Article source: Arthur Hayes
Cryptocurrency projects should return to their decentralized roots and embrace high risk and high reward.
Written by: Arthur Hayes
Compiled by: Ismay, BlockBeats
Editor’s note: In this article, Arthur Hayes analyzes the rise and fall of ICOs in the cryptocurrency industry with sharp insights, suggesting why ICOs could return to their peak. He points out that over-reliance on centralized exchanges and venture-capital-backed high-valuation projects has become a shackle for industry development, comparing the capital formation mechanisms of meme coins with ICOs, advocating that crypto projects should return to their decentralized roots and embrace high risk and high reward. Through interpretations of technical potential and viral spread, Arthur Hayes once again showcases his foresight regarding the future development of the industry.
Below is the original content:
Nervousness and stress can sometimes infect both men and women, leading to irrational behavior. Unfortunately, many companies in the Maelstrom portfolio have contracted the 'disease transmitted by centralized exchanges (CEXually Transmitted Disease).' The affected founders believe they must completely obey the directives of certain well-known centralized exchanges; otherwise, the road to massive returns will be blocked. These centralized exchanges demand: boost this metric, hire this person, allocate this portion of tokens to me, launch your token on this date... etc. Forget it, just wait for us to notify you to launch. These 'patients' who are addicted to the desires of trading platforms have almost completely forgotten the users and the original intention of cryptocurrency. Come to my clinic; I can cure you. The prescription is ICO. Let me explain...
I have a three-point theory on why cryptocurrency has become one of the fastest-growing networks in human history:
Government Capture
Big corporations, big tech, big pharma, big military-industrial complex, and other 'big XX' use their wealth and power to control most major governments and economies. Since the end of World War II, although improvements in living standards and life expectancy have been rapid and consistent, for the 90% of the population who own very few financial assets and have almost no political voice, this improvement has slowed. Decentralization is the antidote to the highly concentrated wealth and power.
Amazing Technology
The Bitcoin blockchain and the numerous blockchains that subsequently emerged are revolutionary technologies. From an unremarkable beginning, Bitcoin has at least proven itself to be one of the most resilient monetary systems. For anyone capable of breaching the Bitcoin network, that nearly $2 trillion in Bitcoin could be double-spent, like a huge bounty for a vulnerability.
Greed
The growth of the fiat and energy value of blockchain-driven cryptocurrencies and their tokens has made users wealthy. The wealth of the cryptocurrency community was prominently displayed in the November elections in the United States. The United States (and most other countries) is a political system where 'money buys power.' The 'robbers' of cryptocurrency are one of the industries that donate the most to political candidates, helping pro-crypto candidates win victories. Cryptocurrency voters can be generous in political campaigns because Bitcoin is the fastest-growing asset in human history.
Memory loss of capital formation
Most cryptocurrency practitioners instinctively understand the reasons for success in this industry; however, there are occasional lapses in memory. This phenomenon is reflected in the changes in cryptocurrency capital formation. Sometimes, those seeking crypto capital cater to the greed of the community and achieve great success. At other times, cash-strapped founders forget why users flock to cryptocurrency. Yes, they may believe in a government of 'the people, by the people, for the people,' and they might create stunning technology, but if users cannot get rich from it, the promotion of any crypto-related product or service will be too slow.
Since the end of the ICO frenzy in 2017, capital formation has become less pure, gradually deviating from the path of igniting community greed. Instead, it has shifted to tokens with high fully diluted valuations (FDV), low circulating supply, or those supported by venture capital (VC). However, venture capital-backed tokens have performed poorly in this current 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 than mainstream assets (Bitcoin, Ethereum, or Solana). When ordinary investors finally purchase these projects on centralized exchanges (CEX), they are often deterred by the high prices. Consequently, internal market-making teams, airdrop recipients, and third-party market makers sell tokens into illiquid markets, leading to catastrophic performances.
Why has our entire industry forgotten the third pillar of the cryptocurrency value proposition... allowing ordinary investors to 'get rich'?
The antidote to meme coins
The market for new cryptocurrency issuances has turned into the traditional model it was supposed to replace—a system similar to the benefit chain of Initial Public Offerings (IPOs) in traditional finance. In this system, retail 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 other than to spread meme content virally across the internet. If this meme goes far enough, you will buy it, hoping that someone else will take over later. The capital formation of meme coins is egalitarian. The team directly releases the entire supply at issuance, and the initial fully diluted valuation (FDV) is usually only a few million dollars. By launching on decentralized exchanges (DEXs), speculators make extremely high-risk bets on which meme can enter the collective consciousness of the industry, thereby creating buying demand for the token.
