Reflecting on CZ's Original Article: Why I Don't Like Large ICO Projects?
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Reflecting on CZ's Original Article: Why I Don't Like Large ICO Projects?
Start with small things, then move on to big things, not the other way around.
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On July 24, Binance founder CZ shared on Twitter a long-form article he wrote six years ago titled "I Don't Like Big ICOs." The large ICO mentioned in the article claimed it would raise $100 million through its ICO; today, the project's market capitalization is less than $1 million.
CZ commented, "These are great people, but perhaps they got distracted by having too much money. Start small, then do big things—don’t do it the other way around."
In the article, CZ elaborates on why raising massive funds at high valuations early in a crypto project’s lifecycle is not beneficial in the long run—even though such achievements are often celebrated as milestones for founders. Binance also avoids supporting such projects. This piece offers insight into CZ’s thinking behind Binance’s token listing criteria, a philosophy that continues to this day.
For entrepreneurs aspiring to make their mark in the world of crypto, this article may be well worth reading.
Below is the full text:
I am the CEO of https://www.binance.com. This is my first post on Steemit, and it’s a highly subjective one.
Last night, I was at a party in Tokyo with several cryptocurrency enthusiasts. The host wanted to launch an ICO. Though small in size, the team was strong. They had already developed and released a product, and had a decent user base. Everything sounded good—until I asked how much they intended to raise in the ICO. The answer: $100 million.
My reaction was: “I don’t like that.” A discussion followed, which I believe would be useful to share with everyone considering launching an ICO or listing on Binance.com.
At least in theory, large ICOs offer many benefits. They can make headlines, boost a project’s visibility and credibility, impress people with your ambition, and build confidence. $100 million should cover all your funding needs for a long time! With ample capital, the team can pursue any initiative and aggressively build a vast empire—all of which sounds wonderfully promising...
But I don’t like it. Here’s why:
First, does your project really need $100 million?
One team member’s initial response last night was: “Yes, we’ll build the entire ecosystem, acquire companies…” I interrupted him. I prefer to see startup teams focused on just one core mission. That’s my personal preference—but my personal preferences do influence Binance.
Do you need all the funds right now?
There’s a misconception that an ICO is a one-time event—you must secure all needed funds upfront! That’s incorrect. There are many ways to design a token economy so that a project can obtain all necessary funding over time, without forcing all investors to take on excessive risk early on. More on this later.
Hunger
I worry that a small team with $100 million may no longer feel hungry. True, the most motivated teams are driven intrinsically—to change the world, etc. Indeed, some people maintain hunger even after becoming wealthy, but not everyone can. I still want to see hungry teams. I love seeing code commits on GitHub at 3 a.m. occasionally.
Putting that aside, the key issue is token economics.
Maxed-out ICO = Bad
I dislike seeing projects reach maximum valuation during their ICO. In the long term, this is usually harmful to the project. This idea feels counterintuitive to many ICO founders—including many present last night.
A coin from a maxed-out ICO can only go down once it hits exchanges. This leads to various problems that most people don’t consider during the ICO phase. But as an exchange operator, I see this often—fortunately, mostly on other exchanges.
Suppose your project is worth $200 million today, and you sell 50% in the ICO for $100 million. The next day, your coin starts trading on Binance. Setting aside hype and market overreactions, unless you’ve increased the project’s value within a day, the price won’t rise further on the exchange. If it doesn’t rise, it falls. A certain number of people (short-term traders) will sell to rotate into faster-rising coins. This selling pressure drives the price down, and when the price drops, more people (the less confident ones) also sell, creating a downward spiral.
Now, people have lost money on your coin. Some will complain, speak ill of you, call you a scam, and spread conspiracy theories across more social channels than you can monitor. Now your reputation is damaged, and you’re forced to spend all your energy managing negative PR instead of writing code.
Due to negative publicity, your new user acquisition slows. Hiring becomes extremely difficult. People in the office start arguing about what went wrong and blaming each other. And so on...
You now face the immediate burden of increasing your project’s valuation from $200 million to $400 million—a tough task for most new projects.
An alternative approach
Now compare this with another scenario. Suppose your project is currently worth $200 million (or whatever you believe), but you set your ICO valuation at $30 million, selling 50% for $15 million. (These were Binance’s actual numbers during our ICO. I think, in terms of our commitments, these were excellent figures from every perspective.)
But you might say: “Damn, that’s stupid—I’m leaving $85 million on the table in fundraising and valuation!” If you think that, please keep reading.
Of course, because of the low valuation, everyone now wants a piece of your ICO. It’s completely oversubscribed. Everyone is asking you for more allocation, and you respond: “Sorry, man, you’ll have to buy it later on the exchange.”
Your ICO finishes in 38 seconds (Binance’s actual record from our last ICO). The next day, your coin starts trading, and people rush in. Nobody wants to sell—the price surges. More traders are drawn to your coin rather than others.
Now you’re the talk of the town. Everyone discusses your project; people make YouTube videos analyzing how great your coin is. With this free positive coverage, users sign up for your service faster than you imagined. Within about a month, you enter the global top ten rankings. As users grow, your project is now worth $300 million, and your 49% stake is worth $150 million.
Now, most of your investors have made substantial profits—up 10x within two months. You have a user base, a product, and strong community support, ready to scale at an accelerated pace. Over time, you can gradually sell portions of your holdings at $300 million or higher valuations.
Of course, if you still feel stingy, you can adjust or reduce the 50% ICO sale ratio. But I strongly recommend 50% or higher. The whole point of an ICO is to let your investors profit alongside you and create momentum!
From an exchange perspective, there’s one final bit of simple math to consider. If your coin has a $30 million circulating supply and 80% are long-term holders, you only need to attract buyers with $12 million more to double your valuation. If your project’s circulating supply is $300 million, you need to attract $120 million. If you look at current trading volumes across the top ten exchanges, it’s clear that pulling $12 million away from other coins is easy, while $120 million requires significant effort.
Therefore, if you can demonstrate that your coin will bring $120 million in new capital and new users to our exchange, we’d be happy to list it. Otherwise, we’ll have to carefully consider whether to list your $300 million market cap coin—especially if it’s a new coin with no trading history.
Last night, after I explained these points in detail, a feeling of “Oh, that makes sense—I hadn’t thought of it that way” spread through the room. I believe I successfully shifted most people present from a “big and fast ICO” mindset to a “long-term growth” mindset. I hope I’ve done the same for you—which will make it easier for us to list your token.
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