Investing in ICOs early is the only way to achieve 10,000x returns, there is no huge gain without huge risk.
Author: Arthur Hayes, founder of BitMEX
Compiled by: Shenchao TechFlow
Disclaimer
Any opinions expressed in this article are those of the author and should not be relied upon for investment decisions, nor should they be considered investment advice.
text
People sometimes behave irrationally out of desire or blindness. Unfortunately, many Maelstrom portfolio companies appear to be suffering from a CEXually Transmitted Disease. Some affected founders mistakenly believe that they can obtain so-called "ultimate returns" only by following the instructions of certain well-known centralized exchanges (CEX). These instructions include: pushing up a certain indicator, hiring a certain person, allocating a certain number of tokens, listing tokens on a specified date, or even temporarily changing the listing plan. These desire-driven companies have forgotten the needs of users and the original purpose of cryptocurrencies. If you are suffering from this disease, please come to my clinic, I have the antidote - ICO. Let me break it down for you.
I believe that the reason cryptocurrencies have become one of the fastest-growing networks in human history is primarily due to three reasons:
Government control: Giants in big business, big tech, big pharma, and the military control most major governments and economies through their immense wealth and power. Although global living standards and life expectancy have significantly improved since World War II, for the 90% of the population who possess very few financial assets and virtually no political voice, this growth has stagnated or even regressed. The decentralized nature of cryptocurrencies is the antidote to this concentration of wealth and power.
Revolutionary technology: The Bitcoin blockchain and the various blockchain technologies derived from it can be considered a revolutionary innovation. Starting from its initially unremarkable point, Bitcoin has proven to be one of the most stable and secure monetary systems in the world. The Bitcoin network itself offers nearly $20 trillion in bug bounty (obtaining Bitcoin through double-spending attacks), yet no one has been able to breach the security of this system.
Wealth effect: The value growth of cryptocurrencies and their derivative tokens has made many users overnight millionaires. In the U.S. elections this November, the economic power of cryptocurrency supporters was fully demonstrated. Like many countries, the political system in the U.S. also relies on the ‘money game’. Practitioners in the cryptocurrency industry have become one of the groups contributing the most to political candidates, directly contributing to the victories of candidates who support cryptocurrencies. Bitcoin, as the fastest-growing asset in human history, has enabled the cryptocurrency community to exert significant influence in political activities.
Although most in the cryptocurrency community understand why this movement has succeeded, there are occasional instances of ‘amnesia’. This amnesia manifests itself in the changes in capital-raising methods. Sometimes, project teams achieve great success by catering to the community's wealth desire; at other times, cash-strapped founders forget why users choose cryptocurrencies. Yes, they may believe in the idea of ‘by the people, for the people’; yes, they may create amazing technology. But if users cannot profit from it, the promotion speed of any cryptocurrency product or service will slow down.
Since the ICO boom faded in 2017, capital-raising methods have gradually departed from their original intent. In the past, capital formation relied on igniting community participation enthusiasm and wealth desire, but now it has been replaced by tokens with high fully diluted valuations (FDV), low circulating supplies, and venture capital (VC) support. However, these VC-backed tokens have performed poorly in this bull market (from 2023 to now). In my article PvP, I mentioned that the median performance of tokens issued in 2024 is about 50% lower than mainstream coins (such as Bitcoin, Ethereum, or Solana). Although retail investors can finally purchase these projects through centralized exchanges (CEX), they are unwilling to pay their high prices. As a result, the exchange's internal market-making teams, airdropped token recipients, and third-party market makers dump these tokens into illiquid markets, leading to poor price performance. As an industry, why have we forgotten the third pillar of the cryptocurrency value proposition—helping retail investors create wealth?
The antidote to meme coins
The current cryptocurrency issuance market has become similar to the traditional finance (TradFi) initial public offering (IPO) system. Retail investors often become the ‘greater fool’ for VC tokens. However, in the cryptocurrency space, there is always an alternative—meme coins. Meme coins are tokens with no practical use, whose sole function is to spread meme content via the internet. If the meme is attractive enough, users will buy it, hoping someone will follow up with a purchase later.
The capital formation of meme coins is more egalitarian. Teams typically release the entire token supply at launch, with initial FDV usually only in the millions. They often start trading on decentralized exchanges (DEX), as speculators bet on which meme will gain attention in the industry and drive token demand up.
For ordinary speculators, the most appealing aspect of meme coins is that if they can participate early, they might leap one or two percentiles on the wealth ladder. Nonetheless, every participant is well aware that meme coins have no intrinsic value, do not generate any cash flow, and thus fully accept the risk of losing all their funds in pursuit of the dream of wealth. More importantly, no institutions prevent them from purchasing these tokens, nor are there hidden capital pools waiting to sell unlocked token supplies at high prices.
