The Dark Side of Altcoins

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:

1. The company does not capture any revenue; all fees go to the protocol;

2. Token holders capture value through protocol mechanisms (e.g., buybacks, burns, staking rewards, etc.);

3. Founders capture value through tokens, not dividends;

4. No VC equity exists;

5. Economic decisions are controlled by a DAO, not a company;

6. Smart contracts automatically distribute value on-chain;

7. 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.