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Once again, founders are raising at ludicrous valuations with business plans that make scribbles on the back of a napkin look like blueprints for the Whitehouse. With the return of the bull market comes the opportunists and scammers.
Investors are partially responsible as well. Speculators are throwing money into half-baked projects with little due diligence. One morning, you look at Blockfolio and see your portfolio lost 50% of its value. You hodl on strong, but tomorrow it loses 50% again. Would you sell or risk being the last one standing when the music stops? It’s clear how this story ends—another multi-year hangover once the bubble pops.
Market Cycles and Incentives
These ebbs and flows are part of a market cycle that continues to repeat itself. Every few years, people will lose faith in cryptocurrency and sell everything they own. Projects and founders empty their treasuries to keep the lights on. Crypto Twitter and Reddit turn into ghost towns. What would the market need to do to maintain healthy and sustainable progress?
The reality is that projects need to fundraise to execute their visions. Investors want to take on the early risk for part of the upside.
ICOs Come to the Forefront
Come 2017, the initial coin offering, or ICO, violated this dynamic. Billions of dollars poured into speculative projects, both good and bad. A few projects that survive with big raises include EOS and Tezos, which raised $4.1 billion and $232 million. Other tokens weren’t so lucky.
Dragon Coin raised $320 million to open up a floating casino that was never built. Hyundai DAC raised $258 million with dubious connections to the South Korean automobile company. Like hundreds of other initial coin offerings, the money disappeared, and the projects had little to show for it.
It’s not surprising. Why would founders actually execute when they could become a multi-millionaire just from marketing a farfetched whitepaper? There is no accountability, and…