Crypto growth is now back to fundamentals, as the age of easy fundraising is over. Large VC funds still chose the best crypto projects, but with a more critical eye to quality and products. 

The crypto market may move on from cycles of irrational investment and focus on fundamentals. Recent analysis by Theia Research reveals investors may be disappointed, as the next months may not repeat the mania cycles of previous bull markets. 

The conditions of 2021 may not repeat, despite expectations for increased liquidity and a new mania cycle. The previous bull cycle and creation of new projects arrived as money was seeking to flow into new startups. During that time, most of the older ICO projects had either moved on or failed. The time was ideal for founders, who built the next batch of projects. 

Currently, meme tokens absorb the demand for speculative assets, while there is a reluctance to support untested tokens. Buyers may focus on projects that have a good team and track record, or offer a viable business model based on fees. 

Retail investors also have limited funds to assign, while being more skeptical of potential rug pulls. Even for legitimate projects, buyers are aware of potential token unlocks, as well as faked traffic and incentives. 

The slowdown of new token sales shifted the model toward airdrops. Instead of directly buying tokens, users had to interact with protocols. This often cost users a significant sum in gas and other fees, which were then retained by the project. Airdrops were thus an indirect way to raise some retail funds, while also tapping VCs. Airdrop farming was a way to show the presence of activity, a problem for many crypto projects that were left with no users. 

The ICO market is not entirely frozen

The days of large-scale L1 and L2 may be gone, and ICOs raising billions for a new blockchain are now rare. Despite this, ICO sales continue, though with more modest targets. The latest ICO and fundraising statistics show a prevalence of a rising number of small projects, instead of a few top tokens. 

DeFi, GameFi and other forms of finance are among the main focus of new ICO projects. But there are also meme-based ICOs, which try to grab the attention of meme token buyers. The two main platforms for token sales include Ethereum, a leader with 530 ICOs, and Solana, with 80 ICOs in the past 12 months.

The new wave of ICOs is also relatively smaller, and relies on launchpads. With scams and fake tokens, platforms are essential for reaching retail investors, who want at least a preliminary vetting of token sales. Direct ICOs are only 2.5% of the total, with the model shifting toward platform-based IDO, or exchange-based IEO with immediate decentralized listing. CoinList is the leader with $1.2B raised, followed by Fjord Foundry with $773M.

Launchpads ranked by funds raised chart. (Source: CryptoRank)

ICO sales use a model of a long-running presale, divided into stages over a few months. Seed or strategic rounds focus on specific products, instead of building an all-purpose fund. New ICO projects are also deprived of freely flowing ETH, as most of the tokens are locked for staking as a more secure way of returns. 

Dozens of tokens are still available for sale, among airdrops and direct exchange listings. The shift toward quality is also seen in the selections of VC funds. Returns on projects hinge on the number of unicorn companies created. Currently, Paradigm has the leading returns at more than 30.61 times the original investment, and has backed 18 projects listed on Binance and 5 unicorns. Andreessen Horowitz achieved the most success with 14 unicorns, but a lower rate of return at 17.9 times the initial funding. 

VC funding is also more selective, turning to more complex products and models. Instead of running with a new chain to compete with Ethereum, now companies are focused on specific challenges of DEX trading, liquidity tools and other Web3 activities. 

Some ICO projects are still betting on another mania cycle, but may repeat the stagnation of 2022, when token launches led to delays in trading, low demand and diminishing liquidity. 

Cryptopolitan reporting by Hristina Vasileva