Why Do 85% of Token Launches Ultimately Become Expensive “Funerals”?

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

It’s more like an “open gladiatorial arena” — any flaw in your tokenomics will be seized upon, magnified, and exploited in public by those more experienced and with stronger models.

Arrakis Research compiled data for 2025, and the results are unambiguous: 85% of token launches ended the year in the red.

This can’t be blamed on market conditions; a bear market doesn’t selectively target poorly designed tokens while sparing the well-designed ones.

This number is the market sounding an alarm for founders: most people are heading into a fight armed only with a ribbon-cutting ceremony.

The good news? The surviving 15% aren’t just lucky. They are meticulous, and their methods are replicable.

“Poor performance in the first week is essentially a death sentence. Data shows that only 9.4% of tokens that fall in their first week ever recover.” — Arrakis Research

This statement is worth pondering.

Summary

• Your token’s failure isn’t bad luck; it’s because you didn’t design it to succeed in the first place.
• 85% of tokens launched in 2025 ended the year down. This is a design problem, not a market problem.
• Launching with a Fully Diluted Valuation (FDV) over $1 billion is giving money to people who will never use your product, helping them “cash out at the top.”
• Staking, governance, and custody aren’t “add-ons”; they are the token’s immune system. Without them, the token collapses on day one.
• Only 9.4% of tokens that fall in their first week recover. The first week’s performance essentially decides life or death.

The “Physics” Behind TGE

Here’s a useful mental model, borrowing from physics. Every token launch has two opposing forces:

• Sell Pressure = Gravity. It exists objectively, is patient, and doesn’t care about your grand vision.
• Real Demand = Rocket Engine.

The question isn’t whether gravity exists (it always does), but whether your engine is powerful enough to escape it. Unfortunately, most teams build rockets without engines and then blame the planet’s gravity.

Who Sells on Day One? (And It’s Not Because They’re Bad)

Many founders make a critical mistake here: viewing selling as betrayal. It’s not; it’s simple math.

Airdrop recipients have zero cost basis. Converting free assets into real money is the most rational choice. Data shows 80% of airdrop recipients sell within the first 24 hours. This isn’t disloyalty; it’s human nature.

Centralized exchanges receive tokens as listing fees; that’s their revenue. Liquidating their inventory is natural and reasonable.

If market makers are engaged via a “loan model,” they must sell a portion of the borrowed tokens to hedge risk and prepare stablecoin quotes. This isn’t betrayal either; you agreed to the model, and the math is built-in.

Early short sellers act before the price stabilizes. They are veterans, older than your project. They aren’t the problem; your failure to anticipate them is.

Many projects design tokens assuming the above actors don’t exist. But they are real. Either you account for them, or they will “teach you a lesson.”

The Valuation Trap (How to Fool Yourself with Math)

The most expensive vanity item in crypto isn’t those profile pictures; it’s an outrageously high Fully Diluted Valuation (FDV).

A common playbook: the team releases only 5% of the token supply (“low float”) but claims an FDV of $10 billion.

The market does the math: is the price of the remaining 95% locked tokens based on the assumption they will “never unlock”? But that’s impossible; they will unlock eventually. When that day comes, the price plummets like a “ski jump.”

The data is staggering, and every founder should see it:

FDV at Launch

• Above $1 billion: By year-end, not a single token traded above its launch price. Median decline: 81%.
• Below $100 million: The probability of a good first month is 3x higher than for tokens with an FDV over $500 million.

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

Yet founders keep doing it because “$10 billion FDV” looks great in press releases and makes early investors’ paper gains look impressive before they can even sell. Frankly, it’s a “pricing illusion,” and the market will mercilessly pop it.

Obsessing over launch-day FDV is like judging a company’s success by how pretty its PowerPoint is. It might impress those who don’t look long-term. A lower valuation leaves room for genuine price discovery, paving the way for sustainable growth. The humble launches often survive; the vain ones mostly die.

Four Talismans (What Actually Works)

Arrakis summarized four key pillars that distinguish survivors from those who just pay tuition. We’ll add our own insights.

