Crypto's Billion-Dollar Zombies π§ββοΈ
Crypto's explosive growth has seen a lot of success stories, but also quite a few meltdowns. Forbes' article on crypto's billion-dollar zombie companies leaves a lot of questions and truth finding.
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Last month, Forbes launched a scathing attack on crypto - classifying 20 blockchains as "crypto's billion-dollar zombies."
What's The Lowdown?
Unproven blockchains with high valuations: These blockchains share a key characteristic: high valuations (over $1 billion) despite lacking proven applications and primarily serving speculative trading purposes.
A big chuck of market share: Collectively, these "zombie" blockchains represent a significant portion of the overall cryptocurrency market. Their combined market capitalisation exceeds $100 billion, accounting for roughly 4.7% of the total market cap for all cryptocurrencies (around $2.4 trillion).
Meet The Undead
The List of Crypto Zombies - XRP (XRP), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), Internet Computer (ICP), Ethereum Classic (ETC), Stellar (XLM), Stacks (STX), Kaspa (KAS), Fantom (FTM), Monero (XMR), Arweave (AR), Algorand (ALGO), Flow (FLOW), MultiversX (EGLD), Bitcoin SV (BSV), Mina (MINA), Tezos (XTZ), Theta (THETA), EOS (EOS).
Unlocking the Undead
Bitcoin Spin-offs with Limited Use: Similar features to Bitcoin, but they have not been widely adopted. Bitcoin Cash (BCH) was created as a faster and cheaper alternative to Bitcoin, but it has not gained much traction.
Ethereum Challengers: Projects that aim to improve upon Ethereum's limitations like transaction speed and high fees during peak usage. Like Tezos, which was an early adopter of proof-of-stake consensus.
Popularity-Driven: Trade based solely on the popularity of their creators. Charles Hoskinson's Cardano, is worth $23 billion despite the Cardano Foundation acknowledging it hasn't completed its developmental stages.
Failed to Deliver on Promises: Created with ambitious goals, but failed to live up to their promises. XRP (XRP) was designed to challenge SWIFT for payments, but it has not been successful.
New Entrants with Minimal Usage: Relatively new entrants to the blockchain space with no time to prove and minimal usage. Internet Computer (ICP) was created in 2021 to disrupt Amazon Web Services and Google Cloud, but it has not seen widespread adoption.
Crypto Weighs In
Cardanoβs founder, Charles Hoskinson.
Unchained reached out to folks in crypto for their views, here is a selection.
Suki Yang, CEO of Solana trading platform xBot, also a data scientist at crypto-focused venture firm Electric Capital.
Comparison with the fashion industry.
Cryptocurrencies, arguably, are the most successful and the only asset class that really capitalises on intangible values. Like high-fashion fanatics, token holders donβt just think about their cryptocurrencies from a quantitative, utility perspective, but instead consider intangible values as part of overall investment considerations. Itβs because of the intangible value of what does [the product] say about me when I carry that bag.
Whales and founders don't dump all at once, to keep valuations high.
They are in the business of making sure that prices donβt fall too much.
Bad news don't apply to zombies. Zero fundamentals and no working product, they canβt really be hacked.
LTC is definitely not a security, because it doesnβt do anything. When you think about it, itβs not going to zero at this point, right? [When] youβve got no fundamentals, people canβt fault you for shit.
Nate Crowningshield, public relations manager for Kaspa, Forbesβ list of zombie blockchains mostly made sense, but Kaspaβs inclusion didnβt.
Kaspaβs value is derived from the networkβs technology of peer-to-peer digital cash, as well as future prospects of smart contract functionality and a consensus overhaul that would replace current coding language Go with the more widely used Rust.Β
Bob Summerwill, executive director of the Ethereum Classic (ETC) Cooperative.
The value proposition of most of these βzombie chainsβ is broader than just transactions per second or whatever other metric you care to mentionβ¦ ETC is small, but it is not a βzombie.β It is not like many other venture capital-backed chains, which have βvast funding, huge TVL, media campaigns, and ecosystem grants programs.
Jim Hwang, chief operating officer of crypto investment firm Firinne Capital.
Social media, shilling by founders and loyal adherents, etc. are keeping prices above their intrinsic values.
Sam Callahan, a senior analyst at Swan Bitcoin.
Substantial portions of the total circulating supply to their founding teams. This means the actual circulating supply is much smaller than advertised, allowing founding teams to easily manipulate the price of their illiquid tokens upwards, enriching themselves and artificially inflating their blockchainβs market cap.
Andrew Smith, founder of blockchain scaling startup Versatus.
Of course, some token holders donβt care about fundamentals and blockchain technology, marking a disease among the speculators in this industry. Some trade because they care about increasing their fiat bags, so this is effectively a mechanism to gamble without going to a casino.
The Crypto Zombie Apocalypse
The once bright future of cryptocurrency seems to be dimming for some companies. A growing number are becoming "zombie firms," boasting billion-dollar valuations yet struggling to turn a profit.
Defining the Crypto Zombie: Just like traditional zombie companies, these crypto firms are characterised by their inability to generate enough revenue to cover debt. They stay afloat by taking on new debt, creating an unsustainable cycle. Despite being around for several years, they haven't figured out a path to profitability.
What's Causing the Crypto Zombification? Several factors are fuelling this rise.
Cutthroat Competition: The crypto space is fiercely competitive, leading to a price war on fees and margins. It makes it difficult even for established players to generate consistent income.
Regulatory Rollercoaster: Regulatory uncertainty creates a shaky foundation for businesses. Volatile market conditions add another layer of risk, making it challenging to plan for reliable revenue streams.
Financial Missteps: Some have simply made poor financial decisions, leading to flawed business models that cannot sustain themselves.
Threat to Investors and the Ecosystem
Investor Beware: Putting money into a crypto zombie is a gamble. There's no guarantee you'll see your investment returned.
Negative Sentiment: Zombie companies can drag down the entire crypto industry by creating negative publicity and discouraging mainstream adoption.
Project and Technology Viability: Struggling firms raise questions about the long-term sustainability of the projects and technologies they represent.
The future of these Zombie Blockchains
Remains unclear.
The cash-rich but functionally inactive "zombie" blockchains are unlikely to shut down anytime soon. Money will pour in for long-shot projects and these blockchains can persist as long as there are speculators willing to trade their tokens, without the same pressures as traditional companies from shareholders or regulators.
While some may evolve and find practical applications, others might fade away.
The crypto industry is at a crossroads. Addressing the issue of zombie firms is crucial to ensure a healthy and vibrant future for this innovative space.
TTD Week That Was π
Saturday: Seismic Shift in Crypto Market πΈ
Friday: The Million Dollar Sales π°
Thursday: Bitcoin's Inflation Rate Falls Below Gold π
Wednesday: Ethereum ETF In Circles π³οΈ π
Tuesday: The Stablecoin Conundrum β
Monday: The Memecoins Rug Pull π¨
TTD Week in Funding π°
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