From the perspective of ordinary speculators, the most appealing aspect of meme coins is that if you enter early, you may leap several levels on the wealth ladder. But every participant knows that the meme coins they purchase have no practical value and will not generate any cash flow, therefore their intrinsic value is zero. As a result, they completely accept the risk of possibly losing all their funds in pursuit of financial dreams. Most importantly, there are no thresholds or gatekeepers telling them whether they can purchase a particular meme coin, nor are there those shady capital pools waiting to dump newly unlocked supplies once the price rises high enough.
I want to create a simple taxonomy to understand the different types of tokens and why they are valuable. 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 meme.
If this is meme coin, then what is VC token?
The essence of VC tokens and the culture of traditional finance
Followers of traditional finance (TradFi) do not actually possess real skills. I feel this deeply as I recall my experiences in investment banking, where the skills required are minimal; to summarize, there are almost none. Many people want to enter traditional finance because you can earn a lot of money without mastering substantial knowledge. Just give me a young person who knows a bit of high school algebra and has a good work ethic, and I can train them to handle any front-office financial service job. However, this does not apply to professions like doctors, lawyers, plumbers, electricians, mechanical engineers, etc. Entering these professions requires time and skills, but 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 merely respond to societal incentives.
Because traditional finance is a low-skill but high-income industry, the barriers to entering this rare club often rely on other social factors. Your family background and the university or boarding school you attended are more important than your actual intelligence. In traditional finance, stereotypes related to race and social class are more influential than in other professions. Once you are admitted to this unique circle, you perpetuate these norms to give more value to the traits you have gained or not gained. For instance, if you worked hard and incurred significant debt to attend a top university, you are likely to hire people from the same university because you believe it's the best choice. If you don’t, you would be admitting that the time and effort you spent obtaining those qualifications were not worth it. In psychology, this is known as 'Effort Justification Bias.'
Let’s use this framework to understand how novice venture capitalists raise funds and allocate resources.
To raise enough capital to invest in a sufficient number of companies, hoping to find a winner (such as Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms require substantial capital. This capital mainly comes from endowment funds, pension funds, insurance companies, sovereign wealth funds, and family offices. These pools of capital are managed by traditional finance (TradFi) professionals, who must fulfill their fiduciary duties to their clients by investing only in 'suitable' venture capital funds. This means they mostly have to invest in funds managed by 'qualified' and 'experienced' professionals.
These subjective requirements have led to a phenomenon: these venture capital partners often graduate from a small number 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 firms (such as BlackRock, Fidelity), or large tech companies (such as Microsoft, Google, Facebook, Tencent, etc.). If you do not have such a background, the employment gatekeepers in traditional finance will consider you lacking the necessary experience and qualifications to manage other people's funds. As a result, this circle forms a highly homogeneous group—they look similar, speak similarly, dress similarly, and even live in the same global elite communities.
For managers who need to allocate funds to venture capital funds, the dilemma is: if they take the risk of investing in funds managed by non-traditional backgrounds and that fund fails, they might lose their job. But if they choose the safe route and allocate funds to funds managed by 'suitable and proper' individuals, even if the fund fails, they can blame bad luck and thus keep their position in the asset management industry. If you fail alone, you will be unemployed; but if you fail together with others, your job is usually not affected. Since the primary goal of traditional finance professionals is to hold on to 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 based on 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 resumes must include experience at large consulting firms or investment banks and are expected to have attended certain specific global elite universities. Technical founders, on the other hand, need to have experience working at highly successful large tech companies and hold advanced degrees from universities recognized for producing excellent engineers. Finally, due to human social traits, we tend to invest in people we are closely related to. Therefore, Silicon Valley venture capital only invests in companies located in the Bay Area of California, while Chinese venture capitalists prefer companies headquartered in Beijing or Shenzhen.
The result is the formation of a homogenized echo chamber environment. Everyone looks, speaks, thinks, believes, and lives similarly. Therefore, everyone either succeeds together or fails together. This environment is precisely the ideal state for traditional finance venture capitalists, as their goal is to minimize career risk.
After the bubble of ICO mania burst, when crypto project founders scurried around to raise venture capital, they were essentially making deals with 'the devil.' To secure funding from venture capital firms mainly located in San Francisco, New York, London, and Beijing, the founders of crypto projects had to make compromises.
