Arthur Hayes: Make ICOs Great Again
Cryptocurrency projects should return to their original aspiration of decentralization and embrace the high-risk, high-return mentality.
Original Article Title: The Cure
Original Article Author: Arthur Hayes
Original Article Translation: Ismay, BlockBeats
Editor's Note:
In this article, Arthur Hayes offers a sharp analysis of the rise and fall of ICOs in the cryptocurrency industry, presenting insights into why ICOs could return to the peak. He points out profoundly that over-reliance on centralized exchanges and venture capital-backed overvalued projects has become a shackle on the industry's development. He compares Meme coins to the capital formation mechanism of ICOs, advocating for crypto projects to return to their roots of decentralization and high-risk high-return. Through an interpretation of technological potential and viral spread, Arthur Hayes once again demonstrates his foresight on the industry's future development.
Below is the original content:
Tension and pressure can sometimes infect individuals, leading to irrational behavior. Unfortunately, many companies in the Maelstrom portfolio have contracted the "Centralized Exchange Spread Disease (CEXually Transmitted Disease)." The affected founders believe they must fully obey certain prominent centralized exchanges' orders, or else the path to substantial returns will be blocked. These centralized exchanges demand: pump up this metric, hire this person, allocate me this portion of tokens, list your token on this date... and so on, well, just follow our instructions for the listing. These "patients" addicted to exchange platform desires have almost completely forgotten the original intention of users and cryptocurrency. Come to my clinic, and I can cure you. The remedy 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 defense, and other "big XX" have used their wealth and power to control most major governments and economies. Since the end of World War II, despite a rapid and consistent improvement in living standards and life expectancy, this improvement has slowed down for the 90% of the population with very little financial assets and almost no political voice. Decentralization is the antidote to combating highly concentrated wealth and power.
The Magical Technology
The Bitcoin blockchain and the many blockchains that followed are groundbreaking magical technologies. Starting from humble beginnings, Bitcoin has already proven itself to be one of the most resilient monetary systems. For anyone able to breach the Bitcoin network, the nearly $2 trillion in Bitcoin is a bug bounty of immense double-spending potential.
Greed
The blockchain-driven cryptocurrency and token's fiat and energy value growth have made users wealthy. The wealth of the cryptocurrency community was on full display during the November U.S. election. The U.S. (and most other countries) is a "pay-to-play" political system. The "pirates" of cryptocurrency are among the biggest donors to political candidates, aiding cryptocurrency-friendly candidates to victory. Cryptocurrency voters are able to donate generously in political campaigns because Bitcoin is the fastest-growing asset in human history.
Capital Formation Amnesia
Most cryptocurrency participants instinctively understand why this industry has been successful; however, there are occasional bouts of amnesia. This phenomenon is reflected in the changes in cryptocurrency capital formation. At times, those seeking cryptocurrency capital have catered to the community's greed and achieved tremendous success. At other times, cash-strapped founders forget why users flocked to cryptocurrency. Yes, they may believe in a government of "by the people, for the people," or they may create stunning technology, but if users cannot get rich from it, the adoption of any cryptocurrency-related product or service will be too slow.
Since the end of the 2017 ICO frenzy, capital formation has become less pure, deviating from the path of community greed stimulation. Instead, we have seen high Fully Diluted Valuations (FDVs), low circulating supplies, or VC-backed tokens. However, VC-backed tokens have performed poorly in this current bull cycle (2023–present). In my article "PvP," I highlighted that the median performance of tokens issued in 2024 was about 50% lower compared to mainstream assets (Bitcoin, Ethereum, or Solana). Retail investors ultimately baulked at buying into these projects when they were listed on centralized exchanges (CEX) due to high prices. As a result, the exchange's internal market-making team, airdrop recipients, and third-party market makers dumped the token onto illiquid markets, resulting in disastrous performance.
Why has our entire industry forgotten the third pillar of cryptocurrency's value proposition... making retail investors "filthy rich"?