To better understand the different types of tokens and their sources of value, I wish to establish a simple classification framework. First, let’s start with meme coins:
The intrinsic value of meme coins = the impact of meme dissemination
This is very intuitive. As long as you are active in any community (online or offline), you can understand the power of meme dissemination.
So, what are VC tokens?
Practitioners in the traditional finance (TradFi) industry often lack genuine professional skills. I have a deep understanding of this, as I found that the skills needed for the job in investment banking are quite limited. Many choose to enter TradFi because it offers generous salaries without needing to master much substantive knowledge. As long as a young person possesses basic high school algebra knowledge and a good work attitude, I can train them to handle any front-office financial service job. However, professions such as doctors, lawyers, and engineers require time and technical accumulation, even though the average income of these professions is far lower than that of finance professionals.
The high salary appeal of TradFi makes the entry barrier to this industry rely more on social background than on individual ability. For example, your family background, the reputation of your university or boarding school, is often more important than intellectual level. Such a system makes the TradFi industry a closed elite club, further solidifying existing social hierarchies and racial biases.
Let’s apply this framework to analyze how VCs raise funds and allocate resources.
To find winners like Facebook, Google, Tencent, or ByteDance, top venture capital (VC) firms need to raise huge amounts of money. This funding primarily comes from donor funds, pensions, insurance companies, sovereign wealth funds, and family offices, which are usually managed by traditional finance (TradFi) professionals. As fund managers, they must fulfill their fiduciary duties to their clients and can only invest in venture capital funds deemed ‘appropriate’. This ‘appropriate’ standard often means that these funds need to be managed by ‘qualified’ and ‘experienced’ professionals. The definition of ‘qualified’ is often closely related to the manager's educational background and work experience: they usually graduate from only a few of the world’s top universities (such as Harvard, Oxford, Peking University, etc.) and enter large investment banks (like JPMorgan, Goldman Sachs), asset management companies (like BlackRock, Fidelity), or tech giants (like Microsoft, Google, Facebook, Tencent) early in their careers. Without such a background, the gatekeepers of TradFi career thresholds will consider you incapable of managing other people's money.
This screening mechanism has led to a highly homogeneous group: they look similar, speak similarly, dress similarly, and even live in the same global elite circles.
For capital allocators, the biggest dilemma lies in career risk. If they choose a fund with a non-traditional background, and that fund fails, they may lose their job; but if they choose a fund that meets traditional standards, even if the fund fails, they can attribute it to ‘bad luck’ and retain their position. Therefore, to reduce career risk, they tend to choose those funds that conform to traditional standards rather than risk trying new possibilities.
This logic carries over to the selection of entrepreneurial projects. Venture capital institutions are more inclined to support projects whose founders fit the stereotype of a ‘successful founder’. Business-oriented founders need to have work experience in large consulting firms or investment banks and graduate from top universities globally; technical founders need to have experience in successful tech companies and hold advanced degrees from prestigious universities. Geographical location also becomes a factor: venture capital firms in Silicon Valley are more likely to invest in companies located in the California Bay Area, while Chinese venture capital firms focus more on projects in Beijing or Shenzhen.
Ultimately, this model has formed a highly homogeneous investment environment: everyone’s background, way of thinking, values, and even geographical location are highly similar. Because of this, this environment both restricts innovation and makes venture capital decisions more conservative.
After the bubble burst of the ICO boom, founders of crypto projects had to compromise to obtain venture capital (VC). To raise funds from VCs primarily located in San Francisco, New York, London, and Beijing, they had to cater to the preferences of VCs.
The value of tokens in the eyes of VCs = the educational background, work experience, family background, and geographical location of the founders.
For venture capital, the importance of the team far outweighs the product. If the founder fits a certain stereotype of a ‘successful founder’, funding will easily be secured. Because these founders are considered to inherently possess the ‘right’ qualifications, even if it takes them burning through hundreds of millions of dollars to find product-market fit, there will always be a few teams that succeed and give birth to the next Ethereum. As for those failed teams, the decisions of venture capital will not be questioned, because the founders they supported were already widely regarded as the most likely to succeed.
Clearly, when venture capital chooses its funding targets, expertise in the crypto field is not a key consideration. This selection criterion has led to a disconnect between VC-backed projects and retail investors. The goal of venture capital is to protect their positions, while the goal of retail investors is to achieve financial freedom by betting on tokens that can explode 10,000x. In the early days, such returns were possible. For instance, if you bought ETH at around $0.33 during the Ethereum presale, your investment has grown by 9,000 times at current prices. However, the current crypto capital operating model has nearly made such returns impossible.
