Early investment in ICOs is the only way to achieve a 10,000-fold return; without great risk, there is no great reward.
Author: Arthur Hayes
Compiled by: Deep Tide TechFlow
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Any views expressed in this article are the author's personal opinions and should not be used as the basis for investment decisions or considered as investment advice.
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People sometimes act irrationally due to desire or blind spots. Unfortunately, many of Maelstrom's portfolio companies seem to have contracted a 'CEX transmission disease' (CEXually Transmitted Disease). Some affected founders mistakenly believe that by following certain instructions from well-known centralized exchanges (CEX), they can achieve so-called 'ultimate returns.' These instructions include: driving up certain metrics, hiring certain people, allocating a certain number of tokens, launching tokens on specified dates, or even temporarily changing the launch plan. These companies, driven by desire, have forgotten the needs of users and the original purpose of cryptocurrencies. If you are also troubled by this illness, please come to my clinic; I have the antidote - that is ICO. Let me explain it to you in detail.
I think the reason cryptocurrencies have become one of the fastest-growing networks in human history is mainly due to the following three reasons:
Government control - Giants in big business, big tech, big pharma, and big military control most major governments and economies through their vast wealth and power. While global living standards and life expectancy have significantly improved since World War II, this growth has stagnated or even regressed for the 90% of the population who own very few financial assets and have almost no political voice. The decentralized nature of cryptocurrencies is the antidote to combat such concentration of wealth and power.
Revolutionary technology - The Bitcoin blockchain and the various blockchain technologies that subsequently derived from it represent a revolutionary innovation. Starting from an initially unremarkable point, Bitcoin has proven to be one of the most stable and secure monetary systems globally. The Bitcoin network itself offers nearly $2 trillion in bounties for vulnerabilities (through double-spending attacks), yet no one has been able to breach the security of this system to date.
Wealth effect - The value growth of cryptocurrencies and their derivative tokens has made many users rich overnight. In the U.S. elections this November, the economic strength of cryptocurrency supporters was fully demonstrated. Like many countries, the U.S. political system 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 victory of candidates supporting cryptocurrency. Bitcoin, as the fastest-growing asset in human history, enables the cryptocurrency community to exert significant influence in political activities.
Although most people in the cryptocurrency community understand why this movement has been successful, there are occasional bouts of 'amnesia.' This amnesia is reflected in the changing ways of raising capital. Sometimes, project teams achieve great success by catering to the community's desire for wealth; at other times, cash-strapped founders forget why users chose cryptocurrency in the first place. Yes, they may believe in the philosophy of 'for the people, by the people'; yes, they may create astonishing technology. But if users can't profit from it, the promotion of any cryptocurrency product or service will slow down.
Since the ICO boom retreated in 2017, the methods of raising capital have gradually deviated from their original intent. In the past, capital formation relied on stimulating community participation enthusiasm and the desire for wealth, but now it has been replaced by tokens with high fully diluted valuations (FDV), low circulating supply, and VC support. However, these VC-supported tokens have performed poorly in this bull market (2023 to date). 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, airdrop token recipients, and third-party market makers dump these tokens into liquidity-starved 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 Memecoins
The current cryptocurrency issuance market has become similar to the traditional finance (TradFi) IPO system. Retail investors often become the 'bag holders' of VC tokens. However, in the cryptocurrency field, there are always alternatives - Memecoins. Memecoins are tokens with no real utility, and their only function is to spread Meme content over the internet. If the Meme is compelling enough, users will buy it, hoping that others will follow and purchase.
The capital formation of Memecoins is more equal. Teams typically release the entire token supply at issuance, and the initial FDV is usually only a few million dollars. They often start trading on decentralized exchanges (DEXs), and speculators bet on which Meme will spark attention in the industry and drive up token demand.
