These 'patients' obsessed with the desires of trading platforms have almost entirely forgotten the origins of users and cryptocurrency. Come to my clinic; I can cure you. The remedy is ICO. Let me explain...

I have a three-point theory about why cryptocurrency has become one of the fastest-growing networks in human history:

Government Capture

Large corporations, big tech, big pharma, big defense, and other 'big XX' entities use 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 improvement has slowed for the 90% of the population who possess very few financial assets and have almost no political voice. Decentralization is the antidote to the concentration of wealth and power.

Amazing Technology

The Bitcoin blockchain and many subsequent derived blockchains 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 penetrate the Bitcoin network, that nearly $20 trillion in Bitcoin could be double-spent, like a huge vulnerability 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 U.S. elections. The U.S. (and most other countries) operates on a political system of 'money for power.' Cryptocurrency 'bandits' are among the industries that donate the most to political candidates, helping pro-cryptocurrency candidates achieve victory. Cryptocurrency voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.

The Memory Lapse of Capital Formation

Most cryptocurrency practitioners instinctively understand the reasons for success in this industry; however, there are occasional lapses in memory. This phenomenon is reflected in the changes in crypto capital formation. At times, those seeking crypto capital cater to the community's greed 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 may create stunning technology, but if users cannot get rich from it, the promotion speed 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 stimulating community greed. Instead, it has shifted towards high fully diluted valuations (FDV), low circulating supply, or VC-backed tokens. However, VC-backed tokens have performed poorly in this bull market (from 2023 to now). In my article (PvP), I noted that the median performance of tokens issued in 2024 is about 50% lower than mainstream assets (Bitcoin, Ethereum, or Solana). When ordinary investors eventually buy these projects on centralized exchanges (CEX), they are deterred by the high prices. Consequently, the internal market-making teams of trading platforms, airdrop recipients, and third-party market makers sell tokens into illiquid markets, leading to disastrous performance.

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

The Antidote to Meme Coins

The new issuance market for cryptocurrencies has turned into the traditional model it was supposed to replace—a system resembling the interest chain of initial public offerings (IPOs) in traditional finance (TradFi). In this system, ordinary investors ultimately become the bag holders of VC-backed tokens. However, in the crypto realm, there are always alternatives. Meme coins are a class of tokens that have no practical use other than propagating meme content virally through the internet. If the meme goes viral enough, you might buy it, hoping someone will take over afterward. The capital formation of meme coins is egalitarian. The team releases the entire supply directly at launch, and the initial 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 appealing aspect of meme coins is that, if you enter early, you might leap several rungs up the wealth ladder. Yet every participant knows that the meme coins they purchase have no intrinsic value and do not generate any cash flow, thus 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 barriers or gatekeepers telling them whether they can purchase a certain meme coin, nor are there shadowy capital pools waiting to dump newly unlocked supply 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.

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 memes.

If this is meme coins, then what are VC tokens?

The Essence of VC Tokens and the Culture of Traditional Finance

Followers of traditional finance (TradFi) do not actually possess real skills. I can deeply relate to this because I reflect on my experiences working in investment banking, where the skills required are minimal; to summarize, there are almost none. Many people want to enter traditional finance because you can earn a lot of money without mastering substantial 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 handle any front-office financial service job. However, this does not apply to professions such as doctors, lawyers, plumbers, electricians, or mechanical engineers, where entering those professions requires time and skills, yet 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 entry barrier to this rare club often depends 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 related to race and social class are even more influential than in other professions. Once you are included in this unique circle, you perpetuate these norms to assign more value to the traits you have obtained or have not obtained. For example, if you worked hard and incurred significant 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 effort you invested to obtain 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 raise funds and allocate resources.

To raise enough capital to invest in enough companies in hopes of finding a winner (such as Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms require a substantial amount of capital. This funding primarily comes from endowment funds, pension funds, insurance companies, sovereign wealth funds, and family offices. These capital pools are managed by traditional finance (TradFi) professionals who must fulfill fiduciary responsibilities to clients and can only invest in 'appropriate' venture capital funds. This means they are mostly forced to invest in venture capital funds managed by 'qualified' and 'experienced' professionals.

