IOSG: A game with no winners, how can the altcoin market break the deadlock?

Author｜ Momir @IOSG

The altcoin market has experienced its most difficult period this year. To understand why, we need to go back to the decisions made a few years ago. The funding bubble of 2021-2022 spawned a batch of projects that raised a lot of money. Now these projects are issuing tokens, which has led to a fundamental problem: a massive supply is flooding the market, while demand is very low.

The problem isn't just oversupply; worse, the underlying mechanisms that caused it haven't changed much since their inception. Projects continue to issue tokens, regardless of market demand, treating token issuance as a necessary step rather than a strategic choice. With venture capital drying up and primary market investment shrinking, many teams are using token issuance as their only source of funding or a way to create exit opportunities for insiders.

This article will delve into the "four-loss dilemma" that is undermining the altcoin market, examine why past repair mechanisms have failed, and propose possible rebalancing strategies.

1. The Low Circulation Dilemma: A Lose-Lose Game for All

For the past three years, the entire industry has relied on a seriously flawed mechanism: low-circulation token issuance. Projects issue tokens with extremely low circulating supply, often only a single-digit percentage, artificially maintaining a high FDV (fully diluted valuation). The logic seems reasonable: less supply means more stable prices.

However, low circulation won't last forever. As supply is gradually released, prices will inevitably crash. Early supporters will become the victims; data shows that most tokens have performed poorly since their launch.

The most ingenious aspect is that low circulation creates a situation where everyone feels they are getting a good deal, but in reality, everyone is losing money:

• Centralized exchanges thought they could protect retail investors by requiring low liquidity and strengthening control, but instead, they provoked resentment from the community and poor coin price performance.
• Token holders initially thought that "low circulation" would prevent insiders from dumping their tokens, but instead of achieving effective price discovery, they were backfired because of their early support. When the market requires insiders to hold no more than 50% of the tokens, the valuation in the primary market is pushed up to distorted levels, which in turn forces insiders to rely on the low circulation strategy to maintain a semblance of stability.
• Project owners believe that manipulating low liquidity can sustain high valuations and reduce dilution, but if this practice becomes a trend, it will destroy the financing capabilities of the entire industry.
• Venture capitalists thought they could value their holdings at the market value of low-circulating tokens and continue raising funds, but as the flaws in the strategy were exposed, their medium- to long-term financing channels were cut off.

A perfect four-loss matrix. Everyone thinks they're playing a grand game, but the game itself is disadvantageous to all participants.

2. Market reaction: Meme Coin and MetaDAO

The market has attempted to break through twice, and both attempts have exposed just how complex the token design is.

Round 1: Meme Coin Experiment

Meme Coin is a counterattack against venture capital-backed token issuance with low circulation. Its slogan is simple and enticing: 100% circulation on day one, no venture capital, completely fair. Finally, retail investors won't be scammed in this game.

The reality is far darker. Without filtering mechanisms, the market is flooded with unfiltered tokens. Solo, anonymous operators have replaced venture capital teams, which not only fails to bring fairness but also creates an environment where over 98% of participants lose money. Tokens become tools for scams, with holders being wiped out within minutes or hours of launch.

Centralized exchanges are caught in a dilemma. If they don't list Meme coin, users will trade directly on-chain; if they do, they'll be blamed if the price crashes. Token holders will suffer the most. The real winners are only the token-issuing teams and platforms like Pump.fun.

Round Two: MetaDAO Mode

MetaDAO represents the market's second major attempt, swinging the pendulum to the other extreme—extremely inclined to protect token holders.

There are indeed benefits:

• Cryptocurrency holders have gained control, making fund deployment more attractive.
• Insiders can only cash out if they achieve specific KPIs.
• New financing methods were developed in an environment of tight capital.
• The initial valuation is relatively low, and the entry threshold is more equitable.

However, MetaDAO overcorrected, which brought new problems:

• Founders lose too much control too early. This creates a "founder's lemon market"—capable and selective teams avoid this model, while only desperate teams accept it.

The token was launched at a very early stage, resulting in huge volatility, but the screening mechanism was even less than that of the venture capital cycle.

• The unlimited issuance mechanism makes it virtually impossible for MetaDAO to be listed on major exchanges. MetaDAO is fundamentally incompatible with centralized exchanges that control the vast majority of liquidity. Unable to be listed on centralized exchanges, the token is trapped in a market with depleted liquidity.

Each iteration aims to solve a problem for one party, and each iteration proves that the market has the ability to self-regulate. However, we are still looking for a balanced solution that can take into account the interests of all key participants: exchanges, token holders, project teams, and investors.

Evolution continues, and there will be no sustainable model until a balance is found. This balance is not about satisfying everyone, but about drawing a clear line between harmful practices and legitimate rights.

3. What should the balanced solution look like?

centralized exchanges

What should be stopped: Demanding extended lock-up periods to hinder normal price discovery. These extended lock-up periods, seemingly protective, actually prevent the market from finding a fair price.

Those entitled to demand: predictability of the token release schedule and an effective accountability mechanism. The focus should shift from arbitrary time locks to KPI-based unlocking, using shorter, more frequent release cycles linked to actual progress.

Token holders

What needs to stop: Overcorrecting due to a historical lack of power, resulting in excessive control, scares away top talent, exchanges, and venture capitalists. Demanding uniform long-term lock-up periods for all insiders ignores the differences between roles and hinders reasonable price discovery. Obsessing over a so-called magic threshold for holdings ("insiders cannot exceed 50%) creates fertile ground for low-liquidity manipulation.

The right to demand: a strong right to information and operational transparency. Token holders should have a clear understanding of the business operations behind the token, regularly stay informed about progress and challenges, and know the true state of capital reserves and resource allocation. They have the right to ensure that value is not lost through opaque operations or alternative structures, and that the token should be held by the primary IP holder, ensuring that the value created belongs to the token holders. Finally, token holders should have reasonable control over budget allocation, especially for major expenditures, but should not interfere with day-to-day operations.

Project party

What needs to stop: Issuing tokens without clear signals of product-market fit or actual token use. Too many teams treat tokens as a less desirable form of equity—one level below venture capital—yet they lack legal protection. Issuing tokens shouldn't be done simply because "all crypto projects do it" or because they're running out of money.

Those entitled to demand: the ability to make strategic decisions, take bold bets, and manage daily operations, without needing to submit everything to the DAO for approval. If they want to be accountable for the results, they must have the authority to execute.

Venture Capital

What needs to stop: forcing every invested project to issue a token, regardless of its rationality. Not every crypto company needs a token, and forcing token issuance to mark holdings or create exit opportunities has flooded the market with low-quality projects. Venture capitalists need to be more rigorous and realistically judge which companies are truly suitable for a token model.

Those entitled to demand: Capital that undertakes extremely risky early-stage crypto investments deserves a corresponding return. High-risk capital should be rewarded handsomely when it bets correctly. This means a reasonable shareholding ratio, a fair release plan reflecting contribution and risk, and the right not to be demonized upon a successful exit.

Even if a path to balance is found, timing is crucial. The short-term outlook remains challenging.

4. The next 12 months: The final wave of supply shocks

The next 12 months are likely to be the last wave of oversupply in the last round of venture capital hype.

Once you get through this digestion period, things should improve.

• By the end of 2026, projects from the previous round will either have finished issuing their tokens or have gone bankrupt.
• Financing costs remain high, limiting the formation of new projects. The pool of venture capital projects waiting to issue tokens has significantly decreased.
• The valuation of the primary market has returned to rationality, easing the pressure of using low liquidity to prop up high valuations.

The decisions made three years ago have shaped today's market landscape. The decisions made today will determine the market's direction two or three years from now.

However, beyond the supply cycle, the entire token model faces even deeper threats.

5. Existential Crisis: The Lemon Market

The biggest long-term threat is that altcoins become a "lemon market"—quality participants are shut out, and only those with no other options come in.

Possible evolutionary paths:

• Failed projects continue to issue tokens to obtain liquidity or stay afloat, even if their products have absolutely no market fit. As long as projects are expected to issue tokens, regardless of success or failure, failed projects will continue to flood the market.
• Successful projects , witnessing the dire situation, choose to exit. When excellent teams see the overall token performance remain sluggish, they may shift to traditional equity structures. If they can succeed as equity companies, why endure the torment of the token market? Many projects lack a convincing reason for issuing a token; for most application-layer projects, tokens are shifting from a necessity to an option.

If this trend continues, the token market will be dominated by failed projects that have no other choice—unwanted "lemons."

Despite the numerous risks, I remain optimistic.

6. Why can tokens still win?

Despite the numerous challenges, I still believe the worst-case scenario of a lemon market won't materialize. The unique game-theoretic mechanisms offered by tokens are something equity structures simply cannot achieve.

Accelerate growth through ownership allocation. Tokens enable precise allocation strategies and growth flywheels that traditional equity cannot achieve. Ethena's token-driven mechanism, which rapidly drives user growth and creates a sustainable protocol economic model, is the best proof of this.

Create a passionate and loyal community with a strong moat. When done right, tokens can build communities with real benefits—participants become sticky and loyal ecosystem advocates. Hyperliquid is an example: their trader community became deep participants, creating network effects and loyalty that would be impossible to replicate without tokens.

Tokens can enable growth much faster than equity models, while opening up vast possibilities for game theory design, unlocking enormous opportunities if done correctly. These mechanisms, when truly in operation, are indeed transformative.

7. Signs of self-correction

Despite the numerous difficulties, the market is showing signs of adjustment:

Top-tier exchanges have become extremely selective. Requirements for issuing and listing new tokens have been significantly tightened. Exchanges are strengthening quality control, and the evaluation process before listing new tokens is much more rigorous.

Investor protection mechanisms are evolving. MetaDAO's innovations, DAO's ownership of IP rights (refer to the governance disputes of Uniswap and Aave), and other governance innovations demonstrate that the community is actively trying to create a better architecture.

The market is learning, albeit slowly and painfully, but it is indeed learning.

Recognize the position of the cycle

The crypto market is highly cyclical, and we are currently at the bottom. We are digesting the negative consequences of the 2021-2022 venture capital bull market, hype cycle, overinvestment, and misaligned structures.

But cycles always turn. Two years later, after the projects from 2021-2022 have been fully digested, after the supply of new tokens has decreased due to funding constraints, and after better standards have been developed through trial and error—market dynamics should improve significantly.

The key question is whether successful projects will revert to a token model or permanently switch to an equity structure. The answer depends on whether the industry can resolve issues related to interest reallocation and project screening.

8. The Path to Breaking the Mold

The altcoin market is at a crossroads. A lose-lose situation exists for all four parties – exchanges, token holders, project teams, and venture capitalists – creating an unsustainable market condition, but it's not a dead end.

The next 12 months will be painful, with the final wave of supply in 2021-2022 approaching. But after the digestion period, three things could drive a recovery: better standards developed from painful trial and error, a benefit adjustment mechanism acceptable to all parties, and selective token issuance—issuing only when there is real value added.

The answer depends on the choices we make today. Three years from now, when we look back at 2026, what will we be building, just as we are looking back at 2021-2022 today?

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