For ordinary speculators, the most attractive aspect of Memecoins is that if they can participate early, they may leap one or two percentiles up the wealth ladder. Nevertheless, every participant is aware that Memecoins inherently have no intrinsic value and do not generate any cash flow, so they completely accept the risk of potentially losing all their funds just to chase the dream of wealth. More importantly, there are no institutions preventing 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 hope to establish a simple classification framework. First, let's start with Memecoins:
Intrinsic value of Memecoin = Influence 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 real professional skills. I have experienced this firsthand, as I found that the skills required for my work in investment banking are actually very limited. Many choose to enter TradFi because it offers generous compensation without needing to master much substantive knowledge. As long as a young person has basic high school algebra knowledge and a good work attitude, I can train them to handle any front-office financial service job. However, professions like doctors, lawyers, or engineers require time and technical accumulation, even though the average income in these professions is far lower than that of finance professionals.
The high salary appeal of TradFi makes the entry barrier to this industry more reliant on social background rather than personal ability. For example, your family background, the reputation of your university or boarding school often matters more than your intellectual level. Such a system makes the TradFi industry a closed elite club, further reinforcing existing social classes 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. These funds mainly come from endowment funds, pensions, insurance companies, sovereign wealth funds, and family offices, and these pools are often managed by traditional finance (TradFi) individuals. As fund managers, they must fulfill their fiduciary duty to clients and can only invest in what are deemed 'suitable' venture capital funds. This 'suitability' standard often means that these funds must be managed by 'qualified' and 'experienced' professionals. And this 'qualified' definition is often closely related to the manager's educational background and career experience: they typically graduate from one of the few top universities in the world (like Harvard, Oxford, Peking University, etc.) and have early career experiences in major investment banks (like JPMorgan, Goldman Sachs), asset management firms (like BlackRock, Fidelity), or tech giants (like Microsoft, Google, Facebook, Tencent, etc.). Without such a background, the gatekeepers of TradFi may believe you lack the capability to manage others' funds.
This screening mechanism has led to a highly homogeneous group: they look alike, talk alike, dress alike, and even live in the same global elite circles.
For fund allocators, the greatest dilemma lies in career risk. If they choose a fund with a non-traditional background and the fund fails, they might 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 keep their position. Therefore, to minimize career risk, they tend to select funds that meet traditional standards rather than risk attempting new possibilities.
This logic extends to the selection of startup projects. Venture capital firms are more inclined to support projects where the founders' backgrounds fit the stereotype of 'successful founders.' Business founders need to have 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. Geographic location also becomes a consideration: Silicon Valley's venture capital firms are more inclined to invest in companies located in the Bay Area of California, while Chinese venture capital firms are more focused 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 geographic locations are highly similar. Because of this, this environment both limits innovation and makes venture capital decision-making more conservative.
After the bubble of the ICO craze burst, founders of crypto projects had to make compromises to gain venture capital (VC). To raise funds from VCs primarily based in San Francisco, New York, London, and Beijing, they had to cater to VCs' preferences.
The token value in the eyes of VCs = The educational background, career experience, family background, and geographic location of the founders
For VCs, the importance of the team far outweighs the product. If founders fit a certain stereotype of 'successful founders,' the funds will flow easily. Because these founders are considered to inherently possess the 'right' qualifications, even if they find product-market fit only after burning through hundreds of millions, there will always be a few teams that succeed and give birth to the next Ethereum. And for those failed teams, the decisions of the VCs will not be questioned because the founders they supported are already widely regarded as the ones most likely to succeed.
Clearly, when VCs choose funding targets, expertise in the crypto field is not a key consideration. This selection standard leads to a disconnect between VC-supported projects and the eventual retail investors. The goal of VCs is to keep their positions, while the goal of retail investors is to achieve financial freedom by betting on tokens that can skyrocket 10,000 times. In the early days, such returns were possible. For example, if you bought ETH at about $0.33 during the Ethereum presale, your investment has grown by 9,000 times at the current price. However, the current capital operation model in crypto makes such returns nearly impossible.
