A Game with No Winners: How the Altcoin Market Breaks Through

Jan 05, 2026 21:35:40

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Author: Momir, IOSG

The altcoin market has experienced its toughest times this year. To understand the reasons, we need to go back to decisions made a few years ago. The financing bubble of 2021-2022 spawned a batch of projects that raised significant funds, and now this batch is issuing tokens, leading to a fundamental problem: a massive supply flooding the market, while demand is scarce.

The issue is not just oversupply; worse still, the mechanisms that caused this problem have fundamentally changed little since then. Projects continue to issue tokens regardless of whether there is a market for their products, treating token issuance as a necessary path rather than a strategic choice. As venture capital dries up and primary market investments shrink, many teams see token issuance as their only financing channel or a way to create exit opportunities for insiders.

This article will delve into the "four-loss dilemma" that is dismantling the altcoin market, examine why past repair mechanisms have failed, and propose possible rebalancing ideas.

1. Low Liquidity Dilemma: A Four-Loss Game

Over the past three years, the entire industry has relied on a severely flawed mechanism: low liquidity token issuance. When projects issue tokens, the circulation is extremely low, often only in single-digit percentages, artificially maintaining a high FDV (Fully Diluted Valuation). The logic seems reasonable: with low supply, prices remain stable.

However, low liquidity cannot remain low indefinitely. As supply is gradually released, prices are bound to crash. Early supporters become the victims; data shows that most tokens have performed poorly since their launch.

The most cunning aspect is that low liquidity creates a situation where everyone feels they are benefiting, while in reality, everyone is losing:

Centralized exchanges believe that by requiring low liquidity and strengthening control, they can protect retail investors, but this results in community resentment and poor token price performance.

Token holders thought that "low liquidity" could prevent insiders from dumping, but ultimately, they did not see effective price discovery and instead suffered from early support backlash. When the market demands that insiders hold no more than 50% of tokens, primary market valuations are pushed to distorted levels, forcing insiders to rely on low liquidity strategies to maintain superficial stability.

Project teams believe that manipulating low liquidity can sustain high valuations and reduce dilution, but once this practice becomes a trend, it will destroy the entire industry's financing capability.

Venture capitalists think they can value their holdings based on the market cap of low liquidity tokens and continue fundraising, but as the flaws in this strategy are exposed, mid to long-term financing channels are cut off. A perfect four-loss matrix. Everyone thinks they are playing a grand game, but the game itself is unfavorable to all participants.

2. Market Response: Meme Coins and MetaDAO

The market has attempted to break the deadlock twice, and both attempts have exposed how complex token design is. First Round: Meme Coin Experiment Meme coins are a counterattack against venture capital's low liquidity token issuance. The slogan is simple and enticing: 100% liquidity on the first day, no venture capital, completely fair. Finally, retail investors won't be scammed in this game.

However, the reality is much darker. Without a filtering mechanism, the market is flooded with unfiltered tokens. Solo, anonymous operators replace venture capital teams, which not only fails to bring fairness but also creates an environment where over 98% of participants lose money. Tokens become tools for exit scams, with holders being harvested clean within minutes or hours of launch.

Centralized exchanges find themselves in a dilemma. If they don't list meme coins, users will go directly to on-chain trading; if they do list meme coins and the price crashes, they bear the blame. Token holders suffer the most. The real winners are only the token issuing teams and platforms like Pump.fun. Second Round: MetaDAO Model MetaDAO represents the second major attempt by the market, swinging to the other extreme—extremely protective of token holders.

There are indeed benefits:

Token holders gain control, making capital deployment more attractive.
Insiders can only cash out upon meeting specific KPIs.
It opens up new financing methods in a capital-constrained environment.
Initial valuations are relatively low, making access fairer.

However, MetaDAO overcorrects and brings new problems:

Founders lose too much control too early. This creates a "founder lemon market"—capable and selective teams avoid this model, leaving only desperate teams to accept it.

Tokens still go live very early, with huge volatility, but the filtering mechanism is even less than that of venture capital cycles.

The infinite issuance mechanism makes it nearly impossible for top-tier exchanges to list. MetaDAO fundamentally misaligns with centralized exchanges that control the majority of liquidity. If tokens cannot be listed on centralized exchanges, they become trapped in a market with depleted liquidity.

Each iteration aims to solve problems for one party but proves that the market has self-regulating capabilities. Yet we are still searching for a balanced solution that considers the interests of all key participants: exchanges, token holders, project teams, and capital providers.

Evolution continues, and before finding balance, there will be no sustainable model. This balance is not about pleasing everyone but about drawing a clear line between harmful practices and reasonable 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 lock-ups seem protective but actually hinder the market from finding reasonable prices.
What should be required: Predictability of token release schedules and effective accountability mechanisms. The focus should shift from arbitrary time locks to KPI-based unlocks, with shorter, more frequent release cycles tied to actual progress.

