Web3 is brimming with innovations and promises, yet it is also shadowed by the specters of failure leading to the graveyard of forgotten digital currencies. Numerous tokens and coins rose with the promise of revolutionizing finance, only to vanish into the ether(Not Ethereum chain. But Ether vain 😛). These ‘Dead Coins’ and ‘Ghost Tokens’ represent ambitious projects that soared on wings of hype and innovation in the shadowy corners of the cryptocurrency universe, but ultimately plummeted into oblivion. What sends these ambitious projects to the Web3 Graveyard?

Since the initial significant surge in cryptocurrency popularity in 2011, the market has seen the introduction of tens of thousands of different cryptocurrencies. According to Coingecko as of May 2024, there are 14,316 cryptocurrencies in existence. While popular cryptocurrencies like Ethereum remain active in the market,an estimated  2,383 crypto coins failed and disappeared between 2013 and 2022.

The year 2018 marked a significant milestone in the cryptocurrency sector, witnessing the highest number of projects being abandoned/ suffering from negligible trading volumes, alongside a surge in scams, unsuccessfulInitial Coin Offerings (ICOs), and coins lacking practical utility. This trend was largely spurred by Bitcoin’s remarkableprice escalation, which not only surpassed the $1,000 threshold for the first time but also reached an unprecedented high of nearly $20,000 in 2017. This 20-fold increase in Bitcoin’s value throughout 2017 infused the market with a sense of optimism, leading many to venture into launching their own projects, hoping to replicate Bitcoin’s success.

 

Why was 2018 a Turbulent year and What caused the Bloodbath ?

Significant Market Downturn: Following the exceptional surge in Bitcoin’s value in 2017, where it nearly hit the $20,000 mark, the year 2018 witnessed a substantial downturn in the market. This decline led to considerable losses for numerous investors across various cryptocurrencies and the ripple effect led to the failure of many crypto coins and tokens. As investor confidence waned, funding for new projects dried up, resulting in the abandonment of numerous Initial Coin Offerings (ICOs). An ICO, or Initial Coin Offering, is a fundraising method used by cryptocurrency projects to raise capital. During an ICO, a new cryptocurrency project sells a portion of its tokens to early investors in exchange for established cryptocurrencies like Bitcoin or Ethereum, or sometimes fiat currency.

The market correction also exposed the vulnerability of many poorly structured projects, leading to a swift and harsh elimination of those without solid foundations or clear use cases. This period served as a reality check for the crypto market, emphasizing the need for more robust and sustainable business models in the blockchain and cryptocurrency sectors.

End of the ICO Mania: The Initial Coin Offering (ICO) market in 2018 witnessed a significant shift in the cryptocurrency landscape. This period was characterized by market saturation, with an overwhelming number of ICOs flooding the market, many lacking viable business models and clear use cases. This saturation made it increasingly difficult for investors to identify legitimate and promising projects. Compounding this issue was the exposure of numerous fraudulent schemes and poorly managed projects, leading to high-profile scams where organizers absconded with investors’ funds. These developments severely eroded investor trust in ICOs, leading to a sharp decline in enthusiasm for these new coin offerings. In response, regulatory bodies worldwide began to crack down on ICOs, issuing warnings and guidelines, and in some cases, outright bans to protect investors and maintain market integrity. The market itself underwent a significant correction, with major cryptocurrencies experiencing a fall in prices and the ICO market cooling off.

The aftermath of these challenges saw a shift towards more regulated and structured forms of fundraising, such as Initial Exchange Offerings (IEOs), which aimed to address the shortcomings of the ICO model. The ICO wave of 2017-2018 thus serves as a cautionary tale, highlighting the risks associated with emerging, unregulated financial instruments, and underscoring the need for investor diligence, sound project evaluation, and effective regulatory frameworks in the evolving digital economy.