VCs profit by flipping worthless and highly illiquid SAFTs (Simple Agreements for Future Tokens) between funds, with each flip accompanied by a valuation increase. When a troubled crypto project eventually lists on a centralized exchange (CEX), its fully diluted valuation (FDV) often exceeds $1 billion. To achieve a 10,000-fold return, the FDV of the project must grow to an extremely large number - even exceeding the total value of all fiat assets, and this is just for one project.
If the VC coin model is rejected by ordinary users, then what is the essence of ICO?
Intrinsic value of ICO = Explosiveness of content dissemination + Technical potential
Meme - A project has Meme value if it aligns with current trends in the cryptocurrency field in terms of appearance and target positioning. If its Meme content is compelling enough and can spread rapidly, it can bring widespread attention to the project. The core goal of the project is to attract users at the lowest cost and monetize products or services through these users. A project that is widely discussed often quickly attracts users into its marketing funnel.
Technical potential - ICOs often take place in the early stages of a project, such as Ethereum, which raised funds before development. This model relies on the community's trust in the team, that as long as the community provides funding, the team can develop valuable technology. Assessment of potential technology can start from several aspects:
Does the team have experience in developing significant products in Web2 or Web3?
Is the proposed technical solution feasible?
Can this technology solve a globally significant problem, thereby attracting millions or even billions of users?
Technical founders can achieve 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 degrees. While these conditions may be icing on the cake, they are meaningless if the team has not developed excellent code. The community is more willing to support Andre Cronje than some 'elite' who graduated from Stanford, worked at Google, and is a member of The Battery.
While most ICOs (initial coin offerings), about 99.99%, will approach zero after a cycle, there are still a few teams that can develop technology and gain value by attracting users because their dissemination effect (Memetic) is strong enough. Those who invest early in these ICOs may receive returns of 1,000 times or even 10,000 times. This is exactly what they are pursuing. The speculation and volatility of ICOs are characteristics, not 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 to make various statements to ensure financial transparency. However, for most retail investors, the problem with IPOs is that they cannot bring life-changing returns, as early venture investors have already drained most of the profits in the process.
If ICOs can provide funding for technology projects with strong dissemination effects and potential global impact, how can we revive them again?
ICO roadmap
In its purest form, ICO allows any team with an internet connection to showcase projects to the crypto community and raise funds. The team will launch 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 cryptocurrencies to an on-chain address, and after a certain period, they will receive tokens. All the details of the ICO, such as scheduling, fundraising amount, token price, type of technology, team composition, and geographic location of investors, are completely decided by the team conducting the ICO, without the need for any intermediaries (such as venture capital funds or centralized exchanges). This is precisely why centralized intermediaries hate ICOs - because they are completely bypassed. However, the community is very supportive of ICOs because they offer opportunities for people from different backgrounds, allowing those willing to take on high risks to have the chance to earn high returns.
ICOs are making a comeback because the crypto industry has completed a cycle. We once enjoyed the freedoms of the past, but at a cost. Then we experienced extreme control from venture capital and centralized exchanges and grew to loathe the high-valuation garbage they imposed on us. Now, with the monetary easing policies in the U.S., China, Japan, and the EU, the crypto market is ushering in a new bull market, accompanied by a frenzy for speculative trading of Memecoins, and the community is once again ready to invest in high-risk ICO trading. It's time for those crypto speculators who have yet to become rich to invest widely in the market, hoping to find the next Ethereum.
The next question is, what will be different this time?
Scheduling
Thanks to tools like Pump.fun, it now takes just a few minutes to launch a token, while we have more liquid decentralized exchanges (DEXs). 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. Now, investors can immediately trade newly issued tokens on platforms like Uniswap and Raydium.
