The Dark Side of Altcoins

Why do almost all altcoins go to zero, with only a few exceptions?

Written by: Crypto Dan

Translated by: Saoirse, Foresight News

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

It all boils down to one thing that no one is honest about: the structural game between company equity and token holders.

Let me explain in simple terms.

Most crypto projects are actually just companies with attached tokens

They have the following characteristics:

• A legal entity company
• Founders holding equity
• Venture capital investors with board seats
• CEO, CTO, CFO
• Profit goals
• Future exit (cash-out) expectations

Then, they casually issue a token.

Where does the problem lie?

Only one side can capture value, and equity is almost always the winner.

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
• Profit → flows 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 will ultimately choose the path that satisfies venture capital, and the value of the token will continue to erode.

This is why, even if many projects appear “successful” on the surface, their tokens are still doomed to go to zero.

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

Besides being the protocol with the highest fee revenue in the crypto industry, the project also avoided the biggest “killer” of tokens—venture capital equity funding rounds.

Hyperliquid has never sold its equity, has no VC-led board, and thus no pressure to direct value to the company.

This allows the project to do what most projects cannot: direct all economic value to the protocol, rather than to a corporate entity.

This is the fundamental reason why its token can be an “exception” in the market.

Why tokens cannot legally function like stocks

People always ask: “Why can’t we make tokens directly equivalent to company stock?”

Because as soon as a token has any of the following characteristics, it is classified as an “unregistered security”:

• Dividend distribution
• Ownership
• Corporate voting rights
• Legal claim to profits

At that point, the entire U.S. regulatory apparatus will crack down on the project overnight: exchanges can’t list the token, holders must complete KYC, and global issuance becomes illegal.

Therefore, the crypto industry has chosen a different path.

The optimal legal structure (adopted by successful protocols)

Today, the “ideal” model is as follows:

1. The company receives no revenue; all fees go to the protocol;
2. Token holders receive value through protocol mechanisms (such as buybacks, burns, staking rewards, etc.);
3. Founders gain value through tokens, not through dividends;
4. No venture capital equity exists;
5. Economic decision-making is controlled by the DAO, not the company;
6. Smart contracts automatically distribute value on-chain;
7. Equity becomes a “cost center,” not a “profit center.”

This structure allows tokens to function economically like stocks, without triggering securities laws. Hyperliquid is currently the most typical successful example.

But even the most ideal structure cannot completely eliminate conflicts

As long as a project still has a legal entity, potential conflicts of interest will always exist.

The only way to achieve true “no conflict” is to reach the ultimate form of Bitcoin/Ethereum:

• No legal entity
• No equity
• Protocol runs autonomously
• Development funded by the DAO
• Neutral infrastructure attributes
• No legal entity to attack

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

Core reality

The reason most tokens fail is not “poor marketing” or “bear market conditions,” but structural design flaws.

If a project has any of the following characteristics, then mathematically, the token cannot achieve long-term sustainable appreciation—such designs are doomed from the start:

• Has conducted VC equity financing
• Has conducted private token sales
• Has token unlock mechanisms for investors
• Allows the company to withhold revenue
• Treats tokens as marketing coupons

On the other hand, projects with the following characteristics can achieve completely different outcomes:

• Direct value to the protocol
• Avoid VC equity financing
• No investor token unlock mechanisms
• Align founders’ interests with token holders
• Make the company economically irrelevant

Hyperliquid’s success is not “luck,” but the result of thoughtful design, a robust tokenomics model, and highly aligned interests.

Therefore, next time you think you’ve “found the next 100x potential token,” maybe you really have—but unless the project adopts a tokenomics design like Hyperliquid’s, its ultimate fate will be a slow decline to zero.

Solution

Only when investors stop funding projects with design flaws will teams begin to optimize tokenomics. Teams won’t change because of your complaints; only when you stop giving them money will they make adjustments.

This is why projects like MetaDAO and Street are so important to the industry—they are setting new standards for token structure and holding teams accountable.

The future direction of the industry is in your hands, so allocate your funds rationally.