The Antidote to Meme Coins
The new issuance market of cryptocurrency has turned into the very thing it was supposed to replace—an interest chain system similar to an Initial Public Offering (IPO) in traditional finance (TradFi). In this system, retail investors end up being the bagholders of VC-backed tokens. However, in the crypto space, there is always an alternative. Meme coins are a class of tokens that serve no purpose other than virally spreading meme content on the internet. If the meme is popular enough, you buy into it, hoping someone else will take the baton later. The capital formation of meme coins is egalitarian. The team releases the entire supply upfront during issuance, and the initial fully diluted valuation (FDV) is usually only in the millions. By launching on decentralized exchanges (DEX), speculators engage in highly risky bets, gambling on which meme can tap into the industry's collective consciousness, thus creating buying demand for the token.
From a retail speculator's standpoint, the most enticing aspect of meme coins is that if you get in early, you might leap several rungs on the wealth ladder. However, every participant is aware that the meme coin they buy has no intrinsic value, generates no cash flows, and therefore, is fundamentally worthless. Hence, they fully embrace the risk of potentially losing all their funds in pursuit of financial dreams. Most importantly, there are no gatekeepers telling them whether they can buy a particular meme coin, and there are no shadowy capital pools waiting to dump the newly unlocked supply when the price rises high enough.
I want to establish a simple taxonomy to understand different types of tokens and why they hold value. Let's start with meme coins.
Meme Coin's Intrinsic Value = Virality of Meme Content
This concept is very intuitive. As long as you are an active participant in any online or offline community, you can grasp the significance of memes.
If this is what a meme coin is, then what is a VC token?
The Essence of VC Tokens and the Culture of Traditional Finance
Adherents of traditional finance (TradFi) don't actually possess real skills. I can attest to this from my own experience reflecting on my time in investment banking, where the required skills were meager, to say the least—a summary would be: almost none. Many people want to get into traditional finance because you can make a lot of money without needing substantial knowledge. Just give me someone who knows a bit of high school algebra and has a good work ethic, and I can train them to do any front-office financial services job. This is unlike professions such as doctors, lawyers, plumbers, electricians, mechanical engineers, and others. Entering these occupations requires time and skills, yet the average income often falls below that of a junior investment banker, salesperson, or trader. The wasted intellectual resources in the financial services industry are disheartening, but I and others are just responding to societal incentives.
Since traditional finance is a low-skill but high-income industry, the barrier to entry into this exclusive club often relies 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 based on race and social class have a more significant influence than in other professions. Once you are inducted into this unique circle, you perpetuate these norms to give more value to traits you have acquired or not acquired. For example, if you work hard and incur significant debt to attend a top university, you would tend to hire people from the same university as you believe it's the best choice. Failing to do so would mean admitting that the time and effort you put into obtaining those qualifications were not worth it. In psychology, this is known as "Effort Justification Bias."
Let's use this framework to understand how venture capital (VC) novices raise funds and allocate resources.
To raise enough capital to invest in a sufficient number of companies to find a winner (e.g., Facebook, Google, Tencent, ByteDance, etc.), top venture capital firms require a significant amount of capital. This funding mainly comes from endowments, pension funds, insurance companies, sovereign wealth funds, and family offices. These pools of capital are mostly managed by traditional finance (TradFi) professionals. These managers must fulfill fiduciary responsibilities to their clients and can only invest in "suitable" venture capital funds. This means they mostly have to invest in venture capital funds managed by "qualified" and "experienced" professionals.
These subjective requirements have led to a phenomenon where these venture partners typically graduate from that tiny fraction of elite universities globally (such as Harvard, Oxford, Peking University, etc.), and their careers usually start at large investment banks (e.g., JPMorgan Chase, Goldman Sachs), asset management firms (e.g., BlackRock, Fidelity), or major tech companies (e.g., Microsoft, Google, Facebook, Tencent, etc.). If you do not have such a background, gatekeepers of traditional finance job requirements would 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 alike, speak alike, dress alike, and even live in the same global elite communities.
