The Predatory Nature of Initial Token Launches in the Current Crypto Market

核心概念

The current crypto market incentivizes venture capitalists and centralized exchanges to prioritize profit over genuine project support, leading to inflated token valuations and poor returns for retail investors.

摘要

This article critiques the current state of token launches in the cryptocurrency market, arguing that the current system is predatory towards retail investors and benefits venture capitalists (VCs) and centralized exchanges (CEXs).

The author argues that the current bull market has primarily benefited established cryptocurrencies like Bitcoin, Ether, and Solana, while new token launches have fared poorly for retail investors. This is attributed to a system where VCs and CEXs are incentivized to inflate token valuations, leading to a "pump and dump" scenario where retail investors are left holding devalued assets.

The author presents data from Maelstrom, a crypto investment firm, analyzing 103 projects listed in 2024. The data shows that regardless of the exchange, token prices have generally declined post-launch. While VCs have profited with a median return of 31%, retail investors buying at or around the listing price have underperformed compared to holding Bitcoin, Ether, or Solana.

The article criticizes the high listing fees charged by CEXs, particularly Binance, which can cost projects up to 16% of their token supply and a $5 million purchase of BNB. These fees, coupled with the pressure to launch at inflated valuations, create a system where projects are incentivized to prioritize CEX listings over building a strong user base and product-market fit.

The author proposes an alternative approach where projects focus on building a product with a limited use case, securing minimal seed funding, and launching their token on a decentralized exchange (DEX) at a low valuation. This approach, exemplified by Auki Labs, allows projects to prioritize user growth and reward early adopters without being burdened by high CEX listing fees and inflated valuations.

The article concludes by urging project founders to prioritize their users' wealth generation by focusing on building strong products and communities rather than chasing CEX listings and high valuations.

统计

The median token price was up 31% over the last private round's fully diluted value (FDV).
Retail investors buying newly listed tokens have underperformed compared to holding Bitcoin, Ether, and Solana.
Projects need to cut their valuations at launch by 40% to 50% to become attractive on a relative basis.
The median percentage of circulating supply for the analyzed projects was 18.60%.
Binance charges up to 8% of the total token supply as a listing fee.
Binance requires up to $5,000,000 worth of BNB to be purchased and staked as a deposit.
Binance requires projects to give away 8% of their token supply to Binance users via on-platform airdrops and other campaigns.

引用

"The current crypto bull market visited Bitcoin, Ether, and Solana big time. However, new issues, which I will define as tokens launched this year, have fared poorly for retail."
"This tells us that projects must cut their valuations at launch by 40% to 50% to become attractive on a relative basis. Who loses if tokens list lower prices, VCs and CEXs."
"If you want VC money, and they have a fuck ton of dry powder, you must play this game."
"But again, I am an advisor and holder of tokens; if my projects give tokens to CEXs rather than to users, it harms their future potential, negatively impacting how high their tokens can trade."
"Therefore, I want either founders to stop paying fees and focus on attracting more users or CEXs to dramatically lower their prices."
"As I always tell founders, if your project has few users then you need a CEX to dump your dog shit on the market. If your project has a product market fit and a healthy growing ecosystem of real users, you don’t need a CEX because your community will support your token price wherever it is listed."

从中提取的关键见解

PvP

by Arthur Hayes 在 cryptohayes.medium.com 10-08-2024

https://cryptohayes.medium.com/pvp-6528234ad013

更深入的查询

How can decentralized exchanges improve their user experience and security to attract more projects and investors away from centralized exchanges?

Decentralized exchanges (DEXs) can become more attractive to projects and investors by focusing on two key areas: improving user experience and enhancing security. Here's how:
User Experience:

Simplified Onboarding: DEXs can streamline the onboarding process, making it easier for newcomers to create wallets and start trading. Intuitive interfaces, clear instructions, and multi-language support can significantly improve user adoption.
Fiat On-Ramps: Integrating fiat on-ramps directly within DEXs would allow users to seamlessly transition from traditional currencies to crypto, eliminating the need for external exchanges.
Cross-Chain Compatibility: DEXs that support trading across multiple blockchains offer users greater flexibility and access to a wider range of assets. This interoperability can be a significant advantage over CEXs that are often limited to specific ecosystems.
Improved Trading Interface: DEXs can enhance their trading interfaces to be more user-friendly, especially for those accustomed to CEX platforms. Features like real-time price charts, order books, and limit orders can make the trading experience more familiar and efficient.
Educational Resources: Providing comprehensive educational resources and tutorials can empower users to understand the intricacies of DeFi and DEXs, fostering trust and encouraging participation.
Security:

Insurance Funds: Establishing robust insurance funds can protect users against potential losses from smart contract vulnerabilities or other unforeseen risks, building confidence in the platform.
Security Audits: Regular and transparent security audits by reputable third-party firms can assure users of the platform's code integrity and resilience against attacks.
Bug Bounty Programs: Incentivizing security researchers and white-hat hackers to identify and report vulnerabilities can proactively enhance the platform's security posture.
User Education on Security Best Practices: DEXs can educate users on best practices for securing their wallets, recognizing phishing attempts, and protecting their private keys.
By focusing on these improvements, DEXs can create a more compelling value proposition, attracting both projects seeking a fairer launchpad and investors looking for a more transparent and secure trading environment.