Talisman 1: Sybil Resistance — Filter Before You Launch

A comparison of two cases makes the point clear:

• @LayerZero_Core put in the hard work, identifying 800,000 “Sybil addresses” (airdropping alts) before launch. These recipients would only dump and never return. Result: only a 16% drop in the first month.
• zkSync did minimal filtering, resulting in 47,000 Sybil addresses receiving the airdrop. Result: a 39% drop over the same period.

The difference between 16% and 39% is the price of not doing your homework.

Sybil resistance sounds tedious, but think clearly: you are paying real users, not parasites. Airdrop farmers don’t want your product; they want your token. Make it costly for non-users to acquire your token.

Talisman 2: Revenue-Based Airdrops — Treat Airdrops as “Customer Acquisition Cost”

Reframe airdrops: don’t see them as “community rewards,” see them as “customer acquisition costs.”

If a user contributed $500 in fees to your protocol, and you reward them with $400 worth of tokens, even if they sell all tokens immediately, this “acquisition” is profitable (net gain $100). Real economic activity has already occurred; token dumping is just a ledger entry, not a disaster.

Talisman 3: Infrastructure Readiness — Don’t Roll Out a Car Without an Engine

Staking and governance functionalities must be available the moment the token launches. Not “coming soon,” not “in development,” but “available now.”

If not, here’s what happens:

Early supporters receive tokens but find they can’t stake for yield or participate in voting. Capital sits idle. Idle, non-yielding capital gets sold. This isn’t disloyalty; it’s basic investment logic.

Additionally, have a qualified custody solution ready from day one. This is a hard requirement institutional investors will check. If custody is still just a “multisig” without a compliant framework, big money won’t dare enter. This isn’t them being difficult; it’s them managing their own risk.

Talisman 4: Choose the Right Market Maker — Understand What Service You’re Buying

Market makers provide “liquidity” (market depth), not “demand” (buyers). This is crucial. Some founders hire market makers thinking they’re hiring a “price protection squad.” They only facilitate existing trades more smoothly; they can’t conjure buyers out of thin air.

• The “Engagement Model” is more transparent and better.
• The “Loan Model” can be useful, but the market maker’s inherent hedging needs naturally conflict with your goal of price stability.

When selecting a market maker, these are red flags:

• Guaranteeing volume targets
• Refusing to accept your terms
• Promising to support the price under massive sell pressure

These might indicate they intend to engage in wash trading, not legitimate market making.

Concentrate liquidity. Spreading $1 million across three chains results in shallow “depth” on each, vulnerable to any shock. It’s better to choose one main battlefield and build deep liquidity there. Depth in one place is better than thin coverage in three.

The Ultimate Goal: Decentralization

The infrastructure and distribution strategies mentioned earlier are defensive. The true long-term goal is for the protocol to mature in four key aspects:

• Development Decentralization: Not just the core team can write code; third parties can also participate in development through grant programs.
• Governance Decentralization: Transparent decision-making with multi-party participation, where proposals can be genuinely implemented.
• Value Distribution Decentralization: Economic design that benefits a broader group, not just an internal clique.
• Participation Channel Decentralization: Global users can participate in staking, voting, etc., through low-barrier, compliant means, not limited to crypto veterans.

This is where the Arrakis framework is brilliant. A protocol that is only well-prepared at launch but doesn’t advance true decentralization is merely postponing “centralization risk,” not solving it.

Final Thoughts

Arrakis’s research is one of the most rigorous analyses of TGE in Q1 this year. The core thesis is correct: a token launch is about deploying infrastructure, not running a marketing campaign.

Teams that treat it as marketing often produce beautiful “first-week charts,” followed by a “ski jump” decline. Teams that treat it as infrastructure — seriously analyzing sell pressure sources, preparing months in advance, not chasing inflated FDV, filtering out airdrop farmers — often become part of the surviving 15%.

We’d like to add one point: real demand for a token must stem from the protocol’s intrinsic utility, not from marketing hype. People must genuinely need the token to access value created by the protocol. If the token’s sole purpose is “governing a protocol no one uses,” then even perfect Sybil resistance and compliant custody won’t help. Governing something useless has no value.

Before thinking about how to launch, think about how to create real demand.

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