Castle Labs argues that the cryptocurrency market is structurally oversaturated with too many tokens, and most will eventually trend toward zero unless they demonstrate real business traction and stronger alignment between the token and its underlying project. In a detailed post on X, the firm frames the current market as a selection phase, not a broad recovery. The core issue isn’t that crypto is failing, but that token supply has vastly exceeded sustainable demand. The result is a market dominated by a handful of major assets, while thousands of smaller tokens compete for dwindling liquidity.
Too Many Crypto Tokens
To support its case, Castle Labs points to market concentration data. It notes that the top five crypto assets make up 84.4% of the total market capitalization. The remaining 15.6%—roughly $330 billion—is spread across thousands of other tokens. This contrasts with U.S. equities, where the “Magnificent Seven” stocks represent 31% of the market and the S&P 500 accounts for 84.7%. In crypto, just five assets are carrying a concentration level similar to the top 500 U.S. companies.
The firm states, “Over the years, so many coins have been created that 99% of them need to go to zero for the industry’s good.” This mismatch is becoming harder for investors to ignore, especially those who bought into the institutional adoption narrative but are now stuck with altcoin-heavy portfolios deep in losses.
Castle Labs outlines three possible paths for rebalancing: major tokens lose market share to smaller ones, external liquidity lifts the entire market, or weaker tokens lose value while majors absorb more capital. It argues the third outcome is the most likely, even if the first would be healthier.
A key part of the argument revolves around simple market mechanics. The firm highlights that continuous token unlocks will keep adding supply to a market where demand is already selective, citing $8.51 billion in unlock value for this year and $17.12 billion over the next five years. This overhang coincides with poor business performance across much of the sector. Out of over 5,600 protocols listed on DeFiLlama, Castle Labs reports that only 76 generated more than $1 million in revenue in the last 30 days, and only 237 cleared $100,000.
Revenue is also highly concentrated. According to the post, the top 10 protocols accounted for 80% of total crypto revenue, with the top three making up 64%. Tether alone represented 44%. Notably, only three of these top 10 revenue generators had launched tokens so far: Hyperliquid, Pumpfun, and Jupiter, with only HYPE (Hyperliquid’s token) materially outperforming.
This backdrop fuels Castle Labs’ skepticism toward new token listings. It notes there were about 118 major token launches, and 84.7% traded below their initial token generation event (TGE) valuation—evidence, it says, of inflated launch pricing and weak post-launch structure.
The Alignment Problem
Castle Labs also argues the market is punishing tokens that lack economic alignment with the products they represent. It cites the example of Circle’s acquisition of Interop Labs, where Axelar’s token (AXL) was not part of the deal, illustrating a divergence between product value and token value.
“Tokens are not a legal representation of the business and don’t offer any actual rights over the company’s profits, unlike equity,” the firm wrote. “Investors, when they receive tokens, have these rights through the equity they hold. So they are in a better position, but token holders? They are at the project’s mercy when it comes to aligning their product with their token.”
In this framework, buybacks are seen as one of the clearest signs of alignment. Castle Labs highlights Hyperliquid and Aave as examples, and notes that Uniswap only became fully aligned with tokenholders after more than five years.
The firm’s conclusion is blunt: capital is likely to continue flowing toward a shrinking number of tokens that demonstrate real utility and alignment, while the vast majority of projects fade away.The focus should shift toward protocols that generate real revenue, align with tokenholders’ interests, and have credible ways to manage dilution. Whether this approach proves successful in the next market cycle may depend less on hype and more on whether more projects adopt the kind of performance-based and revenue-driven launch models that Castle Labs reports are beginning to appear. At the time of writing, the total cryptocurrency market capitalization was $2.16 trillion.
Frequently Asked Questions
Of course Here is a list of FAQs about the common claim that most cryptocurrencies will ultimately fail designed to be clear and helpful for a range of experience levels
Beginner Fundamental Questions
1 What does it mean when a research firm says most cryptocurrencies will fail
It means they predict that the vast majority of the thousands of digital currencies currently available will lose most or all of their value become obsolete or cease to function entirely leaving only a handful of successful ones
2 Why would a cryptocurrency fail
Common reasons include having no realworld use or utility poor technology or security being a scam failing to attract enough users and developers running out of funding or being outcompeted by a better project
3 Isnt Bitcoin enough Why are there so many other cryptocurrencies
Different cryptocurrencies aim to solve different problems While Bitcoin is often seen as digital gold others focus on running applications faster payments or serving specific industries Some are created simply to experiment or unfortunately to make quick money
4 Does this mean all crypto is a bad investment
Not necessarily The claim suggests that picking successful longterm winners will be extremely difficult similar to picking successful startups It highlights the highrisk nature of investing in most individual cryptocurrencies especially smaller lesserknown ones
5 What happens to my money if a cryptocurrency fails
If a cryptocurrency fails completely and ceases to exist any tokens you hold would likely become worthless You would lose the money you invested in that specific asset
Intermediate Market Questions
6 What percentage of cryptocurrencies actually fail
Studies and historical data suggest a very high failure rate often estimated at over 90 Many coins from past market cycles have already become inactive or dead
7 Are stablecoins like USDT or USDC at risk of failing too
They face a different kind of risk Their value is tied to a reserve of assets Their primary risk is not technological failure but the risk that the company behind them doesnt hold enough reserves to back all the tokens
8 How can I tell if a cryptocurrency might fail
Warning signs include no clear purpose or problem it solves anonymous developers excessive hype with no substance lack of active development or community and very low trading volume or liquidity