These subjective requirements lead to a phenomenon: these venture 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 firms (like BlackRock, Fidelity), or major tech companies (like Microsoft, Google, Facebook, Tencent, etc.). If you lack such a background, traditional finance's employment gatekeepers will view you as lacking the necessary experience and qualifications to manage others' funds. 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 risks to invest in funds managed by non-traditional backgrounds and the fund fails, they might lose their jobs. But if they choose the safe route and allocate funds to funds managed by 'appropriate and decent' individuals, even if the fund fails, they can blame bad luck and keep their positions in the asset management industry. If you fail alone, you lose your job; but if you fail together with others, your job usually remains secure. Since the primary goal of traditional finance professionals is to keep their high-paying and low-skill jobs, they minimize professional risk by selecting seemingly 'appropriate' background managers, ensuring their own safety.

If the selection criteria for venture capital funds revolve around whether the managing partners fit a certain accepted stereotype, then those managers will only invest in companies or projects whose founders conform to the 'founder' stereotype. For business-oriented founders, the resume must include experience at major consulting firms or investment banks and is expected to have attended certain global elite 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 that nurture excellent engineers. Ultimately, due to the social nature of humanity, we are more inclined to invest in those who are closer to us. Thus, Silicon Valley VCs only invest in companies based in the California Bay Area, while Chinese VCs prefer companies headquartered in Beijing or Shenzhen.

The result is a homogeneous environment akin to an echo chamber. Everyone looks, speaks, thinks, believes, and lives similarly. Therefore, everyone either succeeds or fails together. This environment is precisely what traditional financial venture capitalists idealize, as their goal is to minimize professional risk.

After the ICO craze bubble burst, when cryptocurrency project founders scurried around to raise venture capital, they were essentially making deals with the 'devil.' To obtain 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 School Background, Employment History, Family Background, Geographic Location

Venture capital allocators prioritize the team first, then the product. If the founder fits the stereotype, funding will 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, leading to the birth of the next Ethereum. Since most teams ultimately fail, the decision logic of venture capital allocators goes unquestioned, as the founders they support are all recognized as likely to succeed.

Clearly, when selecting investment teams, cryptocurrency expertise is only a distant factor considered afterward. This marks the beginning of the disconnect between venture capital and the eventual retail investor. The primary goal for novice venture capitalists is to keep their jobs, while ordinary retail investors hope to turn their fortunes around by buying tokens that skyrocket in value. Ten-thousand-fold returns used to be possible. If you bought ETH at around $0.33 during the Ethereum presale, you would have realized a 9000-fold return at current prices. However, the current mechanisms of crypto capital formation make such returns nearly impossible.

Venture capital investors profit by flipping those dogshit, 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 first listing, their fully diluted valuations (FDV) often exceed $1 billion. To achieve 10,000-fold returns, the FDV must grow to an extremely exaggerated number—one that even surpasses the total value of all fiat-denominated assets... and we are only discussing a single project here. 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 with an FDV of $1 billion supported by the 'most respected' venture capital group. The behavior of retail investors aligns with the logic of maximizing expected returns.

If retail investors have started to reject the venture capital token model, what makes ICOs essentially more attractive?

Intrinsic Value of ICO = Virality of Content + Potential Technology

Meme:

A project team that can launch a product that aligns with current cryptocurrency trends, with appealing visuals, 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 allows users to quickly enter the top of its growth funnel.

Potential Technology:

ICOs (Initial Coin Offerings) typically occur early in a project's life cycle. Ethereum raised funds before developing its product. In this model, the community's trust in the project team is implicit; they assume that by providing 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, ultimately attracting millions or even billions of users?

Technical founders who meet the above conditions may not necessarily be the same types of people that venture capital firms would invest in. The cryptocurrency community does not place as much importance on family background, past professional experience, or specific educational qualifications. While these conditions are a bonus, they are meaningless if that background has not led the founding team to deliver excellent code previously. The community is more willing to support Andre Cronje than some former Google employee with a Stanford degree and a Battery Club membership.

