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

The token issuance in 2026 needs to 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 tokenomics model will be seized, amplified, and exploited by experienced, more capable players.

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

This isn’t due to a bad market; a bear market doesn’t selectively target poorly designed tokenomics and spare well-designed ones.

This number is a wake-up call to the market: most people are going into a fight unprepared, only ready for a ribbon-cutting ceremony.

Good news? The 15% that survive are not just lucky. They are simply meticulous in their approach and have replicable methods.

“If the first week performance is poor, it’s basically a death sentence. Data shows that 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.
• 85% of tokens issued in 2025 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 are not “add-on features”; they are the token’s immune system. Without them, the token can’t withstand the test once launched.
• 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 issuance 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 gravity. Unfortunately, most teams build rockets without engines, then blame the planet’s gravity.

Who will sell on day one? (It’s not really their fault)

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

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

Centralized exchanges receive tokens as listing fees, which is their revenue. They monetize their inventory—it’s normal and reasonable.

Market makers using a “lending model” to cooperate, holding stablecoins to hedge risks and prepare quotes, also need to sell some borrowed tokens. This isn’t betrayal; it’s part of the agreed-upon model with inherent mathematical logic.

Early short-sellers jump in before prices stabilize. They are veterans, with longer experience than you. They are not the problem; the problem is you didn’t expect them to come.

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 but the outrageously high “fully diluted valuation (FDV).”

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

Market calculation: the remaining 95% of tokens are considered at a price based on “never to be unlocked” assumptions? But 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 issuance

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

A 100% failure rate—not 70%, not 90%, but 100%.

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.

Obsessing over FDV on launch day is like judging a company’s success by PPT slides. It fools those who don’t look at the long term. A lower valuation leaves room for real price discovery, leading to sustainable markets. Low-key issuance often survives; vanity-driven launches tend to fail.

Four Protective Charms (Truly Useful Things)

Arrakis summarizes four key pillars that distinguish survivors from those just paying tuition. We add our own insights.

Charm 1: Witches Beware — Filter Before Launch

Compare two cases; the results are clear:

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

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

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

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

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

If a user contributes $500 in fees to your protocol, reward them with $400 worth of tokens. Even if they sell all tokens immediately, this “acquisition” is profitable (net $100). Real 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 but can’t stake or vote. Capital becomes idle. Idle capital will be sold. This isn’t disloyalty; it’s basic investment management.

Additionally, having a compliant custody solution from day one is a must for institutional investors. If custody is just multi-signature without a proper framework, big funds won’t dare to 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 are hiring a “price guard.” They only smooth existing buy/sell orders but can’t create buyers.

• “Employment” models are more transparent and better.
• “Lending” models are useful but have inherent conflicts: market makers hedge risks and aim for price stability, which can clash with your goals.

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

• Guarantee of trading volume
• Refusal to accept your conditions
• Promises to support prices during heavy sell pressure

These may indicate they are faking volume with “wash trading” rather than genuine market making.

Liquidity should be concentrated. Spreading $1 million across three chains with shallow depth makes it vulnerable to shocks. Better to focus on one main chain and deepen liquidity there. Deep liquidity in one place beats shallow liquidity spread thin across multiple.

Ultimate 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 the core team coding, but third parties participating through grants.
• Decentralized governance: transparent decision-making, multi-party involvement, proposals that can be implemented.
• Decentralized value distribution: economic design that benefits more people, not just enriching a small inner circle.
• Decentralized participation channels: enabling global users to stake and vote easily and compliantly, beyond crypto insiders.

The brilliance of the Arrakis framework lies here. A protocol that is only well-prepared at launch but doesn’t push for genuine decentralization merely 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 treat it as infrastructure—carefully analyzing sell pressure, preparing months in advance, avoiding inflated FDV, filtering out arbitrageurs—are more likely to be among the 15% that survive.

We want 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 value created by the protocol. If the only use case is “governance of an unused protocol,” no matter how good your witch-filtering 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.