"99% of Tokens Need to Drop to 0"? Castle Labs and the Harsh Filtering Debate in the Crypto Market

A controversial report from Castle Labs suggests that most current crypto assets will ultimately go to zero if they cannot demonstrate real business traction and a close link between product, revenue, and tokens.

According to them, this is not a “crypto failure” story but a phase of structural cleansing after years of token supply increasing much faster than sustainable demand.

At the time of writing, the total crypto market capitalization is around $2.16 trillion, but the landscape below is highly polarized.

Overconcentrated Market: 5 Assets Account for 84.4% of Market Cap Castle Labs highlights notable data:

• The top 5 cryptocurrencies make up 84.4% of the total market cap
• The remaining thousands of tokens share 15.6%, roughly $330 billion

Compared to the US stock market:

• The Magnificent Seven account for about 31% of market cap
• The S&P 500 represents 84.7% of the market

Castle Labs interprets this as crypto reaching a concentration level similar to the top 500 US companies — but with only 5 assets.

Their message is very direct: “Too many coins have been created. 99% of them need to go to zero for the long-term benefit of the industry.”

Core Issue: Token Supply Explosion, Selective Demand Castle Labs believes the market faces a serious supply-demand problem:

• $8.51 billion worth of tokens will unlock this year
• $17.12 billion will unlock over the next five years

Meanwhile, overall market liquidity is shrinking and becoming more selective than ever.

This creates an overhang of supply — potential selling pressure weighing on tokens that already lack natural demand.

Real Revenue: A Metric Revealing Weakness Castle Labs cites data from DeFiLlama:

• Over 5,600 protocols listed
• Only 76 projects generated over $1 million in revenue in the past 30 days
• Only 237 projects exceeded $100,000

Revenue is also highly concentrated:

• The top 10 protocols account for 80% of total crypto revenue in 2025
• The top 3 make up 64%
• Tether alone accounts for 44%

Notably, among the top 10 highest-revenue projects, only 3 have issued tokens:

• Hyperliquid
• Jupiter
• Pump.fun

Castle Labs believes only hype truly outperforms initial valuation in terms of performance.

84.7% of traded tokens are below their TGE (Token Generation Event) price Another statistic highlights launch structure issues:

• About 118 major tokens launched in 2025
• 84.7% of trading occurs below the TGE valuation

This indicates:

• Overhyped initial valuations
• Unsustainable token distribution structures
• Lack of mechanisms to maintain price after unlock

“Alignment” — The Ongoing Challenge of Tokens Castle Labs emphasizes a key point: tokens do not represent legal rights for companies like stocks do.

For example, the Circle acquisition of Interop Labs shows that the AXL token of Axelar was not part of the deal. This demonstrates that product value and token value can be entirely separate.

Token holders do not have legal rights to company profits.

They depend entirely on whether the project actively links product benefits with the token.

In this context, buybacks are seen as the clearest signal of alignment.

Castle Labs values models such as:

• Hyperliquid
• Aave
• Uniswap (but it takes over five years to achieve full alignment)

Three Rebalancing Scenarios Castle Labs proposes three paths to rebalancing:

1. Major coins lose market share to altcoins
2. External liquidity floods in, lifting the entire market
3. Altcoins gradually decline to zero, with capital concentrating in major assets

They believe the third scenario has the highest probability.

Conclusion: The Next Cycle Will Be Driven by Revenue Castle Labs predicts future capital will flow into:

• Protocols with real revenue
• Tokens with mechanisms to reduce dilution
• Clear KPI models
• Buyback or value-sharing mechanisms

If this thesis is correct, the next cycle will shift from purely narrative-driven hype to focus on revenue, financial structure, and sustainability.

The crypto market may not die, but most tokens might not survive. If the cleansing process unfolds as forecasted, the industry will mature — but in a much more brutal way.