Intrinsic value of venture capital tokens = the founder's school background, employment history, family background, geographical location
Venture capital allocators prioritize the team first, then the product. If the founders fit the stereotype, the funds will flow in. Because these founders inherently possess the 'right' background, a small portion of the team will find product-market fit after spending hundreds of millions of dollars, thus giving birth to the next Ethereum. Since most teams ultimately fail, the decision logic of venture capital allocators is not questioned because the founders they support are all the types recognized as likely to succeed.
Clearly, when choosing an investment team, expertise in cryptocurrency is only a distant cause that is considered afterward. This is where the disconnect between venture capital and the retail investors begins. The primary goal of novice venture capitalists is to keep their jobs, while ordinary retail investors hope to transform their fortunes by buying coins that soar thousands of times. Such returns were once possible. If you bought ETH at about $0.33 during the Ethereum presale, you would have achieved a 9,000-fold return at the current price. However, the current capital formation mechanisms in crypto make such returns nearly impossible.
Venture capital investors make money by flipping those crappy, illiquid SAFTs (Simple Agreements for Future Tokens) between funds, raising valuations with each flip. When these troubled crypto projects eventually land on centralized exchanges (CEXs) for their debut, their fully diluted valuations (FDV) often exceed $1 billion. To achieve a 10,000x return, the FDV needs to grow to an extremely exaggerated number—one that even surpasses the total value of all fiat assets... and this is just for one project. This is why retail investors are more willing to gamble on a meme coin with a market cap of $1 million rather than a project supported by the 'most respected' venture capital crowd with an FDV of $1 billion. The behavior of retail investors actually aligns with the logic of maximizing expected returns.
If retail investors have started to reject the venture capital token model, what makes ICOs essentially more attractive?
Intrinsic value of ICO = virality of the content + potential technology
Meme:
A project team that can launch a product that aligns with current cryptocurrency trends and has visual appeal, feel, and clear goals possesses 'meme value.' When this 'meme' is attractive and spreads, the project will garner attention. The goal of the project is to attract users at the lowest possible cost, then sell them products or services. A deeply resonant project can rapidly draw users to the top of its growth funnel.
Potential technology:
ICOs (Initial Coin Offerings) usually occur early in the project lifecycle. Ethereum raised funds before developing its product. In this model, community trust in the project team is implicit, with the belief that as long as they provide financial support, the team will create a valuable product. Potential technology can be evaluated in several ways:
Has the team ever developed meaningful products in the Web2 or Web3 space?
Is the technology the team plans to develop technically feasible?
Can this potential technology solve a globally significant problem that ultimately attracts millions or even billions of users?
Technical founders who meet the above conditions may not be the same type of people that venture capital firms would invest in. The cryptocurrency community does not place as much importance on family background, past work experience, or specific educational qualifications. While these factors may be nice to have, they are meaningless if they do not lead to the founding team delivering excellent code in the past. The community is more willing to support Andre Cronje than a former Google employee who graduated from Stanford and holds a Battery Club membership.
Although the vast majority of ICOs (99.99%) will nearly go to zero after a cycle, there are still a few teams that can develop user-attractive technology based on their 'meme effect.' Early investors in these ICOs have the opportunity to achieve 1,000-fold or even 10,000-fold returns. This is exactly the game they want to play. The speculative and volatile nature of ICOs is a feature, not a flaw. If retail investors want safe, boring investments, they can choose stock trading platforms in traditional finance worldwide. In most jurisdictions, IPOs (Initial Public Offerings) require companies to be profitable, and the management must make various statements to the public to ensure they do not commit fraud. However, for ordinary retail investors, the problem with IPOs is that they cannot provide life-changing returns because venture capital firms have already divided the interests in the early stages.
If ICOs can obviously provide funding for technologies with viral meme potential and potential global impact, how do we make them 'great again'?
ICO Roadmap
In its purest form, ICOs allow any team with an internet connection to showcase their project and gain funding from the crypto community. The team will launch a website detailing team members, the product or service they plan to build, why they have the relevant qualifications, and why the market needs their product or service. Subsequently, investors—well, or 'speculators'—can send cryptocurrency through an on-chain address and receive distributed tokens after a certain period. All aspects of an ICO, such as timing, fundraising amount, token price, development technology type, team composition, and the investor's location, are completely decided by the ICO team, not controlled by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries hate ICOs—they have no reason to exist. However, the community loves ICOs because they provide a diverse range of projects initiated by people from various backgrounds, giving those willing to take high risks the chance to achieve the highest returns.
ICOs are making a comeback because the entire industry has gone through a complete cycle. We enjoyed freedom, but we also burned our wings; then we felt the oppression of authoritarian control by VC and centralized exchanges (CEX) and detested the high-valuation garbage projects they forced upon us. Now, in the budding bull market driven by massive money printing in the US, China, Japan, and the EU, cryptocurrency market 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 'quasi-wealthy' crypto speculators to cast nets widely, hoping to capture the next Ethereum.
