727 FinanceCan on-chain ICOs replace VC coins? This article provides an in-depth analysis of the root causes of failure in ICOs, VC coins, Alpha, and on-chain issuance models, and proposes a new absolute fairness scheme centered on real-name DID, same-price unlocking, and on-chain transparency, offering new ideas for early-stage blockchain financing to return to the right track of value.
Author: Diving Observer
I entered the space in 2018.
At that time, the crypto space was never just a place to make money.
It was also a place for critical thinking.
In recent years, there has been more and more money in the crypto space,
but fewer and fewer sparks of thought.
This article is meant
to offer a modest contribution and invite better ideas.
[Current Situation: The Financing Path Is Broken]
The current market is very cold. What is cold is not just prices, but the entire business model. No one is willing to take VC coins, and VCs are no longer willing to invest; native projects cannot obtain early-stage funding, and the native ecosystem is fragmenting.
ICO died once, and VC coins died once. Today's Alpha model and on-chain issuance are repeating the same path. Several models take turns appearing and take turns failing, and the reason is actually the same: token allocation is unfair and opaque.
So I want to propose a new solution — on-chain ICO. It is not a return to 2017, but rather, on the skeleton of ICO and with today's mature on-chain infrastructure, turning "fairness" and "transparency" from slogans into verifiable rules.
Before explaining the solution, let me first make clear why the previous models failed.
[1. ICO (2015–2019): From Uniform Pricing to Team Leader Rebates]
ICO was fair at the beginning. During the Ethereum ICO, institutions and retail investors bought at the same price; no one got a cheaper price than anyone else.
Later, "team leaders" (also called "proxy investors") emerged: retail investors gave money to team leaders, and team leaders used that money to invest in projects. There were more and more projects, and more and more garbage projects; to compete for funds, project teams began giving large rebates to top team leaders and institutions.
There were three results:
1. Inconsistent costs. Retail investors' cost basis for tokens was clearly higher than that of team leaders and institutions — for the same coin, different people had completely different starting lines.
2. Opaque project team costs. How much the team itself took and at what cost was invisible to outsiders.
3. No lock-up. Project teams and early token holders could sell at any time on centralized exchanges.
Retail investors were always the last to hold the bag, and that is how ICO declined.
[2. VC Coins (2019–Present): From Room to Grow to No Room at All]
After ICO, the market stopped trusting team leaders and turned to trusting VCs. The logic of VC coins was: VCs take early tokens, combined with lock-ups, so there would be no large-scale dumping at the initial listing.
Early VC coins did indeed produce results. Many public chains were VC coins: VCs unlocked a portion, and the rest were willing to keep holding. More importantly, listing valuations at that time were not high. Take Matic as an example: in April 2019, its public sale price on Binance Launchpad was $0.00263, with a total supply of 10 billion tokens, corresponding to a fully diluted valuation of only about $26 million; on December 27, 2021, it peaked at $2.92, with a fully diluted valuation of about $29 billion — an increase of more than a thousand times. Even if retail investors bought in the secondary market, there was still enough room to profit.
Later, VC coins changed:
1. High open at listing. Listing FDV was often several billion or even tens of billions of dollars, leaving no upside for buyers; retail investors lost money as soon as they bought.
2. Unlock meant dumping. VC costs were extremely low and paper gains were huge, so the moment of unlock became selling pressure.
One high open and one dump, and the reputation of VC coins was completely ruined. That model also came to an end.
[3. Alpha Model: A Modified VC Coin, but It Only Fed Market Makers]
Models like Binance Alpha were essentially patching the problems of VC coins: VCs could not unlock immediately, usually only after one year, forcing VCs to "play the long game"; the early token dividend was given to Alpha's retail users.
It looked fairer, but new problems emerged in practice:
1. Those who received tokens were not real buyers. Many of Alpha's retail users were airdrop farmers; they were not real secondary-market buying power, but merely came to claim tokens.
2. VCs were locked, but were bound to lose money at unlock. Unlocking one year later, prices were no longer at highs — selling meant a loss, and not selling also meant a loss.
3. The only real winners were market makers. By controlling the market and pushing prices up, and harvesting on the derivatives side, market makers became the only winners.
The result was an extremely unhealthy market: there were no real VC coins, and no real new things emerged. Good projects could not get money in this space, and those willing to fund them no longer believed in the game.
[4. On-Chain Issuance: Trading Moved On-Chain, but Tokens Did Not]
During the same period as Alpha, many VC coins chose another path: not going through exchanges, but issuing directly on-chain. When on-chain market conditions were good, this path did work.
But it had two fatal problems:
1. Extremely vulnerable to sniping. On-chain issuance is essentially first-come, first-served; whoever buys first gets a cheaper price. A large number of "scientists" used scripts and bots to front-run, taking early tokens at extremely low cost; by the time ordinary people entered, it was already someone else's exit price.
2. Token distribution remained opaque. Everyone now assumes that part of the early tokens was taken by the project team itself. Addresses have no identity, and the more prices rise, the fewer people dare to buy — because no one can tell whether the project team is selling or buying.
On-chain issuance only moved trading on-chain, but did not move identity and token flows on-chain. You can see every trade, but you cannot see who is behind every trade — that is the source of distrust.