Although most ICOs (99.99%) will nearly go to zero after one cycle, there are still a few teams that can develop technologies that attract users based on their 'meme effect.' Early investors in these ICOs have the opportunity to realize returns of 1000 times or even 10,000 times. This is precisely the game they want to play. The speculative nature and volatility of ICOs are characteristics, not defects. If retail investors want safe, boring investments, they can choose global traditional financial stock trading platforms. 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 deceive. But for ordinary retail investors, the problem with IPOs is that they cannot bring life-changing returns because venture capital firms have already carved up the interests in the early stages.

If ICOs can obviously provide funding for technologies with viral propagation memes and potential 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 its project to the crypto community and obtain funding. The team launches a website detailing the 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 through a blockchain address and receive distributed tokens after a certain period. All aspects of the ICO, such as scheduling, fundraising amounts, token prices, types of technology being developed, team composition, and investor locations, are entirely decided by the ICO team, not controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries hate ICOs—they see no reason to exist. However, the community loves ICOs because they offer a variety of projects initiated by people from diverse backgrounds, providing those willing to take high risks the chance to achieve maximum returns.

ICOs are making a comeback because the entire industry has gone through a complete cycle. We once enjoyed freedom but also burned our wings; then we felt the oppression of VC and centralized exchanges (CEX) exerting dictatorial control, detesting the overhyped trash projects they forced upon us. Now, in the budding bull market spurred by mass currency printing from the U.S., China, Japan, and the EU, cryptocurrency market speculators are once again indulging in the speculative trading of useless meme coins, and the community is ready to fully engage in high-risk ICO trading again. Now is the time for 'almost wealthy' crypto speculators to cast their nets wide in hopes of catching the next Ethereum.

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

Timeline:

Nowadays, with frameworks like Pump.fun, launching a token can be completed in just a few minutes, coupled with more liquid decentralized exchanges (DEX), allowing teams to raise funds through ICOs and deliver tokens 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 are fortunate to preview some potentially game-changing smart contract technologies built on the Bitcoin blockchain. Alkanes is a brand-new meta-protocol designed to introduce smart contracts to Bitcoin through the UTXO model. I can't fully understand how it works, but I hope those smarter and more skilled than I can look at their GitHub repository and decide for themselves if it's worth building upon. I'm very much looking forward to Alkanes 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 ultra-speculative assets on decentralized exchanges (DEX). This means that after tokens are delivered to investors, unverified project ICO tokens can be traded immediately, achieving true price discovery.

Although I don't like Solana, I must admit that Pump.fun has 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 financial and crypto trading democratization, Maelstrom has invested in a project aiming to become 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 possess 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.

Spot.dog initially signed 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, Iggy Azalea's **$MOTHER Telegram trading bot** has Spot.dog as its exclusive partner.

I bet you speculators are 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 tokens, 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 used to loading their crypto browser wallets, connecting them to dApps, and then purchasing assets. This usage habit will make raising funds through ICOs much easier.

Blockchain Speed:

In 2017, popular ICOs often caused the Ethereum network to collapse. Gas fees skyrocketed, making it impossible for ordinary users to use the network at reasonable costs. By 2025, the block space costs for Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. 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.

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' — ICO. However, now 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:

• Projects supported by venture capital, with high FDV (Fully Diluted Valuation) and low circulation

• Tokens that are highly valued on centralized exchanges

• Advocates of so-called 'irrational' trading behavior

Indeed, there were many obvious 'junk projects' in the 2017 ICOs. Among the most destructive ICOs was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after its launch, EOS almost disappeared. However, this is not entirely accurate; EOS's market cap still stands at a staggering $1.2 billion. This indicates that even 'junk projects' like EOS, issued at the peak of the bubble, have not completely lost their value. As someone who loves financial markets, I must admit that the structural design and execution of the EOS ICO is a kind of 'art.' Project founders should study deeply how Block.one managed to raise the most funds in history through an ICO or token sale.

I mention this to illustrate the risk-adjusted investment logic: if investment shares are allocated correctly, even projects that ought to go 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. In pursuit of 10,000-fold returns, you must accept that most investments may be worth close to zero after the ICO. However, this is much better than the current venture capital token model. Nowadays, in venture capital tokens, achieving 10,000-fold returns is nearly impossible, but it's 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 venture capital tokens, turning instead to memecoins. Let's create fervent support for new projects again through ICOs, giving investors the possibility of massive wealth, and let ICOs return to their peak! Original link