Arthur Hayes argues that the initial coin offering (ICO) should return to its glorious days. His argument comes in an environment where large venture capitalists (VCs) are acting as industry gatekeepers and the dominance of centralized exchanges (CEXs) is growing.
The manifesto "How to Make ICOs Great Again" by the co-founder of BitMEX criticizes the current state of cryptocurrency capital formation. He advocates a decentralized, community-driven approach that prioritizes retail investors and revives the speculative spirit of the industry.
"Industry Stagnation Due to Exchanges That Have Forgotten the Spirit of Decentralization"
Hayes paints a picture of cryptocurrency growth succumbing to the influence of centralized institutions. He compares today's project founders to patients "CEXually transmitted disease", saying their decisions are dictated by the whims of exchanges and VCs.
Hayes argues that cryptocurrency founders have forgotten the fundamental principles of decentralization, user empowerment, and wealth creation for retail participants.
"Why have we as an industry forgotten the third pillar of the value proposition of cryptocurrency, which is the creation of wealth for retail?" Hayes joked.
He points to the poor performance of VC-backed tokens in recent years. These projects often start with inflated fully diluted valuations (FDV) and low circulating supply. However, they prioritize institutional interests, marginalizing retail investors. According to BeInCrypto, projects like Hamster Combat have rejected VC backing for this reason.
Nevertheless, Hayes sees the rapid growth of cryptocurrency as attributable to three key factors:
- Government Capture: Decentralization serves as an antidote to the concentration of power by governments and large corporations. It provides a system without traditional gatekeepers.
- Magical Technology: The resilience and potential of blockchain technology, as exemplified by Bitcoin, has proven the value of innovative monetary systems.
- Greed: The lure of substantial financial gains has driven adoption. Retail investors seeking life-changing returns are often overlooked in traditional finance.
Hayes contrasts the egalitarian nature of meme coins with the exclusivity of VC-backed projects. Meme coins rely on the "virality of meme content" to allow retail participants to gamble on speculative assets without gatekeeping.
In contrast, VC coins are weighed down by inflated valuations. A closed ecosystem of elite institutions and investors with little consideration for the retail market perpetuates this.
"Retail investors prefer to gamble on a $1 million market value meme coin rather than a $1 billion FDV project backed by the most 'respected' VC groups," Hayes explained.
The Need for ICOs
Hayes sees ICOs as a cure for the industry's stagnation. The purest form of ICOs allows diverse teams to raise funds directly from the community without intermediaries, implementing decentralization and enabling innovation while providing early-stage opportunities for retail investors.
Drawing lessons from the 2017 ICO boom, Hayes emphasizes two intrinsic value drivers:
- Meme Value: Projects that resonate with the zeitgeist and empathize with users can attract participants and build a strong community.
- Potential Technology: ICOs fund teams to develop innovative technologies that solve global problems, often starting before a single line of code is written.
While acknowledging that many ICOs have failed spectacularly, Hayes argues that this speculative nature is a feature, not a bug. It allows retail investors to dream big and aim for transformative returns. In this context, Hayes presents a roadmap to make ICOs great again.
- Rapid Token Issuance: New frameworks and fluid decentralized exchanges (DEXs) enable teams to deploy tokens within days, facilitating immediate trading and price discovery.
- Improved Infrastructure: Advancements in blockchain scalability and reduced transaction costs, particularly on chains like Aptos (APT) and Solana (SOL), make ICOs more accessible.
- Enhanced User Experience: Non-custodial wallets and simplified platforms lower the barriers to entry, ensuring broader participation.
- CEX Independence: Bypassing centralized platforms, ICOs can remove gatekeeping and restore power to the community.
Additionally, Hayes warns investors to avoid the pitfalls of the current system and urges the cryptocurrency community to embrace the speculative and democratized nature of ICOs that can provide life-changing financial returns without the constraints of traditional finance.
"Say 'no' to VC-backed high FDV, low liquidity projects and overvalued tokens on CEXs," he mentioned.
As the cryptocurrency market enters a potential new upswing cycle, Hayes predicts the revival of ICOs driven by a participatory and risk-taking community. Platforms like Pump.fun and Spot.dog exemplify the shift towards decentralized and retail-centric capital formation.
Through these tools, Hayes envisions a future where cryptocurrency once again allows individuals to make bold bets and reap the rewards of decentralized innovation.
"Let's go back to the spirit of the early days of cryptocurrency. It's time to make ICOs great again." – Hayes
