Analysis of the Dilemmas of VC Token Issuance and Emerging Issuance Models

Recently, the token issuance situations of several well-known projects have attracted widespread attention in the market. According to the data, institutional investors generally account for 10% to 30% of the token distribution in these projects, which is not significantly different from previous cycles. Most projects still choose to distribute tokens to the community through airdrops, but the actual effect is not ideal. Users often sell off quickly after receiving airdrops, leading to significant selling pressure on the market. This phenomenon reflects the problems in the token distribution methods, which have not been effectively improved over the past few years.

From the perspective of token price performance, tokens dominated by institutions often show a one-sided downward trend after issuance. It is worth noting that a certain project adopted a different strategy, allocating 4% of tokens through the IDO method, with an initial market value of only 20 million USD, demonstrating distinct characteristics. In addition, some projects choose to allocate more than 50% of the total token supply through a fair launch method, while combining a few institutions and opinion leaders for large-scale community fundraising. This community-friendly approach may be more easily recognized, while the project side can conduct market-making buybacks, conveying positive signals to the community and reclaiming chips at a lower price.

The current market has shifted from being primarily led by institutional projects to a purely speculative token issuance model. This shift has resulted in tokens inevitably facing a zero-sum game situation, where ultimately only a few benefit while most retail investors may incur losses and exit. This phenomenon will exacerbate the collapse of the primary and secondary market structure, and rebuilding or chip accumulation may take a longer time.

The speculative token market atmosphere has fallen to a low point. As retail investors become aware that the nature of these tokens is still difficult to escape the control of a small group, including trading platforms, capital parties, market makers, institutional investors, opinion leaders, and celebrities, token issuance has lost its fairness. The significant short-term losses quickly impact user psychological expectations, and this token issuance strategy is nearing a phase of conclusion.

In the past year, retail investors have gained relatively the most in the speculative token space. Although the artificial intelligence narrative attempted to drive market enthusiasm through innovation in open-source communities, it has proven that this wave of excitement has not changed the nature of speculative tokens. A large number of traditional internet individual developers and blockchain shell projects quickly occupied the market, leading to a surge of artificial intelligence speculative token projects disguised as "value investment."

Community-driven tokens are controlled by a minority group and are subjected to "quick cashing out" through malicious price manipulation. This approach has a severe negative impact on the long-term development of the project. Once speculative token projects alleviated token sell-off pressure through the support of specific groups and achieved an acceptable project exit process for users through market maker operations.

However, when the community of speculative tokens no longer hides behind a specific group, it means that market sensitivity has declined. Retail investors are still looking forward to the opportunity of getting rich overnight, eager to find tokens with certainty, and hoping to see projects that have deep liquidity right from the start, which is a fatal blow from a minority group to retail investors. Bigger bets mean bigger rewards, and these rewards have begun to attract attention from teams outside the industry. Once these teams profit, they will no longer use stablecoins to purchase cryptocurrencies because they lack faith in Bitcoin. The liquidity that has been drained will permanently leave the cryptocurrency market.

The strategy from the previous cycle has become ineffective, but many project teams still use the same strategy out of inertia. A small portion of tokens is released to institutions and highly controlled, forcing retail investors to buy in on trading platforms. This strategy has failed, but the inertia of thought makes project teams and institutions reluctant to change easily. The biggest drawback of institution-driven tokens is that they cannot gain early advantages during token generation events. Users no longer expect to achieve ideal returns by buying through token issuance, as they believe that project teams and trading platforms hold a large number of tokens, putting both parties in an unfair position. At the same time, the return rates for institutions in this cycle have significantly decreased, leading to a decline in institutional investment amounts, coupled with users unwilling to take over on trading platforms, resulting in huge difficulties for the issuance of institutional coins.

For institutional projects or trading platforms, direct listing may not be the best choice. Some special Token teams have withdrawn liquidity from the industry without injecting it into other Tokens. Therefore, once institutional coins are listed on trading platforms, the contract fee rate will quickly turn into -2%. The team will have no motivation to pump the price since the listing goal has already been achieved; trading platforms will also not pump the price because shorting new coins has become a market consensus.