Thanks to Maelstrom's investment in the Oyl wallet, we are getting a first look at some potentially disruptive smart contract technologies being developed using the Bitcoin blockchain. Alkanes is a new meta-protocol designed to bring smart contracts to Bitcoin through the UTXO model. I cannot claim to fully understand how it works. But I hope those more capable can check out their GitHub repository and decide for themselves whether they want to develop based on it. I hope Alkanes can drive explosive growth in ICO issuance on Bitcoin.
Wiki, code repository (repo), technical specifications of Alkanes.
Liquidity
Today, retail crypto enthusiasts exhibit great interest in Memecoins, hoping to trade these highly speculative assets on decentralized exchanges (DEXs). This demand enables unverified ICO projects to be traded immediately after token delivery, thus allowing the market to freely price their value.
Although I have always been critical of Solana, I must admit that Pump.fun has had a positive impact on the industry. This protocol allows ordinary users to issue their own Memecoins and start trading them in minutes without a technical background. Continuing this trend of 'democratizing finance and crypto trading,' Maelstrom invested in a new platform that could become the go-to for spot trading of Memecoins, cryptocurrencies, and even newly issued ICOs.
Spot.dog is building a Meme coin trading platform 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 some 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 partnered with several heavyweight partners. For example, the 'cryptocurrency purchase button' on the social trading platform Stocktwits (which has 1.2 million unique visitors per month) is powered by Spot.dog. Additionally, Iggy Azalea's $MOTHER Telegram trading bot has chosen Spot.dog as its sole partner. I know you speculators can't wait to find out when Spot.dog's token will be launched? 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 has long been familiar with using non-custodial browser wallets such as Metamask and Phantom. Investors are accustomed to loading cryptocurrencies 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 the Ethereum network being overloaded, even paralyzed. Gas fees soared, making network usage expensive, and many could not afford it. By 2025, however, whether on Ethereum, Solana, Aptos, or other Layer-1 blockchains, the cost of using block space will become extremely low. Current transaction throughput has improved by an order of magnitude compared to 2017. If a team can attract a large number of enthusiastic speculator supporters, their ability to raise funds will no longer be hindered by the slow speeds and high costs of the blockchain.
Especially Aptos, with its extremely low transaction costs, is expected to become the preferred blockchain for ICO projects.
Here are some average transaction fees for blockchains (in USD):
Aptos: $0.0016 (source)
Solana: $0.05 (source)
Ethereum: $5.22 (source)
Reject bad investments
I have proposed solutions to address the issues with centralized exchanges (CEX) through ICOs. Next, project founders need to make the right choices. But if they fail to grasp this point, retail crypto investors also need to take action and 'reject bad investments' in practice.
'Reject bad investments' means:
Reject projects supported by VCs that have overly high fully diluted valuations (FDV) but extremely low actual circulating supply.
Reject tokens that debut with high valuations on centralized exchanges (CEX).
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 for developing EOS. However, once EOS launched, it almost vanished. In fact, this statement is not entirely accurate; surprisingly, even a failed project like EOS still holds a market value of $1.2 billion. This indicates that even projects like EOS, which once marked the peak of the bubble, still hold value far above zero. As someone who loves financial markets, I must admit that the ICO structure and execution of Block.one are classic case studies. Project founders should seriously study how Block.one raised the most funds in history through ICOs or token sales.
I mention this to illustrate that from a risk-adjusted perspective, if you allocate your investment ratio reasonably, even projects that ultimately fail may retain some value post-ICO. Early investment in ICOs is the only way to achieve a 10,000-fold return, but without great risk, there are no great rewards. In pursuit of a 10,000-fold investment return, you must accept the reality that most investments will be close to worthless post-ICO. However, this is still much better than the current venture token model. In the venture token model, a 10,000-fold return is nearly impossible, but you could lose 75% a month after listing on a CEX. Retail investors have subconsciously recognized the poor risk-reward ratio of venture tokens, so they turn to Meme coins. It's time to create fervent support for new crypto projects again by giving users the chance to gain massive wealth and let ICOs regain their glory!