A game with no winners: How can the altcoin market break through?
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A game with no winners: How can the altcoin market break through?
The market is learning, slowly and painfully, but indeed it is learning.
Navigating Web3 tides with focused insightsAuthor: Momir @IOSG
The altcoin market has gone through its toughest period this year. To understand why, we need to go back to decisions made a few years ago. The funding bubble of 2021–2022 spawned a wave of well-capitalized projects that are now launching tokens, creating a fundamental problem: massive supply hitting the market with virtually no demand.
The issue isn’t just oversupply—worse still, the mechanisms causing it have barely changed since they first emerged. Projects keep launching tokens regardless of product-market fit, treating token issuance as an inevitable step rather than a strategic choice. As venture capital dries up and primary market investment shrinks, many teams see token launches as their only remaining funding channel or a way to create exit opportunities for insiders.
This article will dissect the “four-way lose” trap currently unraveling the altcoin market, examine why past fixes failed, and propose potential paths toward rebalancing.
1. The Low Circulating Supply Trap: A Four-Way Lose Game
For the past three years, the industry has relied on a deeply flawed mechanism: low circulating supply at launch. Tokens are released with extremely low float—often single-digit percentages—to artificially maintain high FDV (fully diluted valuation). The logic seems sound: limited supply supports price stability.
But low circulation doesn’t stay low forever. As supply gradually unlocks, prices inevitably collapse. Early supporters end up being sacrificed. The data is clear: most tokens perform poorly after listing.
The cruelest part is how low circulation creates a false illusion where everyone thinks they’re winning, but in reality, all sides lose:
- Centralized exchanges believe they protect retail by enforcing low circulation and tighter control, yet they end up facing community backlash and poor token performance.
- Token holders assume "low circulation" prevents insider dumping, but they never get proper price discovery and instead suffer from betrayal despite early support. When markets demand insiders hold less than 50%, primary valuations become distorted, forcing insiders to rely on low-circulation tactics to maintain superficial stability.
- Projects think manipulating circulation helps sustain high valuations and reduce dilution, but when this becomes systemic, it destroys the entire industry’s fundraising capacity.
- VCs believe they can mark holdings to inflated market caps of low-float tokens to raise new funds, but as the flaws surface, their long-term fundraising channels dry up.
A perfect four-way lose matrix. Everyone thinks they're playing smart, but the game itself is rigged against all participants.
2. Market Reactions: Meme Coins and MetaDAO
The market has attempted two major escapes—both revealing how complex token design really is.
First Attempt: The Meme Coin Experiment
Meme coins were a backlash against VC-led, low-circulation token launches. Their promise was simple and appealing: 100% circulation from day one, no VCs, fully fair launch. Finally, retail wouldn’t be exploited by the system.
Reality turned far darker. Without filtering mechanisms, the market flooded with unvetted tokens. Lone actors and anonymous operators replaced professional VC teams—not bringing fairness, but creating an environment where over 98% of participants lose money. Tokens became exit scams, and holders are drained within minutes or hours of launch.
Centralized exchanges are caught in a bind. If they don’t list meme coins, users go directly on-chain; if they do list them, they take the blame when prices crash. Token holders suffer the worst losses. The only real winners are the issuing teams and platforms like Pump.fun.
Second Attempt: The MetaDAO Model
MetaDAO was the market’s second major experiment—swinging to the opposite extreme: extreme protection for token holders.
It had real benefits:
- Holders gained control, making capital deployment more attractive
- Insiders could only unlock tokens upon achieving specific KPIs
- Opened new financing avenues amid tight capital conditions
- Lower starting valuations enabled fairer access
But MetaDAO overcorrected, creating new problems:
Founders lose too much control too early. This created a “founder lemon market”—strong, selective teams avoid the model, while only desperate ones accept it.
Tokens still launch extremely early, with massive volatility, yet with even less vetting than traditional VC cycles.
Infinite minting mechanisms make listings on top-tier exchanges nearly impossible. MetaDAO fundamentally clashes with centralized exchanges, which control most liquidity. Without CEX listings, tokens remain trapped in illiquid markets.
Each iteration tries to fix things for one side and proves the market has self-correcting instincts. But we’re still searching for a balanced solution that respects the interests of all key players: exchanges, holders, projects, and capital providers.
Evolution continues. Sustainable models won’t emerge until balance is found. That balance isn’t about pleasing everyone—it’s about drawing clear lines between harmful practices and legitimate rights.
3. What Should a Balanced Solution Look Like?
Centralized Exchanges
Stop: Demanding extended lockups that hinder normal price discovery. These prolonged locks seem protective but actually prevent the market from finding fair pricing.
Should Require: Predictable token release schedules and effective accountability mechanisms. Focus should shift from arbitrary time-based locks to KPI-linked unlocks, with shorter, more frequent release cycles tied to actual progress.
Token Holders
Stop: Overcorrecting due to past disenfranchisement by imposing excessive control, scaring away top talent, exchanges, and VCs. Not all insiders are the same. Uniform long-term locks ignore role differences and impede fair price discovery. Fixating on arbitrary ownership thresholds (e.g., “insiders must stay under 50%”) ironically enables low-circulation manipulation.
