Original title: The Cure Original author: Arthur Hayes Original translation: Ismay, BlockBeats
Editor's note:
In this article, Arthur Hayes analyzes the rise and fall of ICOs in the cryptocurrency industry with a sharp perspective, offering insights into why ICOs can return to prominence. He notes that excessive reliance on centralized exchanges and venture capital-supported high-valuation projects has become a shackle to industry development and compares the capital formation mechanisms of meme coins and ICOs, advocating for crypto projects to return to the principles of decentralization and high-risk, high-reward.
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 “disease spread by centralized exchanges (CEXually Transmitted Disease).” The affected founders believe they must fully comply with the directives of certain prominent centralized exchanges, or else 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... or better yet, let's wait for us to notify you to launch. These “patients” obsessed with exchange desires have almost completely forgotten the original intent of users and cryptocurrencies. Come to my clinic, and I can cure you. This prescription is ICO. Let me explain...
I have a three-point theory regarding why cryptocurrency has become one of the fastest-growing networks in human history:
Government capture
Large enterprises, big tech, big pharma, the military-industrial complex, and other 'big X' use their wealth and power to control most major governments and economies. Since the end of World War II, although the improvement in living standards and life expectancy has been rapid and consistent, this improvement has slowed for 90% of the population who possess very few financial assets and have almost no political voice. Decentralization is the antidote to the extreme concentration of wealth and power.
Magical technology
The Bitcoin blockchain and many subsequent blockchains are epoch-making magical technologies. From a humble beginning, Bitcoin has proven itself to be one of the most resilient monetary systems. For anyone able to break the Bitcoin network, that nearly $2 trillion in Bitcoin could be double-spent, much like a huge bounty for a vulnerability.
Greed
The growth of fiat and energy value of blockchain-driven cryptocurrencies and their tokens has made users wealthy. The wealth of the cryptocurrency community was on full display during the U.S. elections in November. The U.S. (and most other countries) operates a political system of 'money for power.' Cryptocurrency 'bandits' are among the industries that donate the most to political candidates, helping pro-crypto candidates to victory. Cryptocurrency voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.
The memory loss of capital formation
Most cryptocurrency practitioners instinctively understand the reasons for success in this industry; however, there can occasionally be instances of memory loss. This phenomenon is reflected in the changes in cryptocurrency capital formation. Sometimes, those seeking crypto capital cater to the greed of the community and achieve great success. At other times, capital-starved founders forget why users flock to cryptocurrencies. Yes, they may believe in a government of 'the people, by the people, for the people,' and they may create stunning technologies, but if users cannot get rich from it, the promotion of any crypto-related products or services will be too slow.
Since the end of the ICO craze in 2017, capital formation has become less pure and gradually drifted away from the path of triggering community greed. Instead, it has given way to high fully diluted valuations (FDV), low circulating supplies, or tokens supported by venture capital (VC). However, venture capital-supported tokens have performed poorly in this bull market (2023 to present). In my article (PvP), I pointed out that the median performance of tokens issued in 2024 is about 50% lower compared to mainstream assets (Bitcoin, Ethereum, or Solana). Ordinary investors are often deterred by the high prices when they ultimately purchase these projects on centralized exchanges (CEX). Therefore, 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... making ordinary investors 'filthy rich'?
The antidote to meme coins
The newly issued cryptocurrency market has turned into the traditional model it was supposed to replace—a system resembling the IPO profit chain in traditional finance (TradFi). In this system, ordinary investors ultimately become the bag holders of tokens supported by venture capital (VC). However, in the crypto space, there are always alternatives. Meme coins are a type of token that has no practical use aside from spreading meme content virally over the internet. If the meme goes viral enough, you buy it, hoping someone will take over later. The capital formation of meme coins is egalitarian. The team releases the entire supply at launch, and the initial fully diluted valuation (FDV) is usually only a few million dollars. By launching on decentralized exchanges (DEX), speculators make highly risky bets on which meme can enter the collective consciousness of the industry, thereby bringing buying demand to the token.
From the perspective of ordinary speculators, the most attractive aspect of meme coins is that if you enter early, you may leap several levels on the wealth ladder. But every participant is well aware that the meme coins they purchase have no real value and will not generate any cash flow, so 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 thresholds or gatekeepers telling them whether they can buy a certain meme coin, nor are there those shadowy capital pools waiting to dump newly unlocked supplies when the price rises high enough.
I want to create a simple taxonomy to understand the different types of tokens and their value. Let's start with meme coins.
