Why do 85% of token issuances ultimately turn into costly "funerals"?

Before thinking about how to launch, first consider how to create real demand.

Article by: Eli5DeFi

Compiled by: AididiaoJP, Foresight News

Token issuance in 2026 must face a harsh reality.

It’s not a celebration, nor a reward for your hard work.

It’s more like an “open gladiatorial arena”—any poorly designed aspect of your token economy model will be exploited and amplified by experienced, smarter players.

Arrakis Research analyzed data from 2025, and the results are clear: 85% of token projects ended with negative returns.

This isn’t due to poor market conditions; bear markets don’t selectively target poorly designed tokenomics and leave well-designed ones untouched.

This number is a warning bell for founders: most are entering a fight unprepared, only ready for a ribbon-cutting ceremony.

Good news? The remaining 15% aren’t lucky. They’re just meticulous and have replicable methods.

“Poor performance in the first week of launch basically means a death sentence. Data shows only 9.4% of tokens that drop in the first week manage to recover.” — Arrakis Research

This statement deserves careful consideration.

Summary

• Your token’s failure isn’t bad luck; it’s because you didn’t design it to succeed.
• In 2025, 85% of tokens issued declined throughout the year. This is a design issue, not a market issue.
• Issuing with a fully diluted valuation (FDV) over $1 billion is like giving money to those who will never use your product, allowing them to “cash out high.”
• Staking, governance, custody—these aren’t “add-on features”; they are the token’s immune system. Without them, the token can’t withstand the initial onslaught.
• Only 9.4% of tokens that drop in the first week recover; first-week performance largely determines survival.

The “Physical Laws” Behind TGE

Here’s a useful mental model borrowed from physics. Every token launch involves two opposing forces:

• Selling pressure = gravity. It exists objectively, patiently, regardless of your grand vision.
• Genuine demand = rocket engine.

The problem isn’t whether gravity exists (it always does), but whether your engine is strong enough to break free from it. Unfortunately, most teams build rockets without engines, then blame planetary gravity.

Who will sell on day one? (It’s not because they’re bad)

Many founders make a big mistake here: mistaking selling for betrayal. Actually, it’s just simple math.

Airdrop users cost you nothing. For them, converting free tokens into real money is the most rational choice. Data shows 80% of airdrop recipients sell their tokens within the first 24 hours. It’s not disloyalty; it’s human nature.

Centralized exchanges receiving tokens as listing fees are earning their income this way. They monetize their inventory—completely legitimate and reasonable.

Market makers using a “lending model” to cooperate—using stablecoins for risk hedging and quoting—must also sell some borrowed tokens. This isn’t betrayal; it’s built into the math of the model you agreed to.

Early short-sellers jump in before prices stabilize. They’re veterans, with longer track records than yours. They’re not the problem; you didn’t expect them to come, and that’s the real issue.

Many projects assume these players don’t exist when designing tokens. But they do. Either you account for them, or they will teach you a lesson.

Valuation Traps (How to Fool Yourself with Math)

The most expensive vanity item in crypto isn’t profile pictures; it’s the absurdly high “fully diluted valuation (FDV).”

Common tactic: the team only circulates 5% of tokens (“low circulation”), but claims a “fully diluted valuation” of $1 billion.

Market calculation: the remaining 95% of unvested tokens are valued as if they’ll never be unlocked? That’s impossible; they will unlock eventually. When that day comes, the price will plummet like a “ski jump.”

The data is shocking—every founder should see this:

FDV at launch

• Over $1 billion: by year-end, no token’s price will be higher than the launch price. Median decline: 81%.
• Under $100 million: tokens with good performance in the first month are three times more likely to outperform those with FDV over $500 million.

Failure rate is 100%, not 70% or 90%, but absolute.

Yet founders keep pushing forward because “a $1 billion FDV” looks good in press releases and makes early investors look profitable on paper before they can sell. In short, it’s a “pricing illusion” that the market will ruthlessly expose.

Focusing on FDV on launch day is like judging a company’s success by PPT slides. It fools those who don’t look at long-term fundamentals. Lower valuations actually leave room for real price discovery, leading to sustainable markets. Low-key launches tend to survive; vanity-driven ones usually fail.