When the token issuance immediately enters a unilateral downward trend, the frequency of this phenomenon increases, and market users' perceptions will gradually be reinforced, leading to the situation of "bad money driving out good money." Assuming that in the next token generation event, the probability of projects dumping immediately after issuance is 70%, while those willing to provide support are 30%. Under the influence of successive dumping projects, retail investors will engage in retaliatory short selling, even knowing that the risk of shorting immediately after issuance is extremely high. When the short-selling situation in the futures market reaches its peak, project parties and trading platforms will also have to join the short-selling ranks to make up for the target returns that cannot be achieved through dumping. When the 30% of teams see this situation, even if they are willing to provide market support, they are reluctant to bear such a huge price difference between futures and spot. Therefore, the probability of projects dumping immediately after issuance will further increase, and the teams that create a beneficial effect after issuance will gradually decrease.

The unwillingness to lose control over chips has resulted in a lack of progress or innovation in institutional coins during token generation events compared to four years ago. The inertia of thinking is more powerful than imagined in constraining institutions and project parties. Due to the dispersion of project liquidity and the long unlocking period for institutions, as well as the constant turnover of project parties and institutions, despite the persistent issues with this method of token generation events, institutions and project parties have exhibited a numb attitude. Many project parties may be establishing projects for the first time, and when facing unprecedented difficulties, they tend to fall into survivor bias, believing they can create different value.

Why choose the dual-driven model of institutions + communities? A purely institution-driven model increases the pricing discrepancies between users and project parties, which is detrimental to the price performance of token issuance in the early stages; meanwhile, a completely fair launch model can easily be manipulated by a small group behind the scenes, resulting in a loss of a large amount of low-priced chips, with prices fluctuating through a complete cycle within a day, which is a devastating blow to the subsequent development of the project.

Only by combining the two can institutions intervene in the early stages of the project, providing reasonable resources and development plans for the project party, reducing the team's financing needs in the early stages of development, and avoiding the worst outcome of losing all chips due to fair launches, while only obtaining low certainty returns.

In the past year, more and more teams have discovered that traditional financing models are failing — the routine of offering small shares to institutions, maintaining tight control, and waiting for a pump has become difficult to sustain. Institutional funds are tightening, retail investors are refusing to take over, and the listing thresholds on large trading platforms have increased. Under this triple pressure, a new approach that better adapts to bear markets is emerging: collaborating with leading opinion leaders and a small number of institutions to advance projects through a high proportion of community launches and low market cap cold starts.

Some projects are opening new paths through 'large-scale community launches'—endorsed by leading opinion leaders, distributing 40%-60% of the tokens directly to the community, launching projects at valuations as low as $10 million, and achieving millions of dollars in financing. This model builds consensus FOMO through the influence of opinion leaders, locks in profits early, and exchanges high liquidity for market depth. Although it gives up short-term control advantages, it allows for compliant market-making mechanisms to buy back tokens at low prices during bear markets. Essentially, this is a paradigm shift in power structure: from an institution-led game of hot potato (institution takes over - sells off - retail investors buy in) to a transparent game of community consensus pricing, forming a new symbiotic relationship between project parties and the community within liquidity premiums.

Recently, a project can be regarded as a breakthrough attempt between a certain chain and the project party. 4% of its tokens are issued through IDO, and the IDO market capitalization is only 20 million USD. To participate in the IDO, users need to purchase a certain chain token and operate through the trading platform wallet, with all transactions being directly recorded on the chain. This mechanism not only brings new users to the wallet but also allows them to obtain fair opportunities in a more transparent environment. For the project, the operation through market makers ensures a reasonable price increase. Without sufficient market support, the token price cannot be maintained within a healthy range. As the project develops, the gradual transition from low market capitalization to high market capitalization, along with the continuous enhancement of liquidity, the project gradually gains market recognition. The contradiction between the project party and institutions lies in transparency. Once the project party launches the tokens through IDO, they no longer rely on exchanges, which can resolve the contradiction regarding transparency between both parties. The token unlocking process on the chain becomes more transparent, ensuring that past conflicts of interest are effectively resolved. On the other hand, the dilemma faced by traditional centralized trading platforms is that after the token issuance, there often occurs a price crash, which gradually decreases the trading volume of the trading platforms. However, through the transparency of on-chain data, trading platforms and market participants can more accurately assess the true situation of the project.

It can be said that the core contradiction between users and project parties lies in pricing and fairness. The purpose of a fair launch or IDO is to meet users' expectations for token pricing. The fundamental issue with institutional coins is the lack of buying pressure after issuance, with pricing and expectations being the main reasons. The breakthrough point lies with the project parties and trading platforms. Only by fairly passing benefits of the tokens to the community and continuously promoting the construction of the technical roadmap can the value growth of the project be realized.