IOSG Ventures: A Game Without Winners – How Can the Altcoin Market Break Through?

Original Author: Momir

Original Source: IOSG Ventures

The altcoin market has experienced its toughest period this year. To understand why, we need to go back to decisions made years ago. The funding bubble of 2021-2022 spawned a batch of projects that raised significant capital. These projects are now launching their tokens, creating a fundamental problem: a massive supply is hitting the market with very little demand.

The issue is not just oversupply; worse still, the mechanisms that created this problem have remained largely unchanged to this day. Projects continue to launch tokens regardless of product-market fit, treating token launches as an inevitable step rather than a strategic choice. As venture capital dries up and primary market investments shrink, many teams view token launches as their only fundraising channel or a way to create exit opportunities for insiders.

This article will delve into the "lose-lose-lose-lose dilemma" that is unraveling the altcoin market, examine why past corrective mechanisms have failed, and propose potential rebalancing ideas.

1. The Low Float Dilemma: A Four-Way Losing Game

Over the past three years, the entire industry has relied on a deeply flawed mechanism: low-float token launches. Projects launch tokens with extremely low circulating supplies, often in the single-digit percentages, artificially maintaining high FDVs (Fully Diluted Valuations). The logic seems sound: low supply, stable price.

But low floats don't stay low forever. As supply is gradually released, prices inevitably crash. Early supporters become the casualties. The data is clear: most tokens have performed poorly since launch.

The most insidious part is that low floats create a situation where everyone thinks they're getting a good deal, but everyone is actually losing:

• Centralized exchanges thought they were protecting retail investors by demanding low floats and increasing control, but instead, they've earned community resentment and poor token performance.
• Token holders initially believed "low float" would prevent insider dumping, but they ended up with neither effective price discovery nor protection, and their early support backfired. When the market demanded that insider holdings not exceed 50%, primary market valuations were pushed to distorted levels, which in turn forced insiders to rely on low-float strategies to maintain surface-level stability.
• Project teams thought they could sustain high valuations and reduce dilution through low-float manipulation, but once this practice became a trend, it destroyed the entire industry's fundraising capacity.
• Venture capitalists thought they could value their holdings based on the market cap of low-float tokens and continue raising funds, but as the drawbacks of the strategy became apparent, their medium- to long-term fundraising channels were cut off.

A perfect lose-lose-lose-lose matrix. Everyone thinks they're playing a grand game, but the game itself is disadvantageous to all participants.

2. Market Reactions: Meme Coins and MetaDAOs

The market has attempted to break the deadlock twice, and both attempts have exposed how complex token design is.

Round One: The Meme Coin Experiment

Meme coins were a backlash against VC low-float launches. The slogan was simple and enticing: 100% circulating supply on day one, no VCs, completely fair. Finally, retail investors wouldn't be screwed by the game.

Reality was much darker. Without a filtering mechanism, the market was flooded with unscreened tokens. Solo, anonymous operators replaced VC teams. This didn't bring fairness; instead, it created an environment where over 98% of participants lost money. Tokens became rug-pull tools, with holders being cleaned out minutes or hours after launch.

Centralized exchanges were caught in a dilemma. If they didn't list meme coins, users would trade directly on-chain; if they listed them, they would be blamed when the prices crashed. Token holders suffered the worst losses. The real winners were only the launch teams and platforms like Pump.fun.

Round Two: The MetaDAO Model

MetaDAOs were the market's second major attempt, swinging the pendulum to the other extreme—heavily favoring token holder protection.

There were indeed benefits:

• Token holders gained control, making capital deployment more attractive.
• Insiders could only cash out upon achieving specific KPIs.
• It opened new fundraising avenues in a capital-constrained environment.
• Initial valuations were relatively lower, allowing for fairer access.

But MetaDAOs overcorrected, bringing new problems:

Founders lost too much control too early. This created a "founder lemon market"—talented teams with options avoided this model, and only desperate teams accepted it.

Tokens still launched at extremely early stages, with high volatility, but with even fewer filtering mechanisms than the VC cycle.

The infinite minting mechanism made listings on top-tier exchanges nearly impossible. MetaDAOs and centralized exchanges, which control the vast majority of liquidity, are fundamentally incompatible. Without CEX listings, tokens are trapped in illiquid markets.

Each iteration attempted to solve problems for one side and also proved the market's ability to self-correct. But we are still searching for a balanced solution that serves the interests of all key participants: exchanges, token holders, project teams, and capital providers.

Evolution continues, and there will be no sustainable model until balance is found. This balance isn't about making everyone happy, 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: Demanding extended lock-ups that hinder normal price discovery. These extended locks appear protective but actually prevent the market from finding a reasonable price.

What they have the right to demand: Predictability in 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 a historical lack of rights, exerting excessive control that scares away the best talent, exchanges, and VCs. Not all insiders are the same; demanding uniform long-term lockups ignores role differences and hinders reasonable price discovery. Obsessing over magical holding thresholds ("insiders cannot exceed 50%") precisely creates the soil for low-float manipulation.