For managers who need to allocate funds to venture funds, the dilemma is: if they take the risk of investing in a fund managed by non-traditional-background individuals and it fails, they may lose their jobs. 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 attribute it to bad luck, thus preserving their position in the asset management industry. If you fail alone, you lose your job; but if you fail together with others, your job is usually not affected. As the primary goal of traditional finance professionals is to keep their well-paid yet low-tech jobs, they mitigate career risk by selecting seemingly "appropriate" background managers to ensure their own security.
If the selection criteria for venture capital funds is to see if the managing partner fits a certain accepted stereotype, then these managers will also only invest in companies or projects whose founders fit the "founder" stereotype. For business-oriented founders, their resume must include work experience at a major consulting firm or investment bank, and it is expected that they have studied at specific global elite universities. On the other hand, technical founders are required to have experience working at highly successful large tech companies and hold advanced degrees from universities known to produce top engineers. Lastly, due to human social tendencies, we tend to prefer investing in people we are more closely related to. Therefore, Silicon Valley VCs only invest in companies located in the Bay Area, while Chinese VCs hope to invest in companies headquartered in Beijing or Shenzhen.
The result is the creation of an echo chamber-like homogenized environment. Everyone looks, talks, thinks, believes, and lives in similar ways. As a result, everyone either succeeds together or fails together. This environment happens to be the ideal state for traditional financial VC professionals, as their goal is to minimize professional risk.
After the ICO boom bubble burst, when crypto project founders were scrambling to raise VC funding, they were essentially making a deal with the "devil." To obtain funding from VCs primarily based in San Francisco, New York, London, and Beijing, crypto project founders had to make changes.
Venture Capital Token Intrinsic Value = Founder's educational background, employment history, family background, geographic location
Venture capitalists first value the team and only then the product. If the founder fits the stereotype, funding will continuously flow in. Because these founders inherently possess the "correct" background, a small fraction of teams will find the product-market fit after spending billions of dollars, giving rise to the next Ethereum. Since most teams will ultimately fail, VC allocators' decision-making logic remains unquestioned since the founders they support are all recognized as the type likely to succeed.
It is obvious that when selecting investment teams, cryptocurrency expertise is only a distant consideration after the fact. This is the beginning of the disconnect between venture capitalists and retail investors. The primary goal of VC newcomers is to keep their jobs, while regular retail investors hope to turn their fortunes around by buying coins that skyrocket thousands of times. Thousandfold returns were once possible. If you bought ETH for about $0.33 during the Ethereum presale, you would have realized a 9000x return at current prices. However, the current mechanism of crypto capital formation has made such returns nearly impossible.
Venture investors make money by trading illiquid, crappy SAFTs (Simple Agreement for Future Tokens) between funds, with each trade inflating the valuation. When these deeply flawed crypto projects eventually land on centralized exchanges (CEX) for their initial listings, their fully diluted valuation (FDV) often exceeds $1 billion. To achieve thousandfold returns, 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 for one project. This is also why retail investors are more willing to gamble on a $1 million market cap meme coin rather than a project supported by the "most respected" VC group with an FDV of over $1 billion. The behavior of retail investors actually aligns with the logic of maximizing expected returns.
If retail investors have already started rejecting the venture capital token model, then what makes ICO fundamentally more appealing?
ICO Intrinsic Value = Virality of the Narrative + Potential Technology
Meme:
A project team that can launch a product in line with the current cryptocurrency trend, combining visuals, user experience, and a clear goal, possesses "meme value." When this "meme" is attractive and spreads, the project gains attention. The goal of the project is to attract users at the lowest possible cost and then sell them products or services. A project that resonates with people can quickly bring users to the top of its growth funnel.
Potential Technology:
In the early stages of a project's lifecycle, an Initial Coin Offering (ICO) usually takes place. Ethereum, for example, raised funds before developing a product. In this model, community trust in the project team is implicit, believing that as long as they provide financial support, they can create a valuable product. Therefore, potential technology can be evaluated in the following ways:
1. Has the team previously 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 hundreds of millions or even billions of users?