Could regulatory changes create a more equitable playing field for retail investors in the cryptocurrency market, or would it stifle innovation?

Regulatory changes in the cryptocurrency market are a double-edged sword. While they can bring much-needed investor protection and market integrity, excessive or misguided regulations could stifle innovation.
Potential Benefits of Regulation:

Investor Protection: Clear regulations can protect retail investors from scams, market manipulation, and unfair practices by providing legal recourse and setting standards for transparency and accountability.
Market Stability: Regulations can help curb extreme volatility by deterring market manipulation and promoting responsible trading practices, making the market more attractive to institutional investors and fostering long-term growth.
Clearer Legal Framework: A well-defined regulatory framework can provide certainty for businesses operating in the crypto space, encouraging innovation and investment by establishing clear rules of engagement.
Potential Risks of Regulation:

Stifling Innovation: Overly burdensome regulations could stifle innovation by making it difficult for startups to navigate the legal landscape and compete with established players.
Limiting Access: Regulations that are too restrictive could push crypto activities underground or to offshore jurisdictions, limiting access for legitimate users and hindering the growth of the industry.
Regulatory Capture: There's a risk that regulations could be influenced by existing financial institutions, creating an uneven playing field that favors incumbents and hinders competition from decentralized platforms.
Finding the Right Balance:
The key is to strike a balance between protecting investors and fostering innovation. Regulations should focus on:

Clear and Consistent Rules: Establishing clear and consistent rules across jurisdictions can provide certainty for businesses and investors, fostering a stable and predictable market environment.
Risk-Based Approach: Regulators should adopt a risk-based approach, focusing on activities that pose the greatest risk to investors while allowing for flexibility and innovation in lower-risk areas.
Collaboration and Dialogue: Open dialogue and collaboration between regulators, industry participants, and the crypto community are crucial to developing effective and balanced regulations that benefit all stakeholders.
Ultimately, well-crafted regulations can create a more equitable and transparent playing field for retail investors, fostering trust and driving mainstream adoption of cryptocurrencies. However, it's crucial to avoid stifling innovation and to ensure that regulations are adaptable to the rapidly evolving nature of the crypto industry.

What role can education and awareness play in empowering retail investors to make more informed decisions in the volatile cryptocurrency market?

Education and awareness are paramount in empowering retail investors to navigate the volatile cryptocurrency market and make informed decisions. Here's how:
Understanding the Fundamentals:

Technology: Education should demystify the underlying technology of blockchain and cryptocurrencies. Understanding how these technologies work, their potential benefits, and limitations is crucial for making informed investment decisions.
Market Dynamics: Investors need to grasp the factors influencing cryptocurrency prices, including supply and demand, market sentiment, regulatory news, and technological advancements.
Risk Management: Education should emphasize the importance of risk management, including diversification, setting stop-loss orders, and only investing an amount they can afford to lose.
Identifying Scams and Risks:

Due Diligence: Investors need to learn how to conduct thorough due diligence on projects, evaluating their whitepapers, teams, technology, and community engagement to identify potential red flags.
Recognizing Scams: Education should equip investors with the knowledge to identify common scams like pump-and-dump schemes, rug pulls, and phishing attacks.
Understanding Regulations: Awareness of the evolving regulatory landscape and how it impacts their investments is crucial for investors to make informed decisions.
Promoting Responsible Investing:

Long-Term Perspective: Education should encourage a long-term investment perspective, focusing on the underlying value and potential of projects rather than short-term price fluctuations.
Emotional Control: Investors need to learn how to manage their emotions and avoid making impulsive decisions based on fear or greed, which can lead to significant losses.
Seeking Professional Advice: When in doubt, seeking advice from qualified financial advisors with expertise in cryptocurrencies can provide valuable guidance and support.
Resources and Initiatives:

Online Courses and Resources: Numerous online platforms offer courses, tutorials, and articles on blockchain technology, cryptocurrency investing, and market analysis.
Community Forums and Groups: Engaging with online communities and forums can provide valuable insights, shared experiences, and support from experienced investors.
Government and Regulatory Initiatives: Governments and regulatory bodies can play a role by promoting financial literacy programs and providing educational resources on cryptocurrencies and related risks.
By fostering a culture of education and awareness, retail investors can become more discerning, responsible, and empowered participants in the cryptocurrency market, making informed decisions that align with their financial goals and risk tolerance.