Topic: Why most premined coins (>90% of all altcoins) will eventually fail - page 2. (Read 224 times)
June 28, 2023, 10:23:36 AM
I guess none can match up bitcoin as decentralized project of all time. However these premine coins are also part of the coinmarketcap and I think they may have co tributed to what bitcoin now. If OP, thinks that they will fail then thats his opinion. Everybody loves to earn money afterall. I think only few tokens or alts will survive a heavy downfall but I doubt that these top 10 projects or bigger alts will fail since they already established their positions and some big players supporting them aside from bitcoin whales.
June 28, 2023, 09:27:11 AM
I wonder what are those 2k cryptocurrency projects out there that will not fail considering CMC reports says it has 22k out there. And, so if an anonymous person/group make another bitcoin-like system again, it would not fail? I think premine isn't bad as long as it's not distributed in a corrupt manner, if the project has utility and keeps on innovating I don't think they'll be gone in just a decade. For sure the crypto space will grow and there's a lot more to cater for.
June 28, 2023, 08:18:45 AM
The last time I heard of a community takeover was the case of Luna. I'm pretty sure there were premined but I'm not updated as to whether they were all burned after the classic and terra 2.0 split. Both projects still looks like a sinking ship to me but some community members are still trying so best of luck to them.
June 28, 2023, 01:03:56 AM
Premines exist when a cryptocurrency team at launch already has distributed coins to either themselves, a development team, or buyers of an ICO - before anyone could mine or mint it, regardless of the coin being PoS or PoW. 90% or more of all altcoins and tokens had a premine. Examples in the top 10 are Ethereum, BNB, XRP, Cardano, Tron and all centralized stablecoins.
I consider it likely that most of the coins with large or 100% premine will fail eventually. In a few years they will be worth much less than at their heyday.
The reason is a simple incentive mechanism. Premines benefit a single core team, even if they are distributed via ICO to other people. As a consequence, the future of the coin may be shaped, and there is a high probability for a single pump price curve: a phase the coin does relatively well, which may last some years (most of the time 2-5 years, in some cases up to a decade). But then, in a second phase, the coin will lose traction, and may lose 90% or more of its value (not considering bull/bear markets).
Why?
1) At first the premine gives the coin a competitive advantage: The development team is well funded and can make progress fast. The single pump can take place, with early adopters and the dev team making lots of money. There are coins to finance marketing activities, and also perhaps for airdrops and bounties. If a team manages the coin intelligently, this phase can run for several years.
2) However, once the funds run dry, this competitive advantage is becoming smaller and smaller. The development team may make slower progress, some developers and marketing guys will have to be fired. Sometimes, the team simply exits and nobody hears anything again - which is similar to the unfamous "rug pulls". Sometimes, the team will be still around, or hire a low-cost freelancer marketing team to give the impression the coin is still running well.
3) Often, if phase 2 has already begun and the coin's value is getting lower and lower, a "community takeover" may happen: a lot of work will be delegated to the current HODLers of the coin. However, it is unlikely that this will return the coin to previous heights (see below). Most likely the agony will simply be extended a bit.
4) If the community takeover loses force, the coin may either die completely (e.g. due to an attack, being delisted everywhere, etc.) or stay alive with a low value and market cap during some years more. It may get occasional pumps but never reach again the values of phases 1 and 2.
Can a coin escape this single-pump price curve?
Ethereum seems to be the proof that also premined coins can do well over a long time, even competing with Bitcoin. Also, XRP may be cited as an example - it's one of the oldest altcoins and still thriving. And then there may be also BNB. It seems that phase 2 in these coins never begun (XRP/BNB), or that phase 3 was very successful (ETH). However, I consider these three exceptions of the rule.
- Ethereum has developed into an ecosystem of its own. A lot of token projects are earning money based on it, and the user base is regularly renewed. Network effect was almost as strong as with Bitcoin due to the first mover advantage in the smart contract/Solidity field. It's unlikely other similar coins can sustain so much activity for such a long time.
