Original Title: The Cure

Author: Arthur Hayes, BitMEX CEO; Compiled by: 0xjs@Jinse Finance

Grasping and stickiness can sometimes infect both men and women and produce irrational behavior. Unfortunately, many Maelstrom portfolio companies have contracted the CEX-spread disease. These founders believe they must heed everything said by some famous CEXs; otherwise, their path to explosive returns will be blocked. CEXs say: improve this metric, hire this person, give me this token allocation, list your token on this date... etc., it does not matter... we will tell you when to list. These struggling degenerates have almost forgotten their users and the reasons for cryptocurrency's existence. Come to my clinic; I can cure you. The antidote is ICOs. Let me explain...

I have my own three-part theory on why cryptocurrencies are one of the fastest-growing networks in human history.

Government control—big corporations, big tech, big pharma, big military, and big [fill in the blank] use their wealth and power to control most large governments and economic groups. While living standards and lifespans have grown rapidly and steadily since World War II, the 90% of the population has minimal financial assets and virtually no political power, and their rate of growth has slowed. Decentralization is the antidote to the dystopia of wealth and power centralization.

Magical Technology—the Bitcoin blockchain and the vast number of blockchains that followed are magical new technologies. Starting innocuously, Bitcoin has proven to be one of the most resilient monetary systems. Bitcoin provides a bug bounty of nearly $2 trillion, and anyone capable of hacking the network can double spend it.

Greed—the rise in the fiat and energy value of cryptocurrencies powering blockchains or tokens created through these blockchains makes users wealthy. This was showcased during the U.S. elections in November. Like most other nation-states, the U.S. has a pay-to-play political system. Cryptocurrency tycoons are among the largest donors to political candidates across all industries, resulting in the election of candidates supportive of cryptocurrencies. Crypto voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.

Most cryptocurrency people inherently understand why this movement has been successful; however, there is occasionally a bit of forgetfulness. This is reflected in how crypto capital formation has changed over time. At certain times, those seeking crypto capital catered to the greed of the community and achieved enormous success. At other times, cash-strapped founders forget why users flock to crypto. Yes, they may believe in a government composed of people and serving people; yes, they may create super cool technologies, but without users becoming wealthy, the adoption of any crypto-centered product or service will progress too slowly.

Since the ICO frenzy stopped in 2017, capital formation has become less pure and deviated from the purpose of igniting community greed. Instead, we have high fully diluted values (FDV), low circulating supplies, or VC-backed tokens. So far, VC tokens have performed poorly in this bull market cycle (2023 to date). In my article 'PvP,' I pointed out that on average, old coins in 2024 are underperforming major tokens (Bitcoin, Ether, and/or Sol) by about 50%. Retail investors can ultimately buy these projects through major centralized exchanges (CEX), but they are unwilling to pay such high prices. Thus, the internal market-making teams of exchanges, airdrop recipients, and third-party market makers are dumping tokens into poorly liquid markets, resulting in lackluster performance. Why have we, as an industry, forgotten the third pillar of the crypto value proposition...to make retail wealthy?

The antidote to memecoins

The new issuance market for cryptocurrencies has transformed into what it was supposed to replace. The system resembles TradFi's initial public offering (IPO) scam. Retail investors are the ultimate bag holders of VC tokens, but there are always alternatives in the cryptocurrency space. Meme coins are tokens that have no other use besides the ability to virally spread meme content on the internet. If a meme takes off, you buy it in the hope that others after you will follow suit. The capital formation of meme coins is egalitarian. The team releases the full supply upon launch, with an opening FDV in the millions. Starting with decentralized exchanges (DEX), speculators make extremely risky bets on which meme will enter the collective consciousness of the industry and thereby create buying pressure for the tokens.

From the perspective of the ordinary gambler, the best part about memecoins is that if you get in early, you can move up one or two deciles on the wealth ladder. But every participant realizes that the memecoins they buy have no productivity and will never generate any cash flow, so they are essentially worthless. Therefore, they are perfectly fine with losing all their money in pursuit of their financial dreams. Most importantly, there are no gatekeepers telling them what memecoin they can or cannot buy, and their secret pools of funds are not waiting to sell their recently unlocked supply when prices rise high enough.

I want to create a simple taxonomy to understand different types of tokens and their value. Let’s start with memecoins.

Intrinsic value of Memecoins = Memetic content going viral

Intuitively, this is easy to understand. You just need to be socially active in any community, whether online or offline, to understand the meme.