The intrinsic value of meme coins = the viral spread 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 coin, then what are VC tokens?
The nature of VC tokens and the culture of traditional finance
Followers of traditional finance (TradFi) do not actually possess real skills. I know this from experience because I recall my time working in investment banking, where the skills required were minimal—summed up, it was almost none. Many people want to enter traditional finance because you can earn a lot of money without mastering substantive knowledge. Just give me a young person who knows a bit of high school algebra and has a good work ethic, and I can train them to handle any front-office financial service job. However, this cannot be applied to the following professions, such as doctors, lawyers, plumbers, electricians, mechanical engineers, etc. Entering these 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 social incentives.
Because traditional finance is a low-skill but high-income industry, the barriers to entry into this rare club often depend on other social factors. Your family background and the university or boarding school you attended are more important than your actual intelligence. In traditional finance, stereotypes related to race and social class wield more influence than in other professions. Once you are included in this unique circle, you perpetuate these norms to value the attributes you have gained or not gained even more. For instance, if you worked tirelessly and incurred massive debt to get into a top university, you are likely to hire individuals from the same university because you believe it is the best choice. If you don't do this, you would be admitting that the time and effort you spent to obtain those qualifications weren't worth it. In psychology, this is referred to as the 'Effort Justification Bias.'
Let's use this framework to understand how novice venture capitalists raise capital and allocate resources.
To raise enough capital to invest in enough companies in hopes of finding a winner (like Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms require massive amounts of capital. This funding primarily comes from endowments, pension funds, insurance companies, sovereign wealth funds, and family offices. And these capital pools are managed by traditional finance (TradFi) professionals. These managers have a fiduciary duty to their clients and can only invest in 'appropriate' venture capital funds. This means they largely have to invest in venture capital funds managed by 'qualified' and 'experienced' professionals.
These subjective requirements have led to a phenomenon where these venture capital partners often graduate from a small handful of elite universities worldwide (such as Harvard, Oxford, Peking University, etc.), and their careers typically begin at large investment banks (such as JPMorgan, Goldman Sachs), asset management companies (such as BlackRock, Fidelity), or large tech firms (such as Microsoft, Google, Facebook, Tencent, etc.). If you lack such a background, the gatekeepers of traditional finance will consider you lacking in necessary experience and qualifications, unfit to manage other people's funds. As a result, this circle has formed a highly homogeneous group—they look similar, speak similarly, dress similarly, and even live in the same global elite communities.
For managers who need to allocate funds to venture capital funds, the dilemma is: if they take the risk of investing in a fund managed by non-traditional backgrounds and that fund fails, they may lose their jobs. But if they take the safe route and allocate funds to a fund managed by 'appropriate and proper' individuals, even if the fund fails, they can blame bad luck, thus keeping their positions in the asset management industry. If you fail alone, you will be unemployed; but if you fail together with everyone else, your job is usually not affected. Since the primary goal of traditional finance professionals is to keep their high-paying, low-skill jobs, they minimize career risk by choosing seemingly 'appropriate' background managers to ensure their own safety.
If the selection criteria for venture capital funds are whether the managing partners fit a certain accepted stereotype, then these managers will only invest in companies or projects whose founders fit the 'founder' stereotype. For business-oriented founders, their resume must include experience at large consulting firms or investment banks and it is expected that they have attended certain elite global universities. Meanwhile, technical founders need to have experience working at highly successful large tech companies and hold advanced degrees from universities recognized for cultivating excellent engineers. Lastly, due to the social nature of humans, we tend to invest in those who are closer to us. Thus, Silicon Valley VCs only invest in companies located in the Bay Area, while Chinese VCs prefer companies headquartered in Beijing or Shenzhen.
The result is the formation of a homogenous environment akin to an echo chamber. Everyone looks, speaks, thinks, believes, and lives similarly. As a result, everyone either succeeds together or fails together. This environment happens to be the ideal state for traditional finance venture capitalists, as their goal is to minimize career risk.
After the bubble of the ICO craze burst, when founders of crypto projects scurried around to raise venture capital funds, they were essentially making deals with the 'devil.' To obtain funding from venture capital firms predominantly located in San Francisco, New York, London, and Beijing, the founders of crypto projects had to make changes.
The intrinsic value of venture capital tokens = the founder's educational background, employment history, family background, and geographic location
Venture capital allocators first prioritize the team, and then the product. If the founder fits the stereotype, funding will flow in continuously. Because these founders inherently possess the 'right' background, a small portion of teams will find product-market fit after spending hundreds of millions, thus birthing the next Ethereum. Since most teams ultimately fail, the decision-making logic of venture capital allocators goes unquestioned, as the founders they support are all recognized as likely to succeed.
