Blockworks Co-founder: Excessive token supply is becoming a "life or death" issue for the crypto industry

Deep Tide TechFlow message, April 05, according to Cointelegraph, Blockworks co-founder Michael Ippolito recently posted on X, saying that the rapid growth in the number of crypto tokens has outpaced the value it can generate, posing industry-level challenges on the scale of “survival and extinction.”

Ippolito pointed out that although the overall total market capitalization of cryptocurrencies remains relatively stable, the average value of individual tokens is following markedly different trajectories—“the price of ordinary tokens is only slightly above the 2020 level and has fallen by roughly 50% from the 2021 peak.” Looking at median returns, most tokens are down about 80% from their historical highs, meaning the upside is highly concentrated in a small number of large-cap assets, while the broader market has long been lagging.

He believes the root cause of this imbalance lies in the rapid expansion of token supply—large numbers of new assets are emerging, but total market capitalization is barely moving, effectively diluting value across an ever-growing pool of tokens.

On the link between fundamentals and prices, Ippolito also noted that the disconnect is worsening. In 2021, token prices were highly correlated with on-chain revenue, but recent data shows that even if protocol revenue rebounds, token prices have not been able to follow suit, indicating that the market’s confidence in tokens as a tool for value capture has already been shaken. “The token problem is critical to this industry,” he said. “If the alignment between fundamentals and price continues to be missing, the entire industry faces the risk of losing its core appeal.”

Arthur Cheong, founder and CEO of DeFiance Capital, said on X that he agrees with the “urgency of addressing the current crypto token dilemma,” and warned that if the market continues to concentrate in a small set of assets such as Bitcoin and Ethereum, the broader crypto ecosystem will face a risk of being marginalized.