Venture capital profits by trading worthless and highly illiquid SAFTs (Simple Agreements for Future Tokens) between funds, with each trade accompanied by an increase in valuation. When a troubled crypto project finally lists on a centralized exchange (CEX), its fully diluted valuation (FDV) often exceeds $1 billion. To achieve a 10,000x return, the FDV of this project must grow to an extremely large number—perhaps exceeding the total value of all fiat assets, and this is just the situation for one project.
If the VC token model is rejected by ordinary users, then what is the essence of ICO?
The intrinsic value of an ICO = the explosive power of content dissemination + technological potential
Meme: A project that can align itself with the current trends in the crypto space in terms of design and target positioning has meme value. If its meme content is attractive enough and can spread quickly, it can bring widespread attention to the project. The core goal of the project is to attract users at the lowest cost and monetize through these users. A project that is widely discussed often quickly draws users into its marketing funnel.
Technological potential: ICOs typically occur in the early stages of a project, such as Ethereum, which raised funds before development. This model relies on community trust in the team, meaning that as long as the community provides funding, the team can develop valuable technology. Potential technology assessment can begin from the following aspects:
Does the team have experience developing significant products in Web2 or Web3?
Is the proposed technical solution feasible?
Can this technology solve a problem of global significance, attracting millions or even billions of users?
Technical founders are capable of achieving the above goals, but they are not necessarily the ones favored by venture capital (VC). The crypto community does not place much value on family background, work history, or prestigious school degrees. While these conditions may be beneficial, they are meaningless if the team does not actually develop excellent code. The community is more willing to support Andre Cronje rather than some ‘elite’ who graduated from Stanford, worked at Google, and is a member of The Battery.
Although most ICOs (initial coin offerings), about 99.99%, will approach zero after a cycle, there are still a few teams that can develop technology that gains value by attracting users because their dissemination effect (memetic) is strong enough. Early investors in these ICOs may achieve returns of 1,000 times or even 10,000 times. That is precisely the goal they pursue. The speculation and volatility of ICOs are characteristics rather than defects. If retail investors want stable and conservative investments, they can choose to trade on global traditional finance (TradFi) stock exchanges. In most countries, IPOs (initial public offerings) require companies to be profitable, and management must make various statements to ensure financial transparency. However, for most retail investors, the issue with IPOs is that they cannot bring life-changing returns, as early venture capital investors have already drained most of the profits in the process.
If ICOs can fund technology projects with strong communication effects and potential global impact, how can we revitalize them again?
ICO roadmap
In its purest form, an ICO allows any team with an internet connection to showcase their project to the crypto community and raise funds. The team launches a website detailing who they are, what they plan to build, why they are qualified, and why the market needs their product or service. Investors can send cryptocurrency via on-chain addresses, and after a certain period, they will receive tokens. All the details of the ICO, such as the schedule, amount to be raised, token price, type of technology, team composition, and the geographical location of investors, are entirely decided by the team conducting the ICO, without the need for any intermediaries (like venture capital funds or centralized exchanges). This is precisely why centralized intermediaries dislike ICOs—because they are completely bypassed. However, the community strongly supports ICOs because they provide opportunities for people from different backgrounds, allowing those willing to take high risks to potentially achieve high returns.
ICOs are making a comeback because the crypto industry has completed a cycle. We once enjoyed the freedom of decentralization, but we paid the price for it. Subsequently, we experienced extreme control from venture capital and centralized exchanges, and we grew to dislike the overvalued garbage they imposed on us. Today, driven by monetary easing policies in the U.S., China, Japan, and the EU, the crypto market is welcoming a new bull market, accompanied by a frenzy of speculative trading in meme coins, as the community is once again ready to invest in high-risk ICO trading. It is time for those crypto speculators who have yet to get rich to invest broadly in the market, hoping to find the next Ethereum.
The next question is, what will be different this time?
Timeline
Thanks to frameworks like Pump.fun, it is now possible to launch a token in just a few minutes, while we have also gained more liquid decentralized exchanges (DEX). Teams can raise funds through ICOs and deliver tokens within days. This is different from the previous ICO cycle, where it could take months or even years from subscription to token delivery. Nowadays, investors can trade newly issued tokens immediately on platforms like Uniswap and Raydium.
Due to Maelstrom's investment in the Oyl wallet, we have had a preview of some potentially disruptive smart contract technologies being developed utilizing the Bitcoin blockchain. Alkanes is a new meta-protocol aimed at bringing smart contracts to Bitcoin through the UTXO model. I cannot claim to fully understand how it works. But I hope those who are more capable can check out their GitHub repository and decide for themselves whether they wish to develop based on it. I hope Alkanes can drive explosive growth in ICO issuance on Bitcoin.