It is evident that when choosing an investment team, expertise in cryptocurrency is only a distant consideration. This is where the disconnect between venture capital and ultimately retail investors begins. The primary goal of novice venture capitalists is to keep their jobs, while ordinary retail investors hope to rise from poverty by buying coins that skyrocket a thousandfold. Thousand-fold returns used to be possible. If you bought ETH at about $0.33 during the Ethereum pre-sale, you have realized a 9000-fold return at the current price. However, the current capital formation mechanism in crypto has made such returns nearly impossible.
Venture capital investors make money by flipping those crappy, illiquid SAFTs (Simple Agreements for Future Tokens) among funds, raising valuations with each flip. When these troubled crypto projects finally land on centralized exchanges (CEX) for their initial listing, their fully diluted valuation (FDV) often exceeds $1 billion. To achieve a thousand-fold return, the FDV needs to grow to an extremely exaggerated number—one that even exceeds the total value of all fiat-denominated assets... and this is just one project being discussed. This is why retail investors prefer to gamble on a meme coin with a market cap of $1 million rather than a project supported by the 'most respected' venture capital groups with an FDV of up to $1 billion. The behavior of retail investors actually aligns with the logic of maximizing expected returns.
If retail investors have begun to reject the venture capital token model, what makes ICOs inherently more appealing?
The intrinsic value of ICOs = the virality of the content spread + potential technology
Meme:
If a project team can launch a product that fits the current cryptocurrency trend, with visual appeal, feel, and a clear goal, it possesses 'meme value.' When this 'meme' is attractive and spreads, the project will gain attention. The goal of the project is to attract users at the lowest possible cost and then sell them products or services. A deeply resonant project can quickly draw users to the top of its growth funnel.
Potential technology:
Typically, ICOs occur early in the project lifecycle. Ethereum raised funds before developing its product. In this model, the community's trust in the project team is implicit, believing that giving them financial support will lead to the creation of valuable products. Therefore, potential technologies can be assessed in the following ways:
1. Has the team developed meaningful products in the Web2 or Web3 space?
2. Is the technology the team plans to develop technically feasible?
3. Can this potential technology solve a globally significant problem, ultimately attracting millions or even billions of users?
Technical founders who can meet the above criteria may not necessarily be the same type of people that venture capital firms would invest in. The cryptocurrency community does not place much importance on family background, past work experience, or specific educational qualifications. While these conditions may be nice to have, if they haven't led the founding team to previously deliver excellent code, they are meaningless. The community is more willing to support Andre Cronje rather than some former Google employee who graduated from Stanford and holds a Battery Club membership.
Although most ICOs (99.99%) will almost return to zero after one cycle, a few teams can develop user-attractive technologies based on their 'meme effect.' Early investors in these ICOs have the chance to achieve 1000-fold or even 10,000-fold returns. This is precisely the game they want to play. The speculation and volatility of ICOs are characteristics, not defects. If retail investors want safe, boring investments, they can opt for the stock trading platforms of global traditional finance. In most jurisdictions, IPOs (Initial Public Offerings) require companies to be profitable, and management must make various statements to the public to ensure they do not commit fraud. However, for ordinary retail investors, the issue with IPOs is that they cannot deliver life-changing returns, as venture capital firms have already divided the profits early on.
If ICOs can obviously fund technologies with viral meme potential and potential global impact, how can we make them 'great again'?
ICO roadmaps
In its purest form, an ICO allows any team with an internet connection to showcase their project to the crypto community and obtain funding. The team will launch 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. Subsequently, investors—well, or 'speculators'—can send cryptocurrency via a blockchain address and receive the distributed tokens after a certain period. All aspects of an ICO, such as timing, fundraising amount, token price, development technology type, team composition, and investor location, are entirely decided by the ICO team rather than controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries hate ICOs—they have no reason to exist. However, the community loves ICOs because they provide a diverse array of projects initiated by people from various backgrounds, giving those willing to take high risks a chance to achieve the highest returns.
ICOs are making a comeback because the entire industry has gone through a full cycle. We enjoyed freedom but burned our wings in the process; then we felt the oppression of the authoritarian control exerted by VCs and centralized exchanges (CEX), loathing the overvalued junk projects they forced upon us. Now, in the embryonic bull market fueled by massive money printing from the U.S., China, Japan, and the EU, cryptocurrency speculators are indulging in the speculative trading of useless meme coins, and the community is once again ready to fully engage in high-risk ICO trading. Now is the time for 'almost wealthy' crypto speculators to cast their nets wide, hoping to catch the next Ethereum.