Around 2017-2018, the cryptocurrency community was still reeling from the Mt. Gox collapse. Investors, wary of potential scams and unproven projects reminiscent of the Mt. Gox debacle, became increasingly skeptical of the flood of new ICOs. Regulatory bodies became more vigilant after the Mt. Gox incident, swiftly cracked down on ICOs with warnings, guidelines, and bans to protect investors. This heightened scrutiny and the lingering fear of another major collapse contributed to the sharp decline in enthusiasm for ICOs, ultimately cooling the market.

Heightened Regulatory Focus: 2018 also saw an increased focus from global regulators and government bodies on the cryptocurrency sector. This led to the introduction of new regulations and guidelines in several countries, creating a sense of uncertainty and affecting the overall investor sentiment. While some countries established stricteranti-money laundering (AML) andknow-your-customer (KYC) regulations for cryptocurrency exchanges, others began to explore or establish frameworks for ICOs, aiming to protect investors from potential frauds and scams.

Although these regulatory efforts were aimed at bringing more transparency, stability and legitimacy to the cryptocurrency market, they created a degree of uncertainty among investors and industry participants, as they had to navigate the evolving and uncertain regulatory landscape.

% of Dead Crypto Coins by 2022

Source: CoinKickoff

The survival and failure rates of cryptocurrencies, when analyzed based on their year of inception, reveal a number of insightful trends and implications. This analysis provides a clearer understanding of how the cryptocurrency market has evolved over time, highlighting the varying degrees of success and longevity of digital currencies from their launch year.

High Failure Rates in Early Years (2013-2015):

The data shows a high percentage of dead coins for cryptocurrencies started between 2013 and 2015, with failure rates above 60%. This could be attributed to the nascent stage of the cryptocurrency market during these years, characterized by less regulatory clarity, lower public awareness, and technological infancy.

Slight Decrease in Failure Rates (2016-2017):

There’s a noticeable decrease in failure rates for coins started in 2016 and 2017. This period coincides with a growing public interest in cryptocurrencies and improvements in blockchain technology. However, the rates are still relatively high, possibly due to the proliferation of ICOs, many of which failed to materialize into viable projects.

Significant Drop in 2018:

The failure rate drops markedly for coins started in 2018. This could be a result of the market correction that occurred in 2018, following the 2017 crypto boom. The correction likely led to more cautious investment and project development

Dramatic Decrease in Recent Years (2019-2022):

The sharp decline in failure rates for coins starting from 2019 onwards suggests a maturing market with better project vetting, increased regulatory clarity, and more informed investors. The industry’s growth and stabilization might have contributed to a more sustainable environment for new cryptocurrencies.

The decreasing trend in failure rates over the years indicates a move towards greater stability and maturity in the cryptocurrency market. This could mean that newer projects are being launched with more solid foundations, clear use cases, and better compliance with regulatory standards.

The Greater Fools Theory

The Greater Fool Theory in the context of cryptocurrency highlights the phenomenon where investors buy overhyped and overpriced tokens. This behavior is not based on the token’s intrinsic value, but with the hope of selling them to someone else at a higher price. This often occurs during heated or overheated bull markets, where media-fueled hype and speculative frenzy lead to inflated valuations. For instance, during the 2017 ICO boom, many investors bought into the hype without thorough due diligence, expecting the value of these tokens to skyrocket simply because of announced partnerships or speculative potential.

This speculative bubble created a market where tokens with little to no fundamental value could attract significant investment, only for many to eventually plummet, leaving late investors holding worthless assets. The aftermath of the ICO mania saw a graveyard of broken promises and abandoned projects, with numerous tokens failing to deliver on their ambitious roadmaps. As a result, the market correction of 2018 served as a harsh lesson, underscoring the risks of speculative investments and the importance of robust business models and real-world utility in sustaining long-term value in the cryptocurrency space.

The U.S. Treasury’s sanctioning of Tornado Cash in 2022 further highlighted the ongoing challenges in the cryptocurrency market, particularly regarding illegal activities and the use of private tokens for money laundering. Tornado Cash, a virtual currency mixer, facilitated the anonymous transfer of funds, which significantly increased illegal activities. By sanctioning Tornado Cash, the U.S. aimed to prevent illegal wire transfers and emphasize the need for stringent regulatory measures.