[On-Chain ICO: Three Core Principles]
The core idea of on-chain ICO is just four words: absolute fairness. It is achieved not through project teams' promises, but through today's already very mature on-chain infrastructure.
1. Every token allocation is bound to a real-name DID address. Whether retail investors, VCs, or exchanges, the tokens they receive are linked to their own DID identity addresses. This is the most important point: only with real names can the market confirm that "this sell order is not the project team dumping its own tokens." Institutions can sell, and retail investors can also sell, but everyone knows who is selling. If optimistic, buy; if not, sell — information is fully symmetric.
2. VCs and retail investors: same price, same unlock. In the same round, institutions and retail investors receive tokens at the same price and with the same unlock schedule. No rebates, no hidden prices, no one running first.
3. Use of proceeds is publicly disclosed at all times, supervised by DAO voting. How the funds raised by the project team are spent must be continuously disclosed on-chain; token holders vote through the DAO to judge whether each use is reasonable.
In one sentence: replace "trust me" with "go check the chain yourself."
[How the Mechanism Works: A Case Study]
The starting valuation is controlled within $10 million, with a raise of a few million dollars. For an early-stage project, this amount is already enough to get things done.
Allocation:
· Institutional public sale: 20%, same price, same unlock schedule, subscription requires an on-chain real-name DID
· Retail public sale: 20%, same price, same unlock schedule, subscription requires an on-chain real-name DID
· Team, ecosystem, exchange liquidity, etc.: 60%, unlocked according to a public plan, verifiable on-chain, acquisition requires a real-name DID
Using illustrative numbers: at a $10 million valuation and 40% sold, the raise is about $4 million.
The key here is not only the 40% in the public sale, but the remaining 60%:
· Team allocation: whether it has been sold after unlock is clear at a glance on-chain.
· Ecosystem allocation: whether it was truly distributed to users or sold by the team is visible to everyone.
· Exchange and liquidity: exchange token transfers and liquidity token unlocks can be known in advance by everyone, so there will be no sudden selling pressure.
This is what truly gives on-chain its meaning: not issuing tokens on-chain, but putting the destination of every token on-chain.
[Why This Can Bring Price Back to Fundamentals]
Only with low valuations and fair fundraising do projects have room to rise. Today's VC coins are at high levels as soon as they list, with no growth potential.
The price logic of on-chain ICO should be the same as that of Web2 companies: more users, more ecosystem partners, and higher TVL naturally push prices up, and people naturally do not sell and remain optimistic; if the team does not work and growth slows, prices naturally fall. Both rises and falls are determined by fundamentals, not by who first obtained cheap tokens.
Comparison of models:
· Early ICO: consistent costs, token destinations unverifiable, no lock-up; ultimately early participants made money
· Team leader era ICO: inconsistent costs (rebates), token destinations unverifiable, no lock-up; ultimately team leaders and project teams made money
· VC coins: inconsistent costs, token destinations unverifiable, VCs took tokens first and unlocked centrally; ultimately early VCs made money
· Alpha model: inconsistent costs, token destinations partially verifiable, VCs locked for one year; ultimately market makers made money
· On-chain issuance: inconsistent costs (scientist sniping), trades verifiable but identities unverifiable, unlocks opaque; ultimately scientists and project teams made moneyOn-chain ICO: identical costs, fully traceable distribution of tokens (real-name DID), public on-chain unlocking within the same cycle, and ultimately projects with sound fundamentals and long-term holders make money.
It should be noted that an on-chain ICO defines rules, not ratios. How much allocation VCs and retail investors each get, how the team and ecosystem split it, in which jurisdiction compliance is done, and how staking generates tokens are all decided by the project team itself, and whether to participate is decided by each individual. VCs can get a larger allocation, provided it is at the same price, with the same unlocking terms, and with real-name addresses.
What I offer is just a new way of thinking: write fairness and transparency on-chain, so that everyone can verify it themselves.
[Everything On-Chain: On-Chain ICOs Are Not Just for the Crypto World]
This industry is becoming increasingly compliant: stocks are starting to go on-chain, some U.S.-listed companies are proactively engaging with the crypto world (though most are small companies now), and stablecoins have already become intertwined with traditional finance.
In the era of everything on-chain, we should think about one question: can this industry be helpful to people outside the industry?
My answer is on-chain ICOs. For many startups, it is a transparent and fair path for early-stage financing.
I entered the industry in 2018, and what moved me most at the time was the token economy. Its core point is: the users of an ecosystem should also be the beneficiaries of the ecosystem. This is the biggest difference between Web3 and traditional companies, and also its biggest advantage.
When the beneficiaries become every token holder, a chemical reaction occurs: the project will gain truly loyal users and ecosystem participants. Tokens should be given to these value creators, rather than becoming a selling tool for a handful of market makers and a handful of project teams to satisfy their private interests.
Only by returning to its original state can this industry regain the attention and respect of the outside world and regain its innovative power.
I hope on-chain ICOs will not only be useful to the crypto world. Startups outside the circle can also use this transparent and fair model to obtain early-stage investment, letting token holders accompany the company as it grows.
I always remember that when I first entered the industry, what people said about BTC was: fair, just, open, and transparent. I also believe that only by returning to this state can this circle, manipulated by insider dealings and gray practices, be brought back on track.
The infrastructure is already sufficient, and the idea has been laid out. Now it is just a matter of who acts first.