IOSG: A game with no winners—how can the altcoin market break through?

Author｜Momir @IOSG

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

The issue is not just oversupply; more troubling is that the mechanism causing this problem has remained largely unchanged to this day. Projects continue to issue tokens regardless of whether their products have a market, 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 their only fundraising channel or a way to create exit opportunities for insiders.

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

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

Over the past three years, the entire industry has relied on a deeply flawed mechanism: low liquidity token issuance. Projects release tokens with very low circulating supply—often only a few percentage points—artificially maintaining a high FDV (Fully Diluted Valuation). The logic seems sound: 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 gaining, 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 think that “low liquidity” can prevent insider dumping, but they end up not discovering effective price signals and are punished for early support. When the market demands that insiders hold no more than 50%, primary market valuations are artificially inflated, forcing insiders to rely on low liquidity strategies to maintain superficial stability.
• Projects 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 capital assumes that 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.

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

2. Market Response: Meme Coins and MetaDAO

The market has attempted two major breakthroughs, both exposing how complex token design really is.

First Round: Meme Coin Experiment

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

But the reality is much darker. Without filtering mechanisms, the market is flooded with unvetted tokens. Solo operators and anonymous manipulators have replaced VC teams, which not only fails to bring fairness but creates an environment where over 98% of participants lose money. Tokens become 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 risks price crashes and taking the blame. Token holders suffer the most losses. The real winners are the token issuing teams and platforms like Pump.fun.

Second Round: MetaDAO Model

MetaDAO represents the market’s second major attempt, swinging to the opposite extreme—extremely favoring 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 capital-constrained environments
• Initial valuations are relatively low, making entry fairer

But MetaDAO overcorrected, bringing new problems:

• Founders lose too much control early on, leading to a “Lemon Market” for founders—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. MetaDAO and centralized exchanges controlling most liquidity are fundamentally misaligned. Without access to centralized exchanges, tokens are trapped in illiquid markets.

Each iteration attempts to solve problems for one side, but all demonstrate 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, projects, and capital providers.

The evolution continues, and a sustainable model will only emerge once balance is achieved. 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 should stop: Requiring extended lock-up periods to hinder normal price discovery. These extended locks seem protective but actually impede the market from finding reasonable prices.

What should be empowered: Predictable token release schedules and effective accountability mechanisms. Focus should shift from arbitrary time locks to KPI-based unlocks, with shorter, more frequent release cycles linked to actual progress.

Token Holders

What should stop: Excessive control due to historical lack of rights, which has driven 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 a so-called “magic threshold”—(“insiders cannot exceed 50%”@E7—actually creates fertile ground for manipulation through low liquidity.

What should be empowered: 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 IP owners, ensuring that created value belongs to token holders. Finally, token holders should have reasonable control over budget allocations, especially major expenses, but not interfere in daily operations.

)# Project Teams

What should 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 should be empowered: The ability to make strategic decisions, take bold bets, and manage daily operations without always needing DAO approval. If responsible for results, they must have execution authority.

Venture Capital

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

What should be empowered: As early-stage high-risk investors, VCs deserve corresponding returns. High-risk capital should yield high returns when the timing is right. This includes reasonable equity stakes, fair release schedules reflecting contributions and risks, and rights to avoid demonization upon successful exits.

Even if a balanced path is found, timing remains critical. The short-term outlook is still grim.

) 4. Next 12 Months: The Final Supply Shock

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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, the projects from the last cycle will have either fully issued tokens or failed
• Funding costs remain high, and new projects face constraints. The number of VC projects waiting to issue tokens has noticeably decreased
• Primary market valuations will return to rationality, easing the pressure of artificially inflated 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:

• Failed 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, regardless of success, failed projects will keep flooding the market.
• Successful projects may choose to exit when they see the bleak situation. When top teams see that overall token performance remains poor, they might shift to traditional equity structures. If they can run successful equity companies, why endure the torment 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 failing projects with no other options—an unwelcome “Lemon” market.

Despite the risks, I remain optimistic.

6. Why Can Tokens Still Win?

Despite the challenges, I believe the worst Lemon Market scenario won’t materialize. The unique game-theoretic mechanisms provided by tokens are fundamentally unattainable with equity structures.

Ownership distribution accelerates growth. Tokens enable precise allocation strategies and growth flywheels that traditional equity cannot achieve. Ethena’s token-driven mechanism rapidly guides user growth and creates a sustainable protocol economy model—proof of this.

Creating a moat of passionate, loyal communities. When done right, tokens can build truly aligned communities—participants become sticky, loyal ecosystem advocates. Hyperliquid is an example: their trading community has become deeply engaged, creating network effects and loyalty that are impossible to replicate without tokens.

Tokens can accelerate growth far beyond equity models, opening vast space for game-theoretic design. When these mechanisms operate effectively, they can unlock enormous opportunities. When these systems truly function, they are transformative.

7. Signs of Self-Correction

Despite the difficulties, signs of market adjustment are emerging:

Top-tier exchanges are becoming extremely selective. Token issuance and listing requirements are tightening significantly. Exchanges are strengthening quality controls, with more rigorous assessments before listing new tokens.

Investor protection mechanisms are evolving. Innovations like MetaDAO, DAOs holding IP rights (see governance disputes involving Uniswap and Aave), and other governance innovations indicate that communities are actively exploring better frameworks.

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

Recognizing the Cycle Position

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

But cycles always turn. In two years, once the projects from 2021-2022 are fully digested, new token supplies decrease due to funding limits, and better standards emerge from 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. 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’s not a dead end.

The next 12 months will be painful; the last wave of supply from 2021-2022 is imminent. But after the digestion phase, 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 truly adding value.

The answer depends on today’s choices. Looking back in three years to 2026, just as we reflect on 2021-2022 now, what are we building?

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