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If you observe the price profile on almost any token (eg in coingecko), you will see a quick peak to ATH soon after the launch, and then, a quick collapse to a mostly flat profile near zero. Any random example could be this one: https://www.coingecko.com/en/coins/lung-protocol

I am designing the tokenomics of my token and I would like to prevent this, if possible. At least to understand its causes. So what do you think is the cause of this fact?

As a possible explanation I guess it could be that, just after the ICO, the project team mints many new tokens and, at the same time, withdraws the funds provided by the ICO, so this means an overflow in tokens backed by almost no ether, and therefore exchange algorithm collapsing the price of the token.

But I really do not know if this is the correct answer. Could someone help to provide an insight here?

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  • You ever heard of a rugpull? Many tokens are scams that are trying to trick people into investing only to pull the rung under them and ran away with all the money.
    – Sky
    Feb 21, 2022 at 9:01
  • but rug pulls would explain 20-30% of cases but no 95% of cases as we can see today. I think there is something else
    – pellyadolfo
    Feb 21, 2022 at 9:03
  • Market movements are always chaotic. Even more so in crypto. I was not aware 95% of small-cap coins crashed today?? But in general projects crash when they fail to deliver, owners mint a lot of tokens, (maybe rugpull), or there is a hack. Sometimes it also tends to happen if users who bought on pre-sale suddenly start selling like crazy.
    – Sky
    Feb 21, 2022 at 9:07
  • The thing is that it does not look chaotic but exactly the opposite: a systematically repeated profile. There is not time to know if they will deliver when they fall in a couple of weeks after ATH. I guess there is a systematical operative mistake like minting lot of tokens + withdrawing all ether just after ICO. It could be speculative forces but still I think there is something else as almost no token seems to address this fact correctly.
    – pellyadolfo
    Feb 21, 2022 at 9:17
  • There are some tokens that "punish" /"tax" you for selling. But that is far as I heard of it.
    – Sky
    Feb 21, 2022 at 11:50

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I think I found the answer. They are the investors themselves, that purchase the token at low price on funding rounds, pushing the token to an ATH and, then, when the vetting period expires, investors sell their holdings so real price discovery mechanism takes place so the price of the tokens collapses.

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