What they have the right to demand: Strong information rights and operational transparency. Holders should understand the business behind the token, receive regular updates on progress and challenges, and know the true status of treasury reserves and resource allocation. They have the right to ensure value is not siphoned off through opaque operations or alternative structures. The token should be the primary IP holder, ensuring created value accrues to token holders. Finally, holders should have reasonable control over budget allocation, especially for major expenditures, but should not micromanage daily operations.

Project Teams

What should stop: Launching tokens without clear signals of product-market fit or actual token utility. Too many teams treat tokens as glorified equity with worse rights—a junior class to risky equity, but without legal protection. Launching a token shouldn't happen just because "that's what crypto projects do" or because the money is running out.

What they have the right to demand: The ability to make strategic decisions, take bold bets, and manage daily operations without submitting everything for DAO approval. If they are to be held accountable for results, they must have the authority to execute.

Venture Capitalists

• What should stop: Forcing every portfolio company to launch a token, whether it makes sense or not. Not every crypto company needs a token. Forcing token launches to mark-to-market holdings or create exit opportunities has already flooded the market with low-quality projects. VCs should be more rigorous, realistically assessing which companies are truly suited for a token model.
• What they have the right to demand: Appropriate returns for taking extreme risks by investing in early-stage crypto projects. High-risk capital deserves high returns when bets are correct. This means reasonable ownership stakes, fair vesting schedules reflecting contribution and risk, and the right not to be demonized when successful investments exit.

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

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

The next 12 months are likely the final wave of supply glut from the last VC hype cycle.

After weathering this digestion period, the situation should improve:

• By the end of 2026, projects from the last cycle will have either launched their tokens or shut down.
• Financing costs remain high, limiting the formation of new projects. The pipeline of VC-backed projects waiting to launch tokens has visibly shrunk.
• Primary market valuations are returning to rationality, reducing the pressure to prop up high valuations with low floats.

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

But beyond the supply cycle, the entire token model faces a deeper, existential threat.

5. Existential Crisis: The Lemon Market

The biggest long-term threat is altcoins becoming a "lemon market"—where quality participants are driven away, leaving only the desperate.

Possible evolution path:

Failed projects continue launching tokens to access liquidity or stay afloat, even with zero product-market fit. As long as all projects are expected to launch tokens, regardless of success, failed projects will keep flooding the market.

Successful projects, witnessing the carnage, opt out. When excellent teams see persistently poor overall token performance, they may pivot to traditional equity structures. Why endure the token market's torture when you can build a successful equity company? Many projects have no compelling reason for a token. 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 failed projects with no other choice—the unwanted "lemons."

Despite the risks, I remain optimistic.

6. Why Tokens Can Still Win

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

Accelerating growth through ownership distribution. Tokens enable precise distribution strategies and growth flywheels impossible with traditional equity. Ethena's token-driven mechanism to rapidly bootstrap user growth and build a sustainable protocol economic model is the best proof.

Creating a passionate, loyal community with a moat. Done right, tokens can build a truly vested community—participants become sticky, loyal ecosystem advocates. Hyperliquid is an example: their trader community became deeply engaged participants, creating network effects and loyalty impossible to replicate without a token.

Tokens can enable growth far faster than equity models while opening vast design space for game theory, unlocking massive opportunities when executed correctly. These mechanisms are truly transformative when they work.

7. Signs of Self-Correction

Despite the difficulties, the market is showing signs of adjustment:

Top-tier exchanges have become extremely selective. Requirements for token launches and listings have tightened significantly. Exchanges are strengthening quality control, conducting more rigorous pre-listing evaluations.

Investor protection mechanisms are evolving. Innovations like MetaDAOs, DAO-owned IP (referencing Uniswap and Aave's governance controversies), and other governance experiments show communities are actively trying better architectures.

The market is learning, slowly and painfully, but it is learning.

Recognizing the Cycle's Position

Crypto markets are highly cyclical, and we are currently at a trough. We are digesting the negative consequences of the 2021-2022 VC bull market, hype cycles, overinvestment, and misaligned structures.

But cycles always turn. Two years from now, after the 2021-2022 cohort is fully digested, after new token supply shrinks due to funding constraints, and after better standards emerge from trial and error—market dynamics should improve significantly.

The key question is whether successful projects will return to the token model or permanently pivot to equity structures. The answer depends on whether the industry can solve the problems of interest alignment and project screening.

8. The Path Forward

The altcoin market stands at a crossroads. The lose-lose-lose-lose dilemma—exchanges, holders, projects, and VCs all losing—has created an unsustainable market condition, but it's not a dead end.

The next 12 months will be painful, with the final wave of 2021-2022 supply arriving. But after the digestion period, three things could drive recovery: better standards formed from painful trial and error, an interest alignment mechanism acceptable to all four parties, and selective token launches—only when they truly add value.

The answer depends on today's choices. Three years from now, looking back at 2026, we will see it just as we look back at 2021-2022 today: what are we building?