Token Holders

What should stop: Overcorrecting due to historical lack of rights, excessively controlling and scaring away the best talent, exchanges, and venture capital. Not all insiders are the same; demanding uniform long-term lock-ups ignores the differences among roles and hinders reasonable price discovery. An obsession with so-called magical holding thresholds ("insiders cannot exceed 50%") creates the soil for low liquidity manipulation.
What should be required: Strong information rights and operational transparency. Token holders should be clear about the business operations behind the tokens, regularly informed of progress and challenges, and know the real situation regarding reserves and resource allocation. They have the right to ensure that value is not lost through opaque operations or alternative structures; tokens should primarily belong to IP holders, ensuring that the created value belongs to token holders. Finally, token holders should have reasonable control over budget allocation, especially for significant expenditures, but should not micromanage daily operations.

Project Teams

What should stop: Issuing tokens without clear product-market fit signals or actual token use cases. Too many teams treat tokens as inferior equity—worse than risk equity, yet without legal protection. Token issuance should not be merely because "every crypto project does this" or because funds are running low.
What should be required: The ability to make strategic decisions, take bold bets, and manage daily operations without needing DAO approval for everything. If they are to be held accountable for results, they must have the power to execute.

Venture Capitalists

What should stop: Forcing every invested project to issue tokens, regardless of reasonableness. 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. Venture capitalists should be stricter and realistically assess which companies are truly suited for a token model.
What should be required: Taking on extreme risks in early-stage crypto projects should correspond to appropriate returns. High-risk capital should expect high returns when locked up. This means reasonable holding ratios, fair release plans reflecting contributions and risks, and the right not to be demonized when successfully exiting investments.

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

4. The Next 12 Months: The Last Wave of Supply Shock

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

If we survive this digestion period, conditions should improve:

By the end of 2026, the previous round of projects will either have issued all their tokens or gone bankrupt.
Financing costs will still be high, and the formation of new projects will be limited. The number of venture capital projects waiting to issue tokens has noticeably decreased.
Primary market valuations will return to rational levels, alleviating the pressure of maintaining high valuations through low liquidity.

Decisions made three years ago have shaped today's market landscape. Today's decisions will determine the market direction two to three years from now.

However, beyond the supply cycle, the entire token model faces deeper threats.

5. Survival Crisis: Lemon Market

The biggest long-term threat is that altcoins turn into a "lemon market"—where quality participants are kept out, and only those with no alternatives come in.

Possible evolutionary paths:

Failed projects continue to issue tokens to gain liquidity or prolong their existence, even if their products have no market fit. As long as projects are expected to issue tokens, regardless of success or failure, failed projects will continue to flood the market.

Successful projects may choose to exit upon seeing the grim situation. When capable teams observe the overall poor performance of tokens, they may shift to traditional equity structures. If they can succeed as equity companies, why endure the torment of the token market? Many projects have no 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 failed projects with no other choice—"lemons" that no one wants.

Despite the risks, I remain optimistic.

6. Why Tokens Can Still Win

Although challenges abound, I still believe that the worst-case lemon market will not come to pass. The unique game-theoretic mechanisms offered by tokens are fundamentally unattainable through equity structures.

Accelerating growth through ownership distribution. Tokens can implement precise distribution strategies and growth flywheels that traditional equity cannot achieve. Ethena's token-driven mechanism rapidly guides user growth, creating a sustainable protocol economic model, which is the best proof.
Creating passionate and loyal communities with moats. When done right, tokens can build communities with genuine vested interests—participants become sticky and highly loyal ecosystem advocates. Hyperliquid is an example: their trader community has become deeply engaged, creating network effects and loyalty that would be impossible to replicate without tokens.

Tokens can enable growth to be much faster than equity models while opening up vast spaces for game-theoretic design, unlocking tremendous opportunities when done right. When these mechanisms truly operate, they can indeed be transformative.

7. Signs of Self-Correction

Despite numerous challenges, the market is showing signs of adjustment:

Top-tier exchanges are becoming extremely selective. Requirements for token issuance and listing have tightened significantly. Exchanges are strengthening quality control, with stricter evaluations before listing new tokens.
Investor protection mechanisms are evolving. Innovations in MetaDAO, DAO ownership of IP (referencing governance disputes in Uniswap and Aave), and other governance innovations indicate that the community is actively trying to establish better structures.

The market is learning, albeit slowly and painfully, but it is indeed learning. Recognizing the Cycle Position The crypto market is highly cyclical, and we are currently at the bottom. We are digesting the negative consequences of the 2021-2022 venture capital bull market, hype cycles, over-investment, and misaligned structures.

But cycles will always turn. Two years from now, when the projects from 2021-2022 are fully digested, when new token supply decreases due to funding constraints, and when better standards emerge from trial and error—the market dynamics should significantly improve.

The key question is whether successful projects will return to the token model or permanently shift to equity structures. The answer depends on whether the industry can resolve issues of interest alignment and project selection.

8. Path to Breaking the Deadlock

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

The next 12 months will be painful, as the last wave of supply from 2021-2022 is about to arrive. However, after the digestion period, three things may drive recovery: better standards formed from painful trial and error, an interest alignment mechanism acceptable to all four parties, and selective token issuance—only issuing when real value is added.

The answer depends on today's choices. Three years from now, when we look back at 2026, it will be like looking back at 2021-2022 today—what are we building?