• Crypto tokens were once a quick way for Web3 founders to get paid. Now they are in disgrace.
• More than 1,000 tokens have been taken out of circulation by 2022. Venture capitalists told Insider that few serve any real purpose.
• Now, founders are delaying token launches and looking for other ways to increase the value of their startups.

A little over a year ago, Web3 startups were regularly raising money by selling their own cryptocurrencies directly to the public. But now, the collapse of cryptocurrencies has made it an inauspicious time to launch tokens.

In fact, some venture capitalists say that tokens are redundant for many startups, and founders should think carefully about whether they’re really worth launching. A growing group of founders are taking that advice to heart.

For example, Common, which provides management tools for decentralized autonomous organizations, or DAOs, planned to launch its own token in May, around the same time it announced $20 million in Series A funding led by Spark Capital. But after the collapse of the luna and terra cryptocurrencies, Dillon Chen, the founder of the startup, felt it was more important to focus on building stronger features for Common’s advanced users.

“A token didn’t feel super relevant,” he told Insider. Common has since postponed his token release indefinitely.

Chris Georgen, the founder of Topl, which runs a blockchain designed for climate-tech applications, told Insider that his company is still planning the launch of its own token, but that it will likely be delayed at least a few months, instead of the first trimester. this year as originally intended.

Georgen said that his aspirations to launch tokens were not primarily motivated by cashout. Topl ultimately intends to transfer the governance of the company to a broad community of users and product developers, and the company tokens will grant holders the power to participate in decision-making.

The token launch allowed Web3 startups to raise capital from a broad group of investors while allowing their early backers to achieve returns much sooner than they otherwise would. While Web2 startups often take a decade or more to go public, crypto companies have often launched public tokens within a year or two of their founding.

But many tokens have done poorly in the last year. In February 2022, about 10,400 cryptocurrencies were in circulation worldwide, according to Statista data, but by November, that number had dropped by more than 10%, to 9,310.

There is also regulatory risk, as it is still up in the air whether certain tokens will be classified as securities by the US Securities and Exchange Commission.

Many companies have been quick to offer tokens that have little purpose or value beyond financial speculation. As a result, investors are taking a closer look at token offerings, Jules Miller, partner at Mindset Ventures and co-founder of the VC3 DAO, told Insider.

But that doesn’t mean all startups should drop the idea. Tokens that drive core operations, for example by providing incentives for people to participate in a DAO, and thus spur growth of the startup, could make sense as publicly traded coins, Miller said.

For example, said Paul Hsu, founder and CEO of venture capital firm Decasonic, tokens from certain Web3 gaming startups are more likely to hold their value because they are used in the companies’ products. Like several large companies that have embraced cryptocurrency, including Andreessen Horowitz and Bessemer Venture Partners, Decasonic is a registered investment adviser, allowing you to invest in tokens with no restrictions on the amount of cryptocurrency you can hold. About 20% of its investment deals are token-only offerings, Hsu said.

Still, of late, Hsu has been advising his portfolio companies to postpone their token launches.

“They’re not trying to jump into this bear market,” he said. “It’s very ‘buyer beware’ right now.”