Alkanes' wiki, code repository (repo), technical specifications.
Liquidity
Today, retail crypto enthusiasts show great interest in meme coins, hoping to trade these highly speculative assets on decentralized exchanges (DEXs). This demand allows unverified ICO projects to trade immediately after token delivery, enabling the market to freely price their value.
Although I have always been critical of Solana, I must admit that Pump.fun has positively impacted the industry. This protocol allows ordinary users to issue their own meme coins and start trading within minutes without any technical background. Continuing this trend of ‘democratizing finance and crypto trading’, Maelstrom has invested in a new platform that could become the preferred spot trading platform for meme coins, cryptocurrencies, and even newly issued ICOs.
Spot.dog is building a meme coin trading platform specifically designed for Web2 users. Its core advantage lies not in technology, but in its strong promotional capabilities. Currently, most meme coin trading platforms are designed for seasoned cryptocurrency users. For instance, Pump.fun requires users to have a certain understanding of using Solana wallets, token swaps, slippage settings, etc. Ordinary users who are accustomed to browsing Barstool Sports, following r/wsb, trading stocks on Robinhood, or even betting on their favorite teams through DraftKings are more likely to choose Spot.dog as their trading platform.
Spot.dog has already established partnerships with multiple heavyweight collaborators. For example, the ‘cryptocurrency purchase button’ on the social trading platform Stocktwits (which has 1.2 million unique visitors monthly) is powered by Spot.dog. Additionally, Iggy Azalea's $MOTHER Telegram trading bot has also chosen Spot.dog as its exclusive partner. I know you speculators must be eager to know when Spot.dog's token will go live? Don't worry; if you're interested, I will tell you how to participate in Spot.dog's governance token investment at the right time.
User interface and user experience
The crypto community is already familiar with using non-custodial browser wallets, such as Metamask and Phantom. Investors are accustomed to loading crypto assets into browser wallets, connecting to decentralized applications (dApps), and making asset purchases. This familiarity will significantly lower the technical barriers for ICOs to raise funds.
Blockchain speed
Looking back at 2017, a popular ICO project often led to an overload or even paralysis of the Ethereum network. Gas fees skyrocketed, making network usage expensive and unaffordable for many. By 2025, whether on Ethereum, Solana, Aptos, or other Layer-1 blockchains, the cost of using block space will become extremely low. Current transaction throughput has increased by several orders of magnitude compared to 2017. If a team can attract a large number of speculative supporters, their ability to raise funds will no longer be hindered by the slow speed and high costs of the blockchain.
Especially Aptos, due to its extremely low transaction costs, is expected to become the preferred blockchain for ICO projects.
Here are the average transaction fees for some blockchains (in USD):
Aptos: $0.0016 (source)
Solana: $0.05 (source)
Ethereum: $5.22 (source)
Reject bad investments
I have proposed solutions to the issues with centralized exchanges (CEX) through ICOs. Next, project founders need to make the right choices. But if they fail to grasp this, retail crypto investors also need to take action and ‘reject bad investments’ in practice.
‘Rejecting bad investments’ means:
Reject projects supported by venture capital that have excessively high fully diluted valuations (FDV) but very low actual circulation.
Reject tokens that first list on centralized exchanges (CEX) at inflated valuations.
Reject those who criticize so-called ‘irrational’ trading behaviors.
Looking back at 2017, there were many low-quality ICO projects. Among them, the most destructive was EOS. Block.one raised $4.1 billion in cryptocurrency through an ICO to develop EOS. However, after EOS went live, it almost vanished. In fact, this statement is not entirely accurate; surprisingly, even a failed project like EOS still maintains a market value of $1.2 billion. This indicates that even projects like EOS, which once marked the peak of the bubble, still hold values far above zero. As someone who loves financial markets, I must admit that the ICO structure and execution of EOS is a classic case. Project founders should seriously study how Block.one raised the most funds in history through an ICO or token sale.
I mention these to illustrate that from a risk-adjusted perspective, if you allocate your investment ratios reasonably, even those projects that ultimately fail may retain some value post-ICO. Early investment in ICOs is the only way to achieve a 10,000x return, but without significant risks, there are no significant rewards. To pursue a 10,000x investment return, you must accept the reality that most investments will approach zero post-ICO. However, this is still much better than the current venture capital token model. In the venture capital token model, achieving a 10,000x return is nearly impossible, but you might lose 75% a month after listing on a CEX. Retail investors have subconsciously recognized the poor risk-reward ratio of venture capital tokens, so they have turned to meme coins. It is time to create a frenzy of support for new crypto projects again by giving users the chance to gain immense wealth and let ICOs regain glory!
Original link
This article is authorized to be reproduced from Deep Tide TechFlow
Source