Should Have the Right to: Strong information rights and operational transparency. Holders should clearly understand the business behind the token, receive regular updates on progress and challenges, and know the true state of treasury reserves and resource allocation. They should ensure value isn’t siphoned off via opaque structures or alternative arrangements. The token should be the primary IP holder, ensuring created value flows to token holders. Finally, holders should have reasonable budgetary control—especially over major expenditures—but shouldn’t micromanage daily operations.
Project Teams
Stop: Launching tokens without clear product-market fit or real utility. Too many teams treat tokens as glorified equity with worse terms—subordinated to venture equity, yet lacking legal protections. Token launches shouldn’t happen just because “that’s what crypto projects do” or because cash is running out.
Should Have the Right to: Make strategic decisions, take bold bets, and run day-to-day operations without needing DAO approval for every move. If they’re accountable for outcomes, they must have execution authority.
Venture Capital
- Stop: Forcing every portfolio company to launch a token, regardless of fit. Not every crypto company needs a token. Pushing tokenization just to mark holdings or create exits has flooded the market with low-quality projects. VCs should apply stricter, honest judgment on which companies truly benefit from token models.
- Should Have the Right to: Earn commensurate returns for taking extreme risks on early-stage crypto ventures. High-risk capital deserves outsized rewards when bets pay off. This means fair ownership stakes, unlock schedules reflecting contribution and risk, and the right to exit successful investments without being vilified.
Even if a balanced path is found, timing remains critical. The short-term outlook remains grim.
4. Next 12 Months: The Final Supply Shock
The next 12 months may mark the final wave of supply overhang from the last VC hype cycle.
After this digestion phase, conditions should improve:
- By end of 2026, most projects from the last cycle will either have launched or failed
- High funding costs and constrained formation of new projects mean fewer VC-backed teams waiting to launch tokens
- Primary market valuations are returning to sanity, reducing pressure to prop up valuations via low circulation
Decisions made three years ago shaped today’s market. Today’s choices will define the landscape two or three years from now.
Yet beyond supply cycles, the entire token model faces deeper existential threats.
5. Existential Threat: The Lemon Market
The biggest long-term danger is altcoins becoming a “lemon market”—where quality participants are driven away, leaving only the desperate.
Possible evolution:
Failing projects continue launching tokens to gain liquidity or extend survival, even without product-market fit. As long as all projects are expected to launch tokens regardless of success, failing projects will keep flooding the market.
Successful projects see the carnage and opt out. When top teams observe sustained poor token performance, they may shift to traditional equity structures. If you can build a successful equity company, why endure the torment of token markets? Many projects lack compelling reasons to tokenize—tokens are shifting from mandatory to optional for most application-layer projects.
If this trend continues, the token market will be dominated by failed projects with no alternatives—the unwanted “lemons.”
Despite the risks, I remain optimistic.
6. Why Tokens Can Still Win
Despite the challenges, I believe the worst-case lemon market won’t materialize. The unique game-theoretic mechanisms enabled by tokens are simply impossible under equity structures.
Ownership distribution accelerates growth. Tokens enable precise distribution strategies and growth flywheels unachievable with equity. Ethena demonstrated this perfectly—using token-driven mechanics to rapidly bootstrap user growth and build a sustainable protocol economy.
Building passionate, loyal communities with real skin in the game. When done right, tokens create deeply invested communities—participants become sticky, highly loyal ecosystem advocates. Hyperliquid is a prime example: its trader community became deeply engaged, generating network effects and loyalty that would be impossible without a token.
Tokens can drive growth far faster than equity models and open vast design space for game theory. When executed well, these mechanisms are truly transformative.
7. Signs of Self-Correction
Despite the hardship, signs of market adjustment are emerging:
Top-tier exchanges are becoming extremely selective. Token launch and listing requirements have tightened significantly. Exchanges are strengthening quality controls and conducting more rigorous evaluations before new listings.
Investor protection mechanisms are evolving. Innovations like MetaDAO, DAO-owned IP rights (see governance debates around Uniswap and Aave), and other governance improvements show communities actively experimenting with better architectures.
The market is learning—slowly and painfully, but learning nonetheless.
Understanding Our Place in the Cycle
Crypto markets are highly cyclical, and we’re currently at the bottom. We’re digesting the negative consequences of the 2021–2022 VC bull run—hype cycles, overinvestment, and misaligned structures.
But cycles always turn. Two years from now, once the 2021–2022 cohort is fully absorbed, new token supply is constrained by funding limits, and better standards emerge from trial and error—the market dynamics should improve significantly.
The key question is whether successful projects will return to token models or permanently shift to equity. The answer depends on whether the industry can solve alignment and project selection issues.
8. The Way Out
The altcoin market stands at a crossroads. The four-way lose scenario—exchanges, holders, teams, and VCs all losing—is unsustainable, but not irreversible.
The next 12 months will be painful, as the final wave of 2021–2022 supply arrives. But after this digestion phase, three factors could drive recovery: better standards forged from painful experimentation, fairer alignment mechanisms acceptable to all four parties, and selective token launches—only when they genuinely add value.
The outcome depends on today’s choices. Three years from now, when we look back at 2026, will we see it the same way we now view 2021–2022? What are we building?
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