The Dark Side of Altcoins

深潮Publicado a 2025-12-11Actualizado a 2025-12-11

Resumen

The article "The Dark Side of Altcoins" argues that most cryptocurrency tokens inevitably fail due to a fundamental structural conflict between company equity and token holders. Most crypto projects are essentially traditional companies with equity-held founders, VC investors, and profit motives, which later issue a token. This creates irreconcilable incentives: equity seeks to capture value (revenue, profit, control) for the company and shareholders, while tokens need value (fees, buybacks, governance) to accrue to the protocol and holders. Equity almost always wins, leading to token value drainage. The piece highlights Hyperliquid as a rare success because it avoided VC equity financing entirely. Without a board or pressure to deliver value to shareholders, it could direct all economic value to its protocol and token. Legally, tokens cannot function like stocks without being deemed unregistered securities (if they offer dividends, ownership, etc.), which would trigger severe regulatory crackdowns. The optimal structure is one where the company holds no equity, captures no revenue, and all value flows to token holders via protocol mechanisms, with a DAO governing economic decisions. However, the only way to eliminate all conflict is to become a fully decentralized protocol like Bitcoin or Ethereum, with no company, no equity, and neutral, autonomously running infrastructure. The core issue is structural, not market conditions. Tokens are mathematically destined to fail...

Written by: Crypto Dan

Compiled by: Saoirse, Foresight News

People always ask why almost all tokens eventually go to zero, with only a few exceptions like Hyperliquid.

It all boils down to one thing that no one talks about openly: the structural conflict between company equity and token holders.

Let me explain it in simple terms.

Most cryptocurrency projects are essentially companies with attached tokens

They have the following characteristics:

A corporate entity
Founders holding equity
VC investors with board seats
CEO, CTO, CFO
Profit goals
Future exit (cashing out) expectations

Then, they issue a token on the side.

What's the problem?

Only one of these two can capture value, and equity almost always wins.

Why dual financing (equity + token) doesn't work

If a project raises funds through both equity and token sales, it immediately creates conflicting interests:

Equity side's demands:

Revenue → flows to the company
Profits → flow to the company
Value → belongs to shareholders
Control → belongs to the board

Token side's demands:

Revenue → flows to the protocol
Token buyback / burn mechanisms
Governance rights
Value appreciation

These two systems will always be in conflict.

Most founders ultimately choose the path that satisfies the VCs, and the token's value bleeds out.

This is why even if many projects "appear successful," their tokens still end up going to zero.

Why Hyperliquid stands out in a field where 99.9% of projects fail

Besides being one of the highest fee-generating protocols in crypto, the project avoided the biggest "killer" of tokens – VC equity funding rounds.

Hyperliquid never sold its shares, has no VC-dominated board, and thus no pressure to direct value to a company.

This allowed the project to do what most cannot: direct all economic value to the protocol, not to a corporate entity.

This is the fundamental reason its token is an "exception" in the market.

Why tokens cannot legally function like stocks

People always ask: "Why can't we make tokens equivalent to company shares?"

Because if a token has any of the following characteristics, it will be deemed an "unregistered security":

Dividend payments
Ownership
Corporate voting rights
Legal claim to profits

Then, US regulators would crack down on the project overnight: exchanges couldn't list the token, holders would need KYC, and its global distribution would be illegal.

Therefore, the crypto industry chose a different path.

(The Optimal Legal Structure (Used by Successful Protocols)

Today, the "ideal" model is as follows:

The company does not capture any revenue; all fees go to the protocol;
Token holders capture value through protocol mechanisms (e.g., buybacks, burns, staking rewards, etc.);
Founders capture value through tokens, not dividends;
No VC equity exists;
Economic decisions are controlled by a DAO, not a company;
Smart contracts automatically distribute value on-chain;
Equity becomes a "cost center," not a "profit center."

This structure allows the token to function economically similarly to a stock without triggering securities laws. Hyperliquid is the prime current success story.

But even the ideal structure cannot completely eliminate conflict

As long as a corporate entity exists, potential conflicts of interest remain.

The only path to a truly "conflict-free" state is to achieve the ultimate form like Bitcoin/Ethereum:

No corporate entity
No equity
Protocol runs autonomously
Development funded by a DAO
Neutral infrastructure properties
No legal entity to attack

Achieving this is extremely difficult, but the most competitive projects are moving in this direction.

The Core Reality

Most tokens fail not because of "poor marketing" or "bear market conditions," but due to flawed structural design.

If a project has any of the following characteristics, it is mathematically impossible for the token to achieve long-term sustainable appreciation. Such designs are doomed from the start:

Conducted VC equity fundraising
Conducted private token sales
Has investor token unlock schedules
Allows the company to capture revenue
Uses the token as a marketing coupon

Conversely, projects with the following characteristics can achieve a completely different outcome:

Direct value to the protocol
Avoid VC equity fundraising
Have no investor token unlock schedules
Align founder interests with token holders
Make the company economically irrelevant

Hyperliquid's success is not "luck" but stems from thoughtful design, sound tokenomics, and high alignment of interests.

So, the next time you think you've "found the next 100x gem," maybe you have. But unless the project adopts a token economic design like Hyperliquid pioneered, its ultimate fate will be a slow grind to zero.

The Solution

Project teams will only optimize tokenomics when investors stop funding flawed designs. They won't change because you complain; they will only adjust when you stop giving them money.

This is why projects like MetaDAO and Street are so important for the industry – they are pioneering new standards for token structures and holding teams accountable.

The future direction of the industry is in your hands, so allocate your capital wisely.

Preguntas relacionadas

QWhat is the core structural conflict that causes most altcoins to fail according to the article?

AThe core conflict is between company equity and token holders. Projects with both equity (held by founders and VCs) and tokens create competing interests where value is almost always captured by equity rather than the token, leading to token value drainage.

QWhy can't tokens function like company stocks from a legal perspective?

AIf tokens offer dividends, ownership, corporate voting rights, or legal profit claims, they would be classified as unregistered securities. This would trigger severe regulatory crackdowns, making the token illegal on exchanges and requiring KYC for holders.

QWhat key features make Hyperliquid an exception to the typical altcoin failure pattern?

AHyperliquid avoided VC equity financing, has no board of directors, and directs all economic value to the protocol instead of a corporate entity. This aligns incentives and prevents value extraction by equity holders.

QWhat is the 'optimal legal architecture' for a successful protocol as described in the article?

AThe optimal architecture includes: no company income (all fees go to the protocol), value accrual to token holders via mechanisms like buybacks/burns, founders benefiting from tokens (not dividends), no VC equity, DAO-controlled economic decisions, and smart contracts automating value distribution.

QAccording to the article, what is the only way to achieve a truly 'conflict-free' system like Bitcoin or Ethereum?

AA truly conflict-free system requires no corporate entity, no equity, protocol self-operation, development funded by a DAO, neutral infrastructure, and no legal entity that can be targeted. This eliminates all structural conflicts between equity and token holders.

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