Blockworks Co-founder: Excessive token supply is becoming a "life or death" issue for the crypto industry

Deep Tide TechFlow message. April 05, according to Cointelegraph, Blockworks co-founder Michael Ippolito recently posted on X stating that the rapid growth in the number of crypto tokens has outpaced the value they can create, posing industry-wide challenges at a “life-or-death” level.

Ippolito pointed out that although the overall total market capitalization of cryptocurrencies remains relatively stable, the average value of individual tokens is following a completely different trajectory—“the price of ordinary tokens is only slightly above 2020 levels and is down about 50% from the 2021 highs.” In terms of median returns, most tokens are down roughly 80% from their historical highs, meaning gains are highly concentrated in a small number of large-cap assets, while the broader market has long lagged.

He believes the root cause of this imbalance lies in the rapid expansion of token supply—large numbers of new assets are appearing, but total market capitalization has almost not moved, effectively diluting value across an ever-growing token pool.

On the relationship between fundamentals and price, Ippolito also noted that the disconnect is worsening. In 2021, token prices were highly correlated with on-chain revenue, but recent data shows that even if protocol revenue recovers, token prices do not follow suit, suggesting that market confidence in tokens as a tool for capturing value has already been shaken. “The token problem is life-or-death for this industry,” he said. “If the alignment between fundamentals and price continues to be missing, the entire industry will face the risk of losing its core appeal.”

Arthur Cheong, founder and CEO of DeFiance Capital, said on X that he agrees with “the urgency of addressing the current crypto token dilemma,” and warned that if the market continues to concentrate in a small set of assets such as Bitcoin and Ethereum, the broader crypto ecosystem will face a risk of being sidelined.