Technology founders who meet the above criteria may not necessarily be the same type of people that venture capital firms would invest in as "elites." The cryptocurrency community is not so concerned about family background, past career experiences, or specific educational qualifications. While these criteria may be a plus, they are meaningless if they have not enabled the founding team to deliver excellent code before. The community is more inclined to support someone like Andre Cronje rather than a former Google employee who graduated from Stanford and holds a membership in the Battery Club.
Although most ICOs (99.99%) almost go to zero after a cycle, a few teams are still able to develop user-attractive technology based on their "meme effect." Early investors in these ICOs have the opportunity to achieve returns of 1,000 times or even 10,000 times. This is the game they want to play. The speculative and volatile nature of ICOs is a feature, not a flaw. If retail investors want a safe, boring investment, they can choose traditional global financial stock trading platforms. In most jurisdictions, Initial Public Offerings (IPOs) require companies to be profitable, and management also needs to make various statements to assure the public that they will not deceive. However, for ordinary retail investors, the issue with IPOs is that they cannot bring a life-changing return, as venture capitalists have already divided the spoils in the early stages.
If ICOs clearly have the potential to fund technologies with viral meme propagation and potential global impact, how do we make them "great again"?
ICO Roadmap
At its purest form, an ICO allows any team with an internet connection to showcase its project to the crypto community and receive funding. The team would launch a website detailing team members, the product or service planned for development, why they are qualified, and why the market needs their product or service. Subsequently, investors—or should we say "speculators"—can send cryptocurrency to an on-chain address and receive distributed tokens after a certain period. Various aspects of the ICO, such as the timeline, fundraising amount, token price, development technology type, team composition, and investor demographics, are entirely decided by the ICO team themselves, not by any gatekeepers (such as VC funds or centralized exchanges). This is precisely why centralized intermediaries loathe ICOs—because they are fundamentally unnecessary. However, the community loves ICOs because they provide a diversity of projects initiated by people from various backgrounds, offering those willing to take on high risk an opportunity for potentially high returns.
ICOs are making a comeback as the entire industry has gone through a full circle. We once enjoyed freedom but got burned in the process; then we felt the oppression of VC and centralized exchange (CEX) dominion, detesting their forcefully marketed overvalued junk projects. Now, in a nascent bull market driven by massive money printing by the US, China, Japan, and the EU, cryptocurrency market speculators are engrossed in meaningless meme coin speculative trading, and the community is once again ready to fully engage in high-risk ICO trading. It is now the time for "near-solvent" crypto speculators to cast a wide net of capital, hoping to capture the next Ethereum opportunity.
The question now is: What will be different this time?
Timeline:
Today, through frameworks like Pump.fun, token launches can be completed in just minutes, coupled with higher liquidity decentralized exchanges (DEXs), allowing teams to raise funds through ICOs and deliver tokens in a matter of days. This is starkly different from the previous ICO cycle, where the process from subscription to token delivery could take months or even years. Now, investors can immediately trade newly issued tokens on platforms like Uniswap or Raydium.
Thanks to Maelstrom's investment in the Oyl wallet, we had the privilege of previewing some potentially game-changing smart contract technology built on the Bitcoin blockchain. Alkanes is a brand new meta-protocol designed to introduce smart contracts to Bitcoin using the UTXO model. I don't fully understand how it works, but I hope those smarter and more skilled than me can review their GitHub codebase and decide whether it's worth building on. I'm very excited for Alkanes to drive explosive growth in ICO issuance within the Bitcoin ecosystem.
Liquidity:
Due to retail crypto speculators' infatuation with meme coins, they eagerly seek to trade highly speculative assets on decentralized exchanges (DEXs). This means that, post-token delivery to investors, unvetted project ICO tokens can immediately be traded, enabling true price discovery.
