Why do recent token launches almost always fail?

Author: dingalingts Compiler: Block unicorn

After reading many posts about high FDV/low circulation projects, I feel that they ignore the core part of a root problem. The phenomenon of only tokens falling afterwards happened not only on Binance, but also on OKX and Bybit. We have always had high FDV (high valuation) and low circulation issuance in the past, but this time the situation is different. Here’s my take on what happened/is happening:

1. At some point in the last few years, the top exchanges started enforcing strict requirements, like: “Hey, projects, we want you to have crazy user numbers (500k+ MAU) or huge TVL (1B+ USD) before we’ll consider you for listing. We only list projects at TGE (token generation event) now, so you only get one chance, good luck.”

2. For top tier projects (like Arbitrum and Optimism), this wasn’t a big deal before, because just speculation about the token airdrop was enough to get these users to start using their chain. The expected value for the value of the effort required was so high that if they decided to launch a token, they could guarantee a first-day listing on Binance or Coinbase, which was impossible before.

3. On the other hand, how can other projects without similar venture capital backing or well-known founders even approach these requirements? They don’t have a liquid token to incentivize activity, and simply hinting at an airdrop after the fact doesn’t seem worth anything to users (users just come for the airdrop, don’t do anything, and don’t stay in the ecosystem for 1 second).

To solve this problem, some projects have started to launch points programs that reward specific behaviors around on-chain activity, TVL (total locked value), and/or NFT holdings over time. This almost certainly means that users will get a token at some point, and they will be rewarded through airdrops in the future.

If you’re new, you may not believe it, but in the past, many projects would do a token generation event (TGE) on the same day as the product launch, and then use that token to incentivize dapp activity and trade token liquidity on decentralized exchanges. Without product-market fit (PMF), the project and the token will die. If the project gains traction, then exchanges will monitor and list the token because users have shown natural demand.

This is one of the main reasons why I think things have gotten bad recently — the points issued by projects are allocated and valued in advance, far exceeding the expected FDV in the months before the tokens are liquid.

Why is this a problem? This means that retail investors are actually participating in high-valuation projects with very low upside, and everyone's expected valuation of the project is basically similar, so their profit space is just to get a higher airdrop ratio better than other participants, which becomes a player vs. player situation.

Do they really care about these protocols themselves? A lot of times not. Will they stay in the project after the airdrop is over? Unlikely, because high-yield participation methods are usually very tiring.

4. Back to the projects themselves, with high incentives, any random project can gather "millions" of users and transaction data and present this data to exchanges, even though most of the time this data is heavily machine-noised (sorry, but if you believe that a financial gaming project suddenly gained a million new users in a week, I don't know how to convince you).

5. What was the worst part of this? The top exchanges didn't seem to care about the quality of data these projects presented to them for a while, and still decided to launch some really questionable projects (such as the Ponzi scheme AI project TAO launched on Binance). I think they probably just saw the "heat" and "demand" of the project at the time (I think they realize it now, but it has caused some impact).

5. This led to a large number of new projects that suddenly popped up and directly targeted the points element to drive activity and total locked value. These projects usually do the exact same thing, but each project has a different token to mine. We started to get tweets every day about people making crazy money from these TGE airdrops.

6. But don’t get me wrong, I think credits are great for getting users to try your dapp/chain. If there weren’t any credits to give away, I might not try some projects at all, for better or worse.

7. However, the glaring issue is that now that every project has some form of credits airdrop, the opportunity cost and lack of liquidity in the market has reached an all-time high. For example, users must choose between bridging ETH to Blast and mining for 6 months, or putting their liquidity into a re-staking protocol. In this kind of market, why would anyone buy a newly launched token hoping it appreciates when you can use those funds to jump between different protocols and get 100% APY in the form of airdrops while preserving your capital?

For example, you put $10,000 into this protocol, did tasks every day for 3 months, and then got a nice $5,000 airdrop at the TGE. Awesome, you found out that the FDV at launch was actually $1 billion. Everyone is grinding points in anticipation of the $500 million FDV release.

For a savvy person, you would never hold onto this airdrop in the current market situation. You know that without the token, the protocol would probably have almost no users. You know there is no need to have a token at all, and you and all your mining friends have already quit. You sell all your tokens, wish the project well, and move the funds you got from the airdrop to another protocol or chain, never looking back at the previous project.

How did the token get issued at a valuation of $1 billion? Exchanges and venture capitalists probably think it is the way of the future of finance because of all the impressive numbers you and all your friends have produced together.

Imagine that you got a construction job, worked hard for months, even spent money on tools, and finally waited for payday. You probably wouldn't say, "Okay, boss, I'm glad you're holding my money for me, we can move on to the next project." It's more likely that you would lock up the money first and pay the bills. In fact, now that your boss has told you the amount you paid, you might take your tools elsewhere and find work that offers greater potential rewards and doesn’t require sharing with other workers.

9. Now imagine you got the same airdrop value, but all you did was keep tweeting a ticker symbol every day for two months, and for some reason the exchanges really liked this(?). You mined gold despite being blocked by all your friends. You wonder how this fundamentally helped the project, you conclude that it didn’t, and you choose to sell.

10. To summarize, we have reached a situation where market participants expect all projects to pay you for all your efforts on their protocol before the TGE, and that the compensation should be generous.

Furthermore, if a project offers a bad airdrop (price only drops/a small amount allocated to the airdrop), you can be sure they will not attract high-quality users to stay in Q2 after the TGE.

It only takes a few projects to screw up (which has already happened) and more people will sell their airdropped tokens on day one. The more people sell, the worse the charts will be for new tokens listed, which will destroy any organic demand these tokens may have had previously. It's an endless cycle, which then affects other projects with planned airdrops going on at the same time.

So how do we fix this?

First of all, I don't think VCs are to blame. Yes, they will push up FDV, but they usually have a one-year lockup period, and we need to think about why FDV is pushed up in the first place? Top VCs look for strong teams, good user traction/TVL, and a good narrative. How does a project get user traction/TVL in the current market? Points, why are points important? It allows projects to show top exchanges why they are suitable for being listed/launched (I'm generalizing, by the way, there is a small group of top projects that don't care about exchanges at all).

I also don’t think we can blame project founders or users, they always show up and hold hands whenever there is an opportunity to make money. ICOs, DeFi, NFT issuance, etc., this has become a feature of crypto, not a bug.

So I guess this brings us to the point that CEXs currently have a lot of power. Even if this makes you uncomfortable, you have to admit that in the current market, if a token is listed on Binance, its base valuation at the time of the TGE will be significantly higher than if it is not listed.

I hope the top exchanges will do a few things:

1. Start adding more projects that demonstrate high organic user demand to the tokens traded on the secondary market. Yes, self-hosted listings can bring good business, but you are actually harming the entire industry by forcing all projects to adopt a point system to meet your standards before the TGE.

2. Look for projects with real organic users and market fit where the token is naturally baked into the incentives.

3. Avoid listing tokens with ultra-low circulation (<5%).

4. Don’t be fooled by aircoin projects with fictitious data.

5. Reward teams that build real loyal communities, not communities that are just here for the airdrop.

6. Actually hire analysts who understand what a “good” token should look like at TGE, including plans for token usage post-TGE.

7. Ask yourself if the airdrop recipient will sell or hold the token, and if the answer is the former, use that as a criterion for listing rejection. This is just the tip of the iceberg for this question, there are many other factors that have been discussed in depth by others, so I’ll stop here.