Four Protective Charms (Truly Useful Ones)

Arrakis summarizes four key pillars that distinguish survivors from those just paying tuition. Here’s our added insight.

Charm 1: Witches’ Prevention — Filter Before Launch

Compare two cases:

• @LayerZero_Core put in effort, filtering out 800,000 “witch addresses” (airdrop snipers) before launch. These accounts only grab tokens to sell immediately, never to return. Result: only 16% drop in the first month.
• zkSync didn’t filter much, resulting in 47,000 witch addresses receiving airdrops. Result: a 39% drop in the same period.

The 16% vs. 39% difference shows the cost of not doing homework.

Filtering out “witches” sounds complicated, but think carefully: you’re paying for genuine users, not parasites. Those “free riders” don’t want your product—they just want your tokens. Make it costly for those who don’t use your protocol to get tokens.

Charm 2: Income-Based Airdrops — Treat Airdrops as Customer Acquisition Cost

Look at airdrops differently: don’t see them as “community rewards,” but as “customer acquisition costs.”

If a user contributes $500 in fees to your protocol, giving them $400 worth of tokens is a net gain—if they sell immediately, you still gained $100 in value. The economic activity has occurred; token selling is just a ledger entry, not a disaster.

Charm 3: Infrastructure Ready — Don’t Launch Without an Engine

Staking and governance functions must be available at launch. Not “coming soon,” not “in development,” but “immediately available.”

Without this, early supporters get tokens they can’t stake or vote with. Capital remains idle. Idle capital will be sold. It’s not disloyalty; it’s basic investing.

Also, having a compliant custody solution from day one is a must for institutional investors. If custody is just multi-sig without a proper framework, big funds won’t come in. It’s not about making trouble; it’s about risk control.

Charm 4: Choose the Right Market Maker — Know What Service You’re Buying

Market makers provide “depth” (market liquidity), not “demand” (buyers). This is crucial. Some founders hire market makers thinking they’re hiring a “price guard.” They only smooth out existing trades but can’t create buyers.

• “Pay-as-you-go” models are more transparent and better.
• “Lending models” are useful but conflict with your goal of stable prices, as market makers hedge their own risks.

Watch out for these red flags when choosing a market maker:

• Guarantee trading volume targets
• Refuse your conditions
• Promise to support prices during heavy sell-offs

These may indicate they’re faking volume with wash trading rather than genuinely providing market depth.

Liquidity should be concentrated. Spreading $1 million across three chains with shallow depth on each isn’t resilient. Better to focus on one main chain with deep liquidity. Deep liquidity in one place beats shallow liquidity spread thin across multiple.

Long-term Goal: Decentralization

The infrastructure and distribution are defensive measures. The real long-term goal is to make the protocol truly mature in four areas:

• Decentralized development: not just your team coding, but third parties contributing via grants.
• Decentralized governance: transparent decision-making, multi-party participation, proposals that can be implemented.
• Decentralized value distribution: economic design that benefits more than just a small inner circle.
• Decentralized participation channels: enabling global users to stake and vote easily and compliantly, not limited to crypto insiders.

The brilliance of the Arrakis framework lies here. A protocol that’s only well-prepared at launch but doesn’t push for genuine decentralization simply postpones “centralization risks” without solving them.

Final Words

Arrakis’s research is one of the most rigorous analyses of TGE in the first quarter of this year. The core point is correct: token issuance is about deploying infrastructure, not marketing.

Teams that treat it as marketing often produce shiny “first-week charts” followed by “ski jump” declines. Those that approach it as infrastructure—carefully analyzing sell pressure, preparing months in advance, avoiding inflated FDV, filtering out parasites—are more likely to be among the 15% that survive.

We’d like to add: genuine demand for tokens must come from the protocol’s core functions, not marketing hype. People need to truly need the token to realize the protocol’s value. If the only use case is “governance of an unused protocol,” no matter how good your anti-witch measures or custody compliance, it’s useless. Governing something useless has no value in itself.

Before thinking about how to issue, first consider how to create real demand.