Monad big dump 99% alert! Arthur Hayes names high FDV venture coin trap

Arthur Hayes, a veteran in the crypto assets field, issued a warning about Monad, stating that this recently launched first-layer blockchain could experience a big dump of 99%, ultimately becoming another failed experiment driven by VC hype rather than real applications. Arthur described the project as “another high FDV, low circulating supply VC coin,” and pointed out that its token structure itself puts retail investors at risk.

Arthur Hayes dissects the structural traps of Monad

Hayes stated that projects with a large gap between FDV (Fully Diluted Value) and Circulating Supply often experience a price spike in the early stages, followed by a significant sell-off after the internal tokens are unlocked. FDV represents the Fully Diluted Value, which refers to what the market value would be if all tokens of a crypto project were in circulation. When FDV is significantly higher than the current market cap, it means that a large number of tokens have not yet been released to the market, and once these tokens are unlocked, it will create tremendous sell pressure.

“This will be another bear market chain,” Hayes said, adding that while every new coin goes through an initial rise, it does not mean it can develop a lasting application prospect. This “high FDV, low Circulating Supply” token structure has become one of the most controversial phenomena in the crypto market for 2024-2025. Venture capital firms acquire large shares at a low price before the token goes live, while retail investors buy circulating tokens on the open market at a high price, which only accounts for a small portion of the total supply.

Three Major Risks of High FDV and Low Circulating Supply Token Structure

Selling pressure multiplies: When internal tokens are unlocked, a large number of tokens held by venture capital and the team will flood the market, causing a surge in supply that leads to a big dump in price.

Overvaluation: The small initial circulating supply makes it easy for the price to be driven up, but the “Fully Diluted Valuation” (FDV) calculated does not reflect the true market demand.

Retail Investors Become the Bag Holders: Venture capitalists buy in at low prices during private rounds, while retail investors buy in at public market highs, becoming the primary liquidity providers and loss bearers.

The $225 million raised by Monad from Paradigm shows the heavy bet that venture capital has placed on the project, but it also means that venture capital holds a large amount of low-cost Tokens. When these Tokens are unlocked, even if the price falls by 90%, venture capital may still gain substantial profits, while retail investors face significant losses. This structural asymmetry is the core reason why Hayes issued a warning.

Market performance and concerns after Monad's launch

(Source: CoinMarketCap)

The Layer-1 Blockchain officially launched on Monday, and simultaneously airdropped its MON Token. According to CoinMarketCap data, Monad's MON Token has risen by 40% since its launch. This early surge appears strong, but Hayes believes this is a typical pattern for “high FDV low circulating supply” tokens: with limited initial circulating supply, a small amount of buying can drive up the price, creating an illusion of prosperity.

Monad positions itself as a high-performance Layer-1 Blockchain, claiming to provide higher transaction speeds and lower fees than Ethereum. However, Hayes points out that technical advantages do not equate to market success. Over the past few years, dozens of Layer-1 projects claiming to be “Ethereum killers” have been launched, but most ultimately became “ghost chains,” lacking real users and application ecosystems.

Hayes stated that most new Layer-1 networks will ultimately fail, with only a few networks likely to maintain long-term relevance. He mentioned Bitcoin, Ethereum, Solana, and Zcash, believing that only a small number of protocols can withstand the next round of testing. This viewpoint is based on a harsh market reality: there are obvious network effects and winner-takes-all characteristics in the blockchain space. Developers, users, and liquidity tend to concentrate on a few dominant platforms, making it difficult for latecomers, even with superior technology, to shake up the existing landscape.

The challenges faced by Monad are not only technical competition but also ecological construction. A successful Blockchain requires a large number of decentralized applications (dApps), an active developer community, and real user demand. However, in projects heavily supported by venture capital, funds are often prioritized for marketing and token price increases rather than long-term ecological cultivation. This upside-down strategy is precisely why Hayes refers to it as “VC Token.”

Hayes' optimistic outlook on the overall crypto market

Despite skepticism towards individual projects like Monad, Hayes also articulated his optimistic outlook on Crypto Assets as a whole, which is almost entirely driven by a renewed expansion of monetary policy. He believes that governments around the world, especially the US government, are preparing to inject a new round of liquidity in light of the upcoming political campaigns and the slowing economic growth.

“I believe we are at the beginning and end stages of this cycle, and a large-scale crazy bull market of money printing is about to come,” he said. Hayes' core argument is that the ups and downs of the crypto assets market are mainly driven by global liquidity, rather than the fundamentals of individual projects. When central banks print money and interest rates fall, the excess liquidity flows into risk assets, including crypto assets.

He also refuted the widely circulated theory of Bitcoin's four-year cycle, stating that past market booms were not driven by halving but by global credit expansion led by the United States and China. He indicated that when liquidity dries up, Bitcoin will react first, referring to it as the “last alarm bell of the free market” in the global financial system. This perspective challenges the mainstream narrative of the crypto community, but it is somewhat persuasive based on macroeconomic data.

Looking ahead, Hayes predicts that privacy technologies will dominate the next round of Crypto Assets development, with zero-knowledge systems and privacy coins regaining attention. He also added that institutional users might opt for Ethereum, especially through stablecoins and tokenized finance. Earlier this month, he revealed that Zcash has become the second-largest holding of his family office, Maelstrom, second only to Bitcoin.

Survival Guide for Retail Investors

Hayes' warning about Monad provides important lessons for retail investors. Before participating in newly launched Layer-1 projects, investors should carefully evaluate the following key indicators:

Five Key Questions for Evaluating New Projects

How is the Token Distribution Structure: Proportion held by VC and team, unlocking timetable, proportion of Circulating Supply.

The ratio of FDV to Circulating Market Cap: A ratio that is too large (e.g., above 10:1) indicates significant potential sell-off pressure.

Is the ecosystem real: How many active users, dApps, and developers are there, or is it just hype?

Sustainability of Technical Advantages: Does it truly address existing problems, or is it just a marketing gimmick?

What are the exit strategies for VC: private placement price, unlocking terms, historical investment records

For Monad, the $225 million venture capital financing and the “high FDV low Circulating Supply” token structure are two major red flags. Hayes' prediction of a 99% big dump is extreme, but not without precedent. Over the past two years, several highly valued Layer-1 projects have experienced declines of 80-95% after token unlocks.