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

Written by: Momir @IOSG

The altcoin market has experienced its most difficult period this year. To understand why, we need to go back to decisions made several 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; even more troubling 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 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 previous 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 flawed mechanism: low-liquidity token issuance. Projects issue tokens with extremely 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 crash. Early supporters become the 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 circulating supply and increasing control, they can protect retail investors. Instead, this approach breeds community resentment and poor token performance.

Token holders initially think that “low liquidity” can prevent insiders from dumping, but they end up not discovering effective price signals and are ultimately harmed by 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 becomes a trend, it will destroy the entire industry’s fundraising capacity.

Venture capitalists think they can value their holdings based on low-liquidity tokens and continue fundraising. However, as the flaws of this strategy become apparent, their long-term funding channels are actually 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 Reactions: Meme Coins and MetaDAO

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

First attempt: Meme Coin experiment

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

But the reality is much darker. Without filtering mechanisms, the market is flooded with unvetted tokens. Solo operators and anonymous traders 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 go directly to on-chain trading; listing them means they risk being blamed when prices collapse. 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
• Initial valuations are relatively low, with fairer access

But MetaDAO overcorrected, bringing new problems:

• Founders lose too much control early on, leading to a “founder lemon market”—capable teams with options avoid this model, leaving only desperate teams to accept it.
• Tokens are launched very early, with huge volatility, but the screening mechanism is weaker 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 are fundamentally incompatible. Without listing on centralized exchanges, tokens are trapped 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 prevent the market from finding fair prices.
• What to demand: Predictability in token release schedules and effective accountability mechanisms. Focus should shift from arbitrary lock-ups to KPI-based unlocks, with shorter, more frequent releases linked to actual progress.

Token Holders

• What to stop: Overreach 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 “insider cap” of ( “no more than 50%”) creates fertile ground for manipulation.
• What to demand: 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, 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 but without legal protections. Token issuance shouldn’t be just because “all crypto projects do it” or because funds are running out.
• What to demand: The 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 appropriate. 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, objectively assessing which companies are truly suitable for token models.
• What to demand: Bearing the risks of early-stage crypto investments, they should receive commensurate rewards. High-risk capital should expect high returns when the timing is right. This includes reasonable equity stakes, fair release schedules reflecting contributions and risks, and rights not to be demonized upon successful exits.

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

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 cycle will have either fully issued tokens or failed
• Funding costs remain high, new projects face constraints; VC reserves for token issuance are noticeably reduced
• Primary market valuations will revert to rational levels, easing the pressure of artificially inflated valuations driven by low liquidity

Decisions made three years ago have shaped today’s market landscape. Today’s decisions will determine the market trajectory 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 evolution 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, regardless of success, failed projects will keep flooding the market.
• Successful projects choose to exit when they see the bleak situation. When top teams see token performance stagnate, they may 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 with no other options—“lemon” projects 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. 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 for rapid user growth and sustainable protocol economy is the best proof.

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 would be impossible without tokens.

Tokens can accelerate growth far beyond equity models, 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 is showing signs of adjustment:

• 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, 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

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

But cycles always turn. In two years, after fully digesting the last wave of projects, with reduced new token supply due to funding constraints, and after testing better standards, 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 alignment and project screening.

8. The Way Forward

The altcoin market stands at a crossroads. The Four Losses 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, as the final wave of supply from the 2021-2022 cycle approaches. But after digestion, three factors could drive recovery: better standards formed through painful trial and error, stakeholder alignment mechanisms acceptable to all four parties, 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?