Conclusion

The ‘Web3 Graveyard,’ inhabited by ‘Dead’ Coins and ‘Ghost’ Tokens, offers a profound reflection on the volatile journey of the cryptocurrency sector. This metaphorical graveyard serves as a stark reminder of the risks inherent in emerging, unregulated financial markets. Furthermore, it is not just a memorial to past failures but a guidepost for future developments in this dynamic and evolving field. This evolution, marked by decreasing failure rates and increasing regulatory compliance, signals a shift towards a more stable and mature market. Projects are now being launched on firmer foundations, indicating an industry moving from speculative chaos to a phase of considered growth and resilience.

 

One of the most notable examples of this volatility is the collapse of FTX, one of the largest cryptocurrency exchanges. The downfall of FTX, a major scam in the crypto world, resulted in a significant push for transparency. In the aftermath, exchanges were required to publish proof of assets to restore trust among investors. This incident underscored the critical need for regulation, as the lack of oversight was a major factor in the failure of numerous projects.

 

In conclusion, the Web3 Graveyard is not just a catalog of past missteps but a testament to the ongoing maturation of the cryptocurrency market. The lessons learned from high-profile collapses like FTX and Mt. Gox are driving the industry toward greater transparency and accountability. As regulatory frameworks strengthen and projects are built on more solid foundations, the future of the cryptocurrency sector promises to be one of thoughtful growth and resilience, moving away from the speculative chaos of its early days.

 

Miss Meow’s Insights

 

The ‘Web3 Graveyard’ serves as a stark reminder of the cryptocurrency sector’s highs and lows. Here’s how both founders and users can navigate this space to avoid their projects becoming part of the Web3 graveyard:

 

For Founders: 

 

  • Ensure your project has a solid business model with clear use cases and value propositions. Avoid relying solely on hype and speculative interest. Focus on solving real-world problems.
  • Your whitepaper should clearly outline your project’s objectives, technology, use case, and roadmap. It should provide detailed, transparent information that can instill confidence in potential investors and users.
  • Build a team with verifiable experience. Transparency about the team’s credentials and roles will enhance trust and credibility.
  • Cultivate an active and engaged community. Regular updates, transparent communication, and responsiveness to feedback can build a loyal user base and provide valuable insights for project improvement.
  • Adhere to all relevant regulations, including AML and KYC policies. Compliance not only builds trust but also protects your project from legal issues that can lead to its downfall.
  • Before launching a full-scale project, create a working prototype or beta version. This demonstrates feasibility and commitment, providing proof of concept to potential investors and users.
  • Practice realistic marketing. Focus on communicating the real value and potential of your project without resorting to exaggerated claims.
  • Implement robust security measures to protect your project from hacks and vulnerabilities. Regular security audits and updates can prevent catastrophic failures.
  • Conduct Thorough Research, investigate the project’s whitepaper, technology, and check the community before investing. 
  • Check the experience and track records of the project’s founders and developers. Be wary of projects with anonymous or unverified teams.
  • Examine social media and community channels for genuine engagement and activity. Be cautious of projects with artificially inflated community numbers and overly positive comments.
  •  Check Regulatory Compliance to ensure the project complies with relevant regulations and adheres to AML and KYC policies. Regulatory compliance is a key indicator of a project’s legitimacy and sustainability.
  • Review the project’s technological foundation. Ensure there is a working prototype or beta version that demonstrates feasibility and innovation.
  • Be skeptical of projects that promise guaranteed high returns with minimal risk. High returns come with high risk, and any claims otherwise should be a red flag.
  • Look at the tokenomics of the project. A fair and transparent distribution model is essential for sustainability. Be wary of projects where a small group holds a large percentage of tokens.
  • Finally, trust your instincts. If something feels off or too good to be true, take a step back and reassess. Your gut feeling can often help you avoid bad investments.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending