A game with no winners: How the altcoin market can break the deadlock

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Author: Momir, IOSG

The altcoin market has experienced its most difficult period this year. To understand why, we need to go back to decisions made a few years ago. The funding bubble of 2021-2022 led to a batch of projects that raised large amounts of money, and now these projects are issuing tokens, resulting in a fundamental problem: massive supply flooding the market, while demand remains scarce.

The issue is not just oversupply; even more problematic is that the mechanism causing this problem has remained largely unchanged to this day. Projects continue to issue tokens regardless of whether there is a market for their products, treating token issuance as an inevitable step rather than a strategic choice. As venture capital funding dries up and primary market investments shrink, many teams see token issuance as the only way to raise funds or create exit opportunities for insiders.

This article will analyze the “Four Losses Dilemma” that is dismantling the altcoin market, examine why previous repair mechanisms have failed, and propose possible pathways for rebalancing.

1. Low Liquidity Dilemma: A Four-Way Loss Game

Over the past three years, the entire industry has relied on a severely flawed mechanism: low liquidity token issuance. Projects issue tokens with extremely low circulating supply, often only a few percentage points, artificially maintaining high FDV (Fully Diluted Valuation). The logic seems reasonable: less supply, stable prices.

But low liquidity cannot last forever. As supply is gradually released, prices inevitably collapse. Early supporters become victims; data shows that most tokens perform poorly after launch.

The most insidious aspect is that low liquidity creates a situation where everyone thinks they are getting a bargain, but in reality, everyone is losing:

• Centralized exchanges believe that by requiring low liquidity and increasing control, they can protect retail investors, but this backfires, leading to community resentment and poor token performance.

• Token holders initially think that “low liquidity” can prevent whales from dumping, but they end up not achieving effective price discovery and are punished for early support. When the market demands that insiders hold no more than 50%, primary market valuations are inflated to distorted levels, which in turn forces insiders to rely on low liquidity strategies to maintain superficial stability.

• Project teams believe that manipulating with low liquidity can sustain high valuations and reduce dilution, but once this trend takes hold, it destroys the entire industry’s fundraising capacity.

• Venture capitalists think they can value their holdings based on low-liquidity tokens and continue fundraising, but as the flaws of this strategy become apparent, their long-term funding channels are cut off.

This creates a perfect four-way loss matrix. Everyone believes they are playing a high-stakes game, but the game itself is detrimental to all participants.

2. Market Reactions: Meme Coins and MetaDAO

The market has attempted two major breakthroughs, both exposing the complexity of token design.

First attempt: Meme Coins

Meme coins are a counterattack against VC-driven low-liquidity token issuance. The slogan is simple and appealing: 100% liquidity on day one, no VC, completely fair. Finally, retail investors won’t be exploited in this game.

But the reality is much darker. Without filtering mechanisms, the market is flooded with unvetted tokens. Solo operators and anonymous manipulators replaced VC teams, which not only failed to bring fairness but created an environment where over 98% of participants lose money. Tokens became tools for exit scams, with holders being drained within minutes or hours after launch.

Centralized exchanges are caught in a dilemma: not listing Meme Coins means users trade directly on-chain; listing them means risking a price collapse and taking the blame. Token holders suffer the most losses. The real winners are the token issuing teams and platforms like Pump.fun.

Second attempt: MetaDAO Model

MetaDAO represents the second major market experiment, swinging to the opposite extreme—extreme protection of token holders.

Advantages include:

• Token holders gain control, making capital deployment more attractive

• Insiders can only cash out after reaching specific KPIs

• Opens new fundraising avenues in a capital-tight environment

• Starts with relatively low valuation, fairer access

But MetaDAO also overcorrected, bringing new problems:

• Founders lose too much control early on, leading to a “founder lemon market”—capable and selective teams avoid this model, leaving only desperate teams to accept it.

• Tokens are launched very early with huge volatility, but the screening mechanism is even less rigorous than VC cycles.

• Infinite issuance mechanisms make it nearly impossible for top-tier exchanges to list these tokens. MetaDAO and centralized exchanges controlling most liquidity fundamentally conflict. Without listing on centralized exchanges, tokens are stuck in illiquid markets.

Each iteration attempts to solve problems for one side but also demonstrates the market’s self-regulating ability. Still, we are searching for a balanced solution that considers the interests of all key participants: exchanges, token holders, project teams, and capital providers.

The evolution continues, and a sustainable model will only emerge once a proper balance is found. This balance isn’t about satisfying everyone but about clearly delineating harmful practices from legitimate rights.

3. What Should a Balanced Solution Look Like

Centralized Exchanges

• What to stop: Requiring extended lock-up periods to hinder proper price discovery. These extended locks seem protective but actually impede the market from finding fair prices.

• What to require: Predictability in token release schedules and effective accountability mechanisms. Focus should shift from arbitrary lock-ups to KPI-based unlocks, with shorter, more frequent release cycles linked to actual progress.

Token Holders

• What to stop: Overcorrecting due to historical lack of rights, excessive control, scaring away top talent, exchanges, and VCs. Not all insiders are the same; demanding uniform long-term lock-ups ignores role differences and hampers proper price discovery. Obsessing over the so-called magical threshold of (“insiders cannot exceed 50%”) creates fertile ground for manipulation through low liquidity.