The next question is: what will be different this time?
Timing:
Today, with frameworks like Pump.fun, it only takes a few minutes to launch a token, and combined with more liquid decentralized exchanges (DEXs), teams can raise funds through ICOs and complete token delivery within days. This is in stark contrast to the previous ICO cycle, where it could take months or even years from subscription to token delivery. Now investors can 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 brand-new meta-protocol designed to bring smart contracts to Bitcoin through the UTXO model. I cannot fully understand how it works, but I hope that those who are smarter and more skilled than I am will check their GitHub repository to decide for themselves whether it is worth building on. I am very much looking forward to Alkanes driving explosive growth in ICO issuance within the Bitcoin ecosystem.
Liquidity:
Due to the obsession of retail crypto speculators with meme coins, they have a strong desire to trade highly speculative assets on decentralized exchanges (DEX). This means that after tokens are delivered to investors, unverified project ICO tokens can be traded immediately, enabling 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 the protocol allows non-technical users to issue their own meme coins and start trading within minutes. Continuing this trend of democratization in finance and crypto trading, Maelstrom has invested in a project aimed at becoming the preferred platform for spot trading of meme coins, all cryptocurrencies, and newly issued ICOs.
Spot.dog is building a meme coin trading platform to attract Web2 users. Their 'secret sauce' is 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 a certain understanding of Solana wallets, token swaps, slippage, and so on. In contrast, ordinary users who follow Barstool Sports, subscribe to r/wsb, trade stocks on Robinhood, and bet on their favorite teams through DraftKings will choose to trade on Spot.dog.
Spot.dog secured some outstanding partnerships from the very beginning. For example, the 'cryptocurrency purchase button' on the social trading platform Stocktwits (with 1.2 million monthly active users) is powered by Spot.dog. Additionally, Iggy Azalea's **$MOTHER Telegram trading bot** is also exclusively partnered with—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 Spot.dog's governance token, I will tell you the time!
UI/UX:
The crypto community is already very familiar with non-custodial browser wallets like Metamask and Phantom. Crypto investors are used to loading their crypto browser wallets, connecting them to dApps, and then purchasing assets. This habit will make fundraising through ICOs much easier.
Blockchain Speed:
In 2017, popular ICOs often led to the Ethereum network being paralyzed. Gas fees soared, and ordinary users could not use the network at reasonable costs. By 2025, the block space costs of Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. The current order processing capacity has improved by several orders of magnitude compared to 2017. If a team can attract a large number of enthusiastic 'degen' supporters, their fundraising ability will no longer be constrained by slow and costly blockchains.
Due to the extremely low cost of transactions on Aptos, it has the opportunity to become the preferred blockchain platform for ICOs.
Average transaction fee (USD):
Aptos: $0.0016
Solana: $0.05
Ethereum: $5.22
'The Necessity of Saying No'
I propose a solution to the 'disease' associated with centralized exchanges (CEX) - ICOs. However, now project parties 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:
Venture-capital-backed projects with high FDV (fully diluted valuation) and low circulation
Tokens launched at high valuations on centralized exchanges
Those advocating so-called 'irrational' trading behavior
There were indeed many obvious 'garbage projects' in the ICOs of 2017. Among them, the most destructive ICO was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after its launch, EOS almost disappeared. However, that is not entirely accurate; EOS's market cap is still as high as $1.2 billion. This indicates that even 'garbage projects' like EOS issued at the peak of the bubble still have far from zero value. As someone who loves financial markets, I must admit that the structure and execution of the EOS ICO was a form of 'art.' Project founders should study how Block.one raised the most funds in history through an ICO or token sale.
I mention this to illustrate the logic of risk-adjusted investments: if investment shares are allocated correctly, even projects that should go to zero after an ICO can still retain some value. Early investment in ICOs is the only way to achieve 10,000-fold returns, but without heaven, there is no hell. To pursue 10,000-fold returns, you must accept that most investments may approach zero value after the ICO. However, this is much better than the current venture capital token model. Nowadays, in venture capital tokens, achieving 10,000-fold returns is nearly impossible, but it's not uncommon to lose 75% a month after going live on CEX. Ordinary investors have subconsciously noticed the poor risk-return ratio of venture capital tokens and have turned to memecoins instead. Let's once again create fervent support for new projects through ICOs, giving investors the chance to acquire immense wealth, and bring ICOs back to their peak!
