The Rise of Community-Led Token Issuance: Challenging the Traditional VC-Dominated Model

Community-led token issuance is on the rise again, a trend that challenges the traditional model dominated by institutional investors. To analyze this change, we’ll explore recent trends, including the cases of Hyperliquid and Echo, while assessing community sentiment and market performance of different token distribution methods.

A new wave of community-led token issuance is sweeping the crypto industry, challenging the traditional model dominated by venture capital (VC) and other institutional investors.

In recent months, several key factors have contributed to this resurgence of community-driven fundraising.

First, market sentiment has gradually shifted toward a preference for community-led issuance models, largely influenced by the successful performance of Hyperliquid’s tokens after distribution.

This positive sentiment stems from the observation that tokens allocated to the community have generally performed better post-issuance compared to those allocated to VCs and other large investors.

In the past, tokens allocated to VCs often performed poorly after issuance due to a combination of factors, including low circulation, uneven token distribution, and strict token unlocking schedules, which led to continuous price declines over time.

In contrast, tokens allocated to the community have typically encountered less selling pressure and have even appreciated in value post-issuance.

This disparity in performance has created a growing preference among users for projects that allocate a larger portion of their tokens to the community.

Second, as more new tokens enter the market, projects need to find ways to stand out from the competition. Community participation is becoming a key differentiator in this regard.

The “fair launch model,” which involves launching a token without any pre-allocation or fundraising, has returned to people’s attention as a way to achieve fairer token distribution.

This model has gained popularity among retail investors, who are now able to participate in investment projects that were previously limited to institutional investors.

In some cases, the community-led model even allows retail investors to acquire tokens at a better price than traditional investors.

However, this trend also presents new challenges, particularly for project teams that must maintain fairness in token distribution while securing the necessary funding.

While many founders value democratic participation in their communities, they often face a more practical problem: how to raise enough money to complete product development.

The dilemma arises because projects that allocate the majority of their tokens to VCs and other institutional investors often face skepticism from users, who may prefer projects that allocate a larger portion of tokens to the community.

Even so, the community-led model still has unique advantages.

If the token distribution structure is overly dependent on institutional investors, it will often lead to a mismatch between short-term price fluctuations and the long-term strategic goals of the project.

This problem is usually manifested through a strict token unlocking mechanism, which further affects the healthy development of token economics.

In addition, excessive control by institutional investors will also weaken the voice of retail investors in project governance and long-term development.

This lack of participation may lead to a decline in community activity and ultimately a loss of investor interest and attention.

Common pain points

Community Preferences: What do users care about most?

Discussions on social media and the rise of platforms like Echo show growing frustration among cryptocurrency users about the special treatment given to VCs and institutional investors.

There is a growing community call for a fairer investment environment.

Main expectations of the communityStructural considerations

Changing trends: impact on the market

As more projects adopt a community-centric strategy, some key trends emerge:

Innovative token issuance mechanism

Main challenges faced by the project

Case Study: Hyperliquid’s VC-free Model

The successful performance of Hyperliquid’s tokens after distribution provides a reference for rejecting traditional venture capital financing.

However, Hyperliquid’s user base has some unique characteristics that make it different from other projects attempting similar community-driven approaches, and therefore may not be suitable as a general reference case:

While Hyperliquid’s approach has been remarkably successful, other projects need to realize that their communities may differ greatly from Hyperliquid’s.

A strategy that works for a platform with many wealthy and experienced traders may not work for a project targeting the average retail user.

This also raises a question worth pondering: Is community fundraising really more sustainable, or does it simply transfer selling pressure from venture capital to retail investors who are more eager for quick returns?

Venture capital usually adopts a well-thought-out exit strategy, while retail investors in community fundraising lack the ability to invest long-term due to limited funds, which may lead to more unstable markets and emotional fluctuations.

Additionally, it’s worth noting that despite Hyperliquid distributing over 31% of their tokens, they have remained focused on building a quality product that users will actually want to use.

This provides an important revelation to other projects: the community itself cannot ensure the success of a project, and the project must be built on a solid foundation, such as providing an excellent product experience.

Key differences between the methods

Although the crypto community has enthusiastically embraced the shift from a venture capital-led fundraising model to a community-driven model, one fact that cannot be ignored is that the short-term profit-seeking tendency in human nature has not changed.

The key differences between these allocation methods are as follows