The crypto token glut is draining value and crushing investor returns.
According to Michael Ippolito, the founder of Blockwork, the rapid growth in the number of crypto tokens exceeds the value they generate.
In the X series of posts, he mentioned that while the overall crypto market capitalization remains relatively strong, the average price per token tells a different story. “The average coin is slightly higher than it was in 2020 (!) and is down ~50% since 2021,” he wrote.
Median token returns have also increased significantly. Most tokens are down about 80% from their highs, with gains concentrated in a large pool of assets while the broader market underperforms, Ippolito said.
They argue that the imbalance appears to be driven by the rapid expansion of token supply. “We've created a lot of new assets and the overall market cap is flat,” he wrote, adding that this volatility significantly reduces the value of the growing pool of tokens.
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Token values are disconnected from fundamentals
Ippolito says the relationship between fundamentals and value has weakened. In the year Token prices in 2021 will closely track onchain revenue. Recent data shows that while protocol revenues have rebounded, prices have not followed, indicating a disconnect between usage and investor returns.
This, he argued, reflects a lack of trust in tokens as vehicles to capture value. “The token problem is the survival of this industry,” he said, adding that without a strong correlation between fundamentals and value, the sector could lose its core appeal.
In a post on X, Arthur Cheong, founder and CEO of DeFiance Capital, he “agrees with the urgency to correct the current situation of tokens in the crypto industry,” warning that if the market continues to focus around a small set of assets such as Bitcoin and Ether, the risk of losing relevance to the broader crypto ecosystem.
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Capital is converted from tokens to shares.
Investor interest is increasingly shifting from token launches to publicly listed crypto companies, as most token startups have failed to hold value, a February study from DWF Labs found. According to the report, more than 80% of projects are trading below the Token Generation Event (TGE) price, with losses ranging from 50% to 70% within three months.
The pattern appears to be structural rather than cyclical. According to DWF's Andrey Grachev, most tokens are at their peak in the first month before falling due to continuous selling pressure. Factors such as airdrops and early investor openings increase supply congestion, reinforcing price trends even for projects with active products or protocols.
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