- XRP and BNB have business models where aside from crypto activity there are other sources of income (XRP = cooperation with banks/fintechs, BNB = an exchange business).
In most cases, however, hopes that phase 3 (the "community takeover") will solve the problem and make the coin thrive in the long term, will be in vain. First, there isn't much space in human's brains for lots of coins. Only very few platforms can thus sustain a prolonged network effect because they are known by those launching new ICOs/tokens/NFTs like Ethereum.
Second, there's also a psychological problem. Why should I as a community member work on the coin hoping to revive it, if there was a team having made millions of dollars with their premine? Shouldn't they continue to do the work? They may still hold coins, so I will work for free for them ... This is also the difference to coins without premine. Coin without premine didn't have a single main beneficiary, so psychologically a "revival" and a successful community takeover is easier and thus more likely. Bitcoin is the blueprint: everything is community run since 2010/11.
Discuss
I consider it likely that most of the coins with large or 100% premine will fail eventually. In a few years they will be worth much less than at their heyday.
The reason is a simple incentive mechanism. Premines benefit a single core team, even if they are distributed via ICO to other people. As a consequence, the future of the coin may be shaped, and there is a high probability for a single pump price curve: a phase the coin does relatively well, which may last some years (most of the time 2-5 years, in some cases up to a decade). But then, in a second phase, the coin will lose traction, and may lose 90% or more of its value (not considering bull/bear markets).
Why?
1) At first the premine gives the coin a competitive advantage: The development team is well funded and can make progress fast. The single pump can take place, with early adopters and the dev team making lots of money. There are coins to finance marketing activities, and also perhaps for airdrops and bounties. If a team manages the coin intelligently, this phase can run for several years.
2) However, once the funds run dry, this competitive advantage is becoming smaller and smaller. The development team may make slower progress, some developers and marketing guys will have to be fired. Sometimes, the team simply exits and nobody hears anything again - which is similar to the unfamous "rug pulls". Sometimes, the team will be still around, or hire a low-cost freelancer marketing team to give the impression the coin is still running well.
3) Often, if phase 2 has already begun and the coin's value is getting lower and lower, a "community takeover" may happen: a lot of work will be delegated to the current HODLers of the coin. However, it is unlikely that this will return the coin to previous heights (see below). Most likely the agony will simply be extended a bit.
4) If the community takeover loses force, the coin may either die completely (e.g. due to an attack, being delisted everywhere, etc.) or stay alive with a low value and market cap during some years more. It may get occasional pumps but never reach again the values of phases 1 and 2.
Can a coin escape this single-pump price curve?
Ethereum seems to be the proof that also premined coins can do well over a long time, even competing with Bitcoin. Also, XRP may be cited as an example - it's one of the oldest altcoins and still thriving. And then there may be also BNB. It seems that phase 2 in these coins never begun (XRP/BNB), or that phase 3 was very successful (ETH). However, I consider these three exceptions of the rule.
- Ethereum has developed into an ecosystem of its own. A lot of token projects are earning money based on it, and the user base is regularly renewed. Network effect was almost as strong as with Bitcoin due to the first mover advantage in the smart contract/Solidity field. It's unlikely other similar coins can sustain so much activity for such a long time.
- XRP and BNB have business models where aside from crypto activity there are other sources of income (XRP = cooperation with banks/fintechs, BNB = an exchange business).
In most cases, however, hopes that phase 3 (the "community takeover") will solve the problem and make the coin thrive in the long term, will be in vain. First, there isn't much space in human's brains for lots of coins. Only very few platforms can thus sustain a prolonged network effect because they are known by those launching new ICOs/tokens/NFTs like Ethereum.
Second, there's also a psychological problem. Why should I as a community member work on the coin hoping to revive it, if there was a team having made millions of dollars with their premine? Shouldn't they continue to do the work? They may still hold coins, so I will work for free for them ... This is also the difference to coins without premine. Coin without premine didn't have a single main beneficiary, so psychologically a "revival" and a successful community takeover is easier and thus more likely. Bitcoin is the blueprint: everything is community run since 2010/11.
Discuss
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