If memecoins are like this, then what are VC coins?

TradFi followers lack real skills. When I reflect on the skills required for my previous job at an investment bank, I know this to be true. In short, not much skill is needed. The reason so many people want to work in TradFi is that you can make a lot of money without needing to understand anything substantial. Give me an ambitious young person, as long as they have a grasp of high school algebra and a good work ethic, I can train them to do any front office financial service job. But this is not the case for careers like doctors, lawyers, plumbers, electricians, mechanical engineers, etc. Entering these professions requires time and skills, but on average, they earn less than assistant investment bankers, salespeople, or traders. The amount of intelligence wasted in financial services is frustrating, but I and others are just humans reacting to societal incentives.

Since TradFi is a low-skill but high-income profession, entry into this rare club is restricted based on other societal factors. Who your parents are and where you went to college or boarding school is more important than your intelligence. Adhering to stereotypes based on race and social class is more important in TradFi than in other professions. If you are allowed into this exclusive club, you will perpetuate these norms, bestowing value on the characteristics you earn and do not earn. For example, if you worked hard and accrued massive debt just to get into a top-ranked university, you will recruit others from that university because you believe it is the best. If you do not, then you are admitting to yourself that all the time and effort you spent obtaining that credential was not worth it. This is known in human psychology as the effort justification bias.

Let’s apply this framework to understand how VC puppets raise and allocate funds.

To accumulate enough capital to invest in enough companies to find winners (e.g., Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms need a significant amount of capital. This capital comes from endowments, pension funds, insurance companies, sovereign wealth funds, and family offices. All of these pools of funds are managed by people from TradFi. Managers must fulfill their fiduciary duties to clients by only investing in 'suitable' venture capital funds. This means that, overall, they must invest in venture capital firms managed by 'qualified' and 'experienced' professionals. These subjective requirements mean that the heads are all graduates of a small subset of global elite universities (Harvard, Oxford, Peking University, etc.) and started their careers at large top investment banks (JPMorgan, Goldman Sachs), asset management firms (BlackRock, Fidelity), or large tech companies (Microsoft, Google, Facebook, Tencent, etc.). TradFi employment gatekeepers say that if you do not have such a background, you do not have the necessary experience and background to invest wisely on behalf of others. They are a group of homogeneous individuals who look the same, speak the same, dress the same, and live in the same global elite enclaves.

The dilemma faced by VC fund allocators is that if they make risky investments in funds managed by people with non-standard backgrounds and that fund goes bankrupt, they might lose their jobs. However, if they play it safe and invest in funds managed by 'suitable' individuals, and that fund goes bankrupt, they can blame it on bad luck and continue their asset management business. If you fail alone, you lose your job. If you fail with others, you can keep your job. Because the main goal of TradFi fools is to keep their high-paying, low-skill jobs, they will minimize career risk by playing it safe and allocating funds managed by people with 'appropriate' backgrounds.

If the criteria for selecting venture capital funds are based on whether the managing partner conforms to accepted stereotypes, then the same manager will only invest in companies or projects where the founders conform to the 'founder' stereotype. The resumes of business-focused founders must include experience at large consulting firms or investment banks, and they are expected to attend one of the specific global elite universities. Technical founders must have experience working at very successful large tech companies and hold advanced degrees from well-known universities that produce excellent engineers. Finally, because we are social beings, we prefer to invest in people near us. Silicon Valley VC firms only invest in companies located in the Bay Area of California. Chinese VC firms prefer their portfolio companies to be headquartered in Beijing or Shenzhen.

The end result is a homogeneous echo chamber. Everyone's appearance, speech, feelings, beliefs, and lives are the same. As a result, everyone will succeed or fail together. For TradFi VC puppets, whose goal is to minimize career risk, this is a perfect environment.

When the ICO bubble burst, crypto project founders made deals with the devil to secure venture capital for their nearly worthless projects. To raise funds from venture capital firms primarily based in San Francisco, New York, London, and Beijing, crypto project founders had to make compromises.

Intrinsic value of VC coins = Founder's university, work experience, family, location

VC allocators first believe in the team, then the product. If the founders fit this stereotype, capital will flow freely. Because they inherently possess the 'right' stuff, a small subset of teams will find product-market fit after investing hundreds of millions, leading to the emergence of the next Ethereum. Since most teams fail, the decision matrix of VC allocators is unquestionable, as they only support the types of founders everyone believes are likely to succeed.

It is clear that cryptocurrency acumen is far from sufficient when it comes to selecting which teams to fund. This is where the divergence begins between VCs providing funding for projects and the ultimate retail investors. The fools in VC want to keep their jobs. Retail investors want to stop being worthless civilians by purchasing a token that can appreciate 10,000 times. A 10,000x return was possible in the past. If you bought Ether during the presale at around $0.33, your return would be 9,000x at current prices. However, the current crypto capital formation process makes generating these types of returns nearly impossible.

Venture capitalists make money by passing around the illiquid SAFT (Simple Agreement for Future Tokens) hot potato from one fund to another and raising valuations at each pivot. When a crypto project's mess enters a CEX for its first listing, its FDV is often above $1 billion. To generate a 10,000x return, the FDV must grow to a very large number. This number must be larger than the total value of all fiat assets...and we are only talking about one project. This is why retail investors prefer to take risks on a memecoin valued at $1 million rather than a $1 billion FDV project backed by the most 'respected' venture capital crowd. Retail behavior aligns with the way to maximize expected returns.

If the VC token model is rejected by retail investors, what is the essence of ICOs?

Intrinsic value of ICOs = Meme content going viral + Potential technology

Meme:

If the project's appearance, feel, and established goals resonate with the current spirit of the crypto age, then the project possesses meme value. If a meme becomes popular and spreads rapidly, then the project will gain attention. The goal of the project is to acquire users as cheaply as possible and then sell products or services to those users. The most prominent projects will funnel users into the top of their funnel.

Potential technology:

ICOs occur early in a project's lifecycle. Ethereum raised funds first, then built. There is an implicit trust that as long as the community funds them, the team building the project will create something valuable. Thus, there are several ways of evaluating potential technology:

1. Has the team built something substantial in Web2 or Web3?

2. Is what the team proposes to build technically feasible?

3. Does this potential technology have the capacity to solve globally significant problems and ultimately attract millions or even billions of users?

The technology founders who can achieve the above points are not necessarily the ones that VCs will invest in. The crypto community does not place much value on family connections, previous jobs, or specific educational backgrounds. These are nice, but if they do not lead to a founding team delivering good code previously, they are irrelevant. The community will support Andre Cronje over some former Google employee with Battery credentials who graduated from Stanford.

While most ICOs (i.e., 99.99%) trend toward zero after one cycle, a few teams can build technology to extract value from users who joined because of the meme. Early investors in these ICOs have the opportunity to achieve 1,000x or even 10,000x returns. That’s the game they want to play. The speculation and volatility of ICOs are a feature, not a bug. If retail investors want safer, boring investments sold by better people, they can trade on the global myriad of TradFi stock exchanges. In most jurisdictions, IPOs require companies to be profitable. Management must also make various statements to assure the public that they are not cooking the books. For most retail investors, the problem with IPOs is that they do not yield life-changing returns. Venture capitalists have already drained their interests in the process.

If ICOs so clearly fund projects with viral memes and technologies that could impact the world, how can we make them great again?

ICO Roadmap

The purest form of an ICO is that any team with an internet connection can pitch to the crypto community and secure funding. The team will launch a website detailing who they are, what they will develop, why they are qualified, and why the market needs their product or service. Then investors... well, speculators can send cryptocurrency to an on-chain address, and after a period of time, tokens will be issued to the investors. Each aspect of an ICO, including timing, amount raised, token price, type of technology to be developed, team composition, and location of investors, is determined not by any gatekeepers (venture capital funds or CEX) but solely by the team conducting the ICO. This is why ICOs are despised by centralized intermediaries... they are unnecessary. However, the community loves ICOs because they provide many projects proposed by people from diverse backgrounds, ultimately allowing those willing to take the maximum risk to achieve the highest returns.

ICOs are making a comeback as the industry has gone through a full cycle. We experienced freedom but lost our wings. Then, we felt the iron hooves of VC authoritarianism and CEX control, and abhorred the overvalued garbage they imposed upon us. With the quantitative easing from the U.S., China, Japan, and the EU behind us, a new bull market is emerging, a group of derelicts mesmerized by speculative trading in useless memecoins, and the community is ready to dive back into high-risk ICO trading again. Now is the time for cryptocurrency speculators to invest their funds in all directions, hoping to find the next Ethereum.

The next question is, what will be different this time?

Timing:

Now, with frameworks like Pump.fun, listing a token takes just a few minutes, and we have more liquidity DEXs where teams will raise funds through ICOs and deliver tokens within days. This is different from the previous ICO cycle, where there could be months or years between token subscriptions and deliveries. Now you 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 game-changing smart contract technologies being built on the Bitcoin blockchain. Alkanes is a new meta-protocol designed to bring smart contracts to Bitcoin using the UTXO model. I cannot claim to understand how it works. But I hope that those smarter and more skilled than I will take a look at their GitHub repository and decide for themselves if they want to build on this basis. I hope Alkanes can drive a surge in Bitcoin ICO issuance.

Alkanes wiki, repo, and specifications.

Liquidity:

As retail cryptocurrency enthusiasts fell in love with memecoins, they strongly desired to trade super speculative assets on DEXs. This means that after tokens are delivered to investors, there is enough liquidity to immediately trade unverified projects’ ICOs, thus enabling true price discovery.

Although I hate Solana, I must admit that pump.fun has brought net benefits to the industry as it allows non-technical norms to issue their own memecoins and start trading within minutes. Following this theme of financial and cryptocurrency trading democratization, Maelstrom has invested in what it believes will become the preferred venue for spot trading of memecoins, all cryptocurrencies, and eventually newly issued ICOs.

Spot.dog is building a memecoin trading platform to attract web2 norms. Their secret is not in technology but in distribution. Currently, memecoin trading platforms are designed for crypto traders. For example, Pump.fun requires considerable knowledge of Solana wallets, exchanges, slippage, etc. Bettors who follow Barstool Sports, subscribe to r/wsb, trade stocks on Robinhood, and use DraftKings to bet on their favorite teams will switch to trading on Spot.dog. Spot.dog has already signed some great partnerships from the start. The 'crypto purchase button' on the social trading platform Stocktwits, which has 1.2 million unique visitors per month, is powered by Spot.dog. The only partner of Iggy Azalea's $MOTHER Telegram trading bot is... you guessed it, Spot.dog. I bet you degenerates want to know what the token is? Don’t worry, if you want, I’ll tell you when YOLO will be included in Spot.dog's governance token.

User Interface/User Experience:

The crypto community is very familiar with using non-custodial browser wallets like Metamask and Phantom. Crypto investors can easily load their crypto browser wallets, connect them to dApps, and purchase assets. This will make it easier for ICOs to secure funding.

Blockchain Speed:

In 2017, it was not uncommon for the Ethereum network to become unusable due to popular ICOs. Gas fees skyrocketed, and no one could afford the network. By 2025, the cost of block space on Ethereum, Solana, Aptos, and other Layer 1s will be very cheap. The current order throughput is several orders of magnitude higher than in 2017. If a team can garner widespread support from enthusiastic speculators, then their ability to raise funds will not be hindered by slow and expensive blockchains.

Given the extremely low cost of each transaction using Aptos, they have the opportunity to become the preferred chain for ICO launches.

Average transaction cost (in USD):

● Aptos: $0.0016

● Solana: $0.05

● Ethereum: $5.22

Firmly Refuse

I introduce a method to treat CEXually transmitted diseases in the form of an ICO. Now, project founders must do the right thing. But just in case they haven’t received the message, retail crypto investors need to 'say no.'

A firm 'no' to the following:

- VC-backed high FDV, low circulation projects

- Overvalued token listings on centralized exchanges

- People who preach what they consider 'irresponsible' trading behavior.

The ICO of 2017 was clearly garbage. I believe the most value-destructive ICO was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS. Since the launch of EOS, there has been no news. In fact, that is not correct; surprisingly, EOS still holds a market cap of $1.2 billion. This indicates that even a total piece of garbage like EOS, whose ICO marked the peak of the bubble, still holds a value greater than zero. By the way, as someone who loves financial markets, I think the structure and execution of the EOS ICO was a wonderful thing. The founders took note and studied how Block.one raised the most funds through an ICO or token sale.

I say this to point out that on a risk-adjusted basis, if you adjust your bets correctly, even something that should go to zero will retain some value post-ICO. Early investment in an ICO is the only way to achieve 10,000x returns, but no hell without heaven. To achieve 10,000x, you must accept that most of your investments will approach zero post-ICO. But this is better than the current VC coin setup, where 10,000x is not only nearly impossible mathematically, but you may still lose 75% a month after the CEX launch.

Retail speculators unconsciously recognize the poor risk-reward profile of VC coins and avoid them in favor of memecoins.

Let’s create a frenzy of support among users for new crypto projects again, giving them the opportunity to gain massive wealth and making ICOs great again!