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It is no secret that altcoins have a huge failure rate throughout the history of this market. According to analyst Lyn Alden, this is because most of them are supported by unsustainable projects.
Lyn Alden about altcoins
In a thread posted on his Twitter account, Alden criticized the altcoins’ business models, calling them “unsustainable”. In other words, the criticism is that many projects burn cash, but fail to generate results.
In some ways, Alden’s criticism is similar to others made of startups like Netflix and Nubank, which have high growth but lose money. And naturally, the analyst also criticized the TerraUSD (UST) stablecoin.
Selling unreal models
Unlike decentralized cryptocurrencies, altcoins have leaders and coordinators behind them. In this sense, these projects aim not only to solve problems, but also to generate profits.
But that’s not what’s happening with most altcoins. In Alden’s view, these projects tend to burn cash to attract revenue and users. To do so, they sacrifice the long-term sustainability of the project.
“If you do a business selling $20 bills for $10 each, your revenue growth will be enormous and your total market will be almost infinite. But of course this is unsustainable. Many persistently unprofitable altcoin projects and growth stocks basically work this way,” Alden said.
Growth stocks are companies with great growth potential — although there is no guarantee that the breakthrough will actually happen. For example, shares from companies like Netflix, Tesla and Amazon are seen by the market as growth.
Discovering the real value
This view also exists among altcoins, especially with projects launched recently. Names like Cardano (ADA), Solana (SOL) and Terra itself (LUNA) are seen by the market as growth altcoins. When the economic scenario is favorable, these assets tend to record higher-than-average gains.
In contrast, growth assets suffer stronger devaluations when the market enters a bearish cycle. When the scenario changes, these companies and projects seek to increase their revenues, charging for services that were once free.
For Lyn Alden, the market is starting to enter this scenario. When companies try to profit by raising prices, this is only possible when the product itself is seen as valuable.
“The idea with these business models is usually that after the initial cash growth phase, they will be able to raise prices. And that works sometimes, but only if the end product is really desirable in its own right, and not because it’s grossly undervalued,” he explains.
In short, even if a project offers great advantages (such as lower and even free fees), users only use this platform out of “interest”. If these projects and companies start to change their models, customers will migrate to what really generates value, even if it is paid.
UST was a victim of this cycle
Alden concludes his review, as expected, by talking about the stablecoin UST. One of the coin’s growth models was to attract users by offering them great advantages.
In this case, a high yield of up to 20% for those who left UST in staking. For Alden, Terra intended to gain volume through these revenues to attract new users. Eventually, users would use the network organically, creating real projects.
However, Terraform Labs began to gradually reduce this income, a fact that aroused insecurity about the stability of UST.
“This was the idea with TerraUSD as well. It’s like, ‘let’s offer people unsustainable high incomes to attract them. Maybe after enough time and scale, people will want to use this structurally unstable thing to actually pay for real things. But that’s not what happened,” she said.
In comparison to unsustainable projects, Alden said last week that BTC was signaling that a bottom had been reached in the $20K zone. Now it may be approaching an area of deep value, that is, an opportunity to buy a good asset at discounted prices.