• What to require: Strong information rights and operational transparency. Holders should understand the underlying business operations, receive regular updates on progress and challenges, and know the true state of funds and resource allocation. They have the right to ensure value isn’t siphoned off through opaque practices or structural substitutes. Tokens should primarily be held by the main IP owners, ensuring that created value belongs to token holders. Finally, holders should have reasonable control over budget allocations, especially major expenses, but not interfere in daily operations.

Project Teams

• What to stop: Issuing tokens without clear product-market fit signals or actual utility. Too many teams treat tokens as a diluted form of equity—worse than risk equity—lacking legal protections. Token issuance shouldn’t be just because “all crypto projects do this” or because funds are running out.

• What to require: Ability to make strategic decisions, take bold bets, and handle daily operations without always needing DAO approval. If responsible for results, they must have execution authority.

Venture Capital

• What to stop: Forcing every invested project to issue tokens, regardless of whether it’s necessary. Not every crypto company needs a token; forcing token issuance to mark holdings or create exit opportunities has flooded the market with low-quality projects. VCs should be more disciplined, realistically assessing which companies are suitable for token models.

• What to require: Bearing the risks of early-stage crypto investments and expecting appropriate returns. High-risk capital should yield high returns when successful. This means reasonable equity stakes, fair release schedules reflecting contributions and risks, and rights that aren’t demonized upon successful exits.

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

4. The Next 12 Months: The Final Supply Shock

The next 12 months are likely to be the last wave of oversupply driven by the previous venture capital hype cycle.

Once this digestion phase passes, conditions should improve:

• By the end of 2026, projects from the last funding cycle will have either fully issued tokens or failed

• Funding costs remain high, new projects face constraints. The number of VC-backed projects waiting to issue tokens will significantly decrease

• Primary market valuations will return to rational levels, easing the pressure of artificially inflated high valuations through low liquidity

Decisions made three years ago have shaped today’s market landscape. Today’s decisions will determine the market’s direction in two or three years.

But beyond supply cycles, the entire token model faces deeper threats.

5. Existential Crisis: The Lemon Market

The biggest long-term threat is that altcoins become a “lemon market”—high-quality participants are shut out, leaving only desperate projects.

Possible evolutionary paths:

• Failing projects continue issuing tokens to gain liquidity or prolong life, even if their products lack market fit. As long as projects are expected to issue tokens, failed projects will keep flooding the market.

• Successful projects choose to exit when they see the bleak situation. Talented teams may switch to traditional equity structures, questioning why they should endure the turmoil of the token market. Many projects lack convincing reasons to issue tokens; 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 those with no other options—“lemons” nobody wants.

Despite the risks, I remain optimistic.

6. Why Tokens Can Still Win

Despite the challenges, I believe the worst-case lemon market scenario won’t materialize. Tokens offer unique game-theoretic mechanisms that equity structures cannot.

• Accelerate growth through ownership distribution. Tokens enable precise allocation strategies and growth flywheels that traditional equity can’t achieve. Ethena’s token-driven mechanism for rapid user growth and sustainable protocol economy is a prime example.

• Build moat-protected, passionate communities. When done right, tokens can create truly aligned communities—participants become sticky, loyal ecosystem advocates. Hyperliquid exemplifies this: their trading community is deeply engaged, creating network effects and loyalty that are impossible to replicate without tokens.

• Enable faster growth than equity models, while opening vast space for game-theoretic design. When these mechanisms operate effectively, they can be transformative.

7. Signs of Self-Correction

Despite difficulties, the market shows signs of adjustment:

• Top-tier exchanges are becoming extremely selective. Token issuance and listing requirements are tightening significantly. Evaluation standards before listing are becoming more rigorous.

• Investor protection mechanisms are evolving. Innovations like MetaDAO, IP rights held by DAOs (see governance disputes involving Uniswap and Aave), and other governance innovations indicate active community efforts to develop better frameworks.

• The market is learning, albeit slowly and painfully, but learning nonetheless.

Recognizing the Cycle Position

Crypto markets are highly cyclical. We are currently at the bottom. We are digesting the negative consequences of the 2021-2022 VC bull run, hype cycles, overinvestment, and structural dislocation.

But cycles always turn. In two years, after fully digesting the 2021-2022 projects, reducing new token supply due to funding constraints, and establishing better standards through trial and error, market dynamics should improve significantly.

The key question is whether successful projects will revert to token models or permanently shift to equity structures. The answer depends on whether the industry can resolve issues related to stakeholder interests and project screening.

8. The Path to Breakthrough

The altcoin market stands at a crossroads. The four-loss dilemma—exchanges, token holders, project teams, and VCs all losing—has created an unsustainable market condition, but it is not a dead end.

The next 12 months will be painful, as the last wave of supply from 2021-2022 approaches. But after digestion, three factors could drive recovery: better standards formed through painful trial and error, mutually acceptable interest adjustment mechanisms, and selective token issuance—only issuing tokens when real value is created.

The answer depends on today’s choices. When we look back in 2026, just as we look back at 2021-2022 today, what will we have built?

Recommended Reading:

RootData 2025 Web3 Industry Annual Report

2025 Crypto Dead Projects Review: Nearly $700 million raised, former star projects bowing out

In-depth Insights: How to Leverage Distribution Advantages to Build GTM Strategies for Crypto Products