While I may not personally favor Solana, I have to admit that Pump.fun has indeed had a positive impact on the industry, as the protocol allows non-technical users to create their own meme coins in minutes and start trading. Continuing this trend of democratizing finance and crypto trading, Maelstrom has invested in a project aiming to be the go-to platform for meme coins, all cryptocurrencies, and new ICO issuances for spot trading.
Spot.dog is building a meme coin trading platform to attract Web2 users onboard. Their "ace up the sleeve" lies not in technology but in distribution channels. Current meme coin trading platforms are mostly designed for crypto traders. For instance, Pump.fun requires users to have a certain level of knowledge about Solana wallets, token swaps, slippage, and more. However, everyday users who follow Barstool Sports, subscribe to r/wsb, trade stocks on Robinhood, and bet on their favorite teams through DraftKings would opt to trade on Spot.dog.
From the outset, Spot.dog has secured some impressive partnerships. For instance, the "cryptocurrency purchase button" on the social trading platform Stocktwits (with 1.2 million monthly active users) is supported by Spot.dog. Additionally, the **$MOTHER Telegram trading bot** of Iggy Azalea has one sole partner — yes, Spot.dog.
I bet you speculators are eager to know when their token will be launched, right? Don't worry, when the time is right, if you're interested in going all-in on Spot.dog's governance token, I'll let you know when!
UI/UX:
The crypto community is already 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 then purchasing assets. This user behavior will make ICO fundraising much easier.
Blockchain Scalability:
In 2017, popular ICOs often led to Ethereum network congestion. Gas fees skyrocketed, and regular users couldn't use the network at a reasonable cost. By 2025, block space costs on Ethereum, Solana, Aptos, and other Layer-1 blockchains will be very low. The current order of processing capacity has increased several orders of magnitude compared to 2017. If a team can attract a large number of fervent "degen" speculator supporters, their fundraising capabilities will no longer be limited by slow and expensive blockchains.
Due to the extremely low cost per transaction of Aptos, it has the opportunity to become the preferred blockchain platform for ICOs.
Average Transaction Fee per Transaction (USD):
• Aptos: $0.0016
• Solana: $0.05
• Ethereum: $5.22
The Necessity of Saying No
I proposed a solution to the "Centralized Exchange (CEX)-related disease" — ICO. However, now project teams need to make the right choice. To ensure they understand this, ordinary crypto investors need to firmly say no.
Say no to the following:
• Projects supported by venture capital, with high FDV (Fully Diluted Valuation) and low circulation
• Tokens that have high valuations on centralized exchanges at their initial listing
• People advocating so-called "irrational" trading behavior
Indeed, there were many obvious "junk projects" in the 2017 ICO craze. Among them, the most disruptive ICO was EOS. Block.one raised $4.1 billion in cryptocurrency to build EOS, but after EOS launched, it almost vanished. Actually, this statement isn't entirely accurate — EOS's market cap is still as high as $12 billion. This shows that even a "junk project" like EOS issued during the peak of the bubble still retains significant value. As someone who loves the financial markets, I must admit that the design and execution of the EOS ICO could be considered an "art." Project founders should delve into how Block.one managed to raise the most funds in history through an ICO or token sale.
I mention these to illustrate the risk-adjusted investment logic: if investment allocations are correct, even projects that should have gone to zero may still hold some value post-ICO. Investing early in ICOs was the only way to achieve a 10,000x return, but there is no heavenly reward without hellish risk. To pursue a 10,000x return, you must accept that the majority of your investment's value post-ICO may be close to zero. However, this is much better than the current venture capital token model. Nowadays, achieving a 10,000x return in venture capital tokens is nearly impossible, but a 75% loss a month after listing on a CEX is all too common. Ordinary investors subconsciously realize the poor risk-return ratio of venture capital tokens, hence turning to memecoins. Let's once again create enthusiastic support for new projects through ICOs, giving investors the possibility of massive wealth accumulation and restoring ICOs to their former glory!
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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