The next question is: what will be different this time?
Timetable:
Nowadays, with frameworks like Pump.fun, token launches can be completed in just a few minutes, coupled with higher liquidity decentralized exchanges (DEX), allowing teams to raise funds through ICOs and deliver tokens within days. This is a stark contrast to the previous ICO cycle, when it could take months or even years from subscription to token delivery. Now, investors can immediately trade newly issued tokens on platforms like Uniswap or Raydium.
Thanks to Maelstrom's investment in the Oyl wallet, we have had the privilege of previewing some potentially game-changing smart contract technologies built on the Bitcoin blockchain. Alkanes is a new meta-protocol designed to bring smart contracts to Bitcoin through the UTXO model. I cannot fully understand how it works, but I hope those smarter and more skilled than me will check out their GitHub repository and decide for themselves if it's worth building upon. I am 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 highly speculative assets on decentralized exchanges (DEX). This means that after the tokens from unverified projects are delivered to investors, ICO tokens can immediately be traded, allowing for true price discovery.
Although I am not fond of Solana, I must admit that Pump.fun has indeed had a positive impact on the industry, as it allows non-technical users to issue their own meme coins and start trading within minutes. Continuing this trend of democratizing finance and crypto trading, Maelstrom has invested in a project aiming to become the preferred platform for trading meme coins, all cryptocurrencies, and newly issued ICOs.
Spot.dog is building a meme coin trading platform to attract Web2 users. Their 'secret sauce' lies not in technology but in distribution channels. Most current meme coin trading platforms are designed for crypto traders. For example, Pump.fun requires users to have knowledge of certain Solana wallets, token exchanges, slippage, etc. However, 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 has secured some outstanding partnerships right from the start. For example, the 'cryptocurrency buy button' on the social trading platform Stocktwits (which has 1.2 million monthly active users) is powered by Spot.dog. Additionally, Iggy Azalea's **$MOTHER Telegram trading bot**'s only partner is—yes, Spot.dog.
I bet you speculators are eager to know when your tokens will launch, right? Don't worry, when the time is right, if you're interested in going all-in on the governance token of Spot.dog, I will tell you the time!
UI/UX:
The crypto community has become very familiar with non-custodial browser wallets like Metamask and Phantom. Crypto investors are accustomed to loading their crypto browser wallets, connecting them to dApps, and buying assets. This usage habit will make fundraising through ICOs easier.
Blockchain speed:
In 2017, popular ICOs often led to the Ethereum network crashing. Gas fees skyrocketed, and ordinary users could not access the network at reasonable costs. By 2025, the block space costs of Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. Current order processing capabilities have improved by several orders of magnitude compared to 2017. If a team can attract a large number of enthusiastic speculative 'degens' supporters, their fundraising ability will no longer be limited by slow and expensive blockchains.
Due to the extremely low transaction costs on Aptos, it has the potential 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 ailments'—the ICO. However, now project teams need to make the right choices. But to prevent them from missing this point, ordinary crypto investors need to firmly 'say no.'
Say no to the following situations:
• VC-supported projects with high FDV (fully diluted valuation) and low circulation
• Tokens with overvalued listings on centralized exchanges
• Advocates of so-called 'irrational' trading behavior
There were indeed many obvious 'garbage projects' in the 2017 ICOs. Among them, the most destructive ICO was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but once EOS launched, it almost disappeared. In fact, this is not entirely accurate; EOS's market cap still stands at a staggering $1.2 billion. This indicates that even a 'garbage project' like EOS, issued at the peak of the bubble, still has yet to zero out its value. As someone who loves the financial market, I must admit that the structural design and execution of the EOS ICO was a work of 'art.' Project founders should study how Block.one raised the most funds ever through an ICO or token sale.
I mention this to illustrate the risk-adjusted investment logic: if the investment share is allocated correctly, even projects that should 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 no heaven comes without hell. To pursue a 10,000-fold return, one must accept that most investments may be worth close to zero after the ICO. However, this is far better than the current venture capital token model. Nowadays, in venture capital tokens, 10,000-fold returns are nearly impossible, but losing 75% a month after a CEX listing is common. Ordinary investors have subconsciously sensed the terrible risk-reward ratio of venture capital tokens, so they have turned to memecoins. Let's create fervent support for new projects through ICOs again, giving investors the possibility of massive wealth, and bring ICOs back to their peak!
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