The Real Reason There Are So Many Worthless Cryptocurrencies

Charlie Munger once said, "Show me the incentive and I'll show you the outcome."

I keep coming back to this when people ask me why there are so many worthless cryptocurrencies. Tens of thousands of tokens that were hyped, bought, and abandoned. Most people chalk it up to scams or greed. But when you look at how these networks were actually designed, who gets paid, and for what, the outcome was inevitable.

On networks like Ethereum and Solana, 100% of the network's rewards go to validators. These are the people running the infrastructure, they spin up a node, keep it online, commit some capital, and collect rewards. That's it. They don't build anything or bring new users in. They sit in the background and earn ETH or SOL just for being there.

The app developers, the people who build the actual products that bring users to these networks, get nothing from the network itself.

So what did these developers do? They created their own tokens. It was the only way to monetize the work they were doing. They built real applications, attracted real users, and then issued their own cryptocurrency to capture some of that value.

Most of those tokens became worthless. Not because the developers were scammers, but because these tokens were never backed by real economic activity. They were just a mechanism for a builder to get paid for work the network should have been rewarding them for all along. The value flowed one way, from investors to creators.

I actually sympathise with these developers because they built the things people used and created the reasons anyone cared about these networks at all. And the networks they built on gave them nothing in return.

Show me the incentive. I'll show you the outcome.

I ran into this firsthand. I recently explored becoming a validator on the Canton Network, a blockchain built for institutional finance, used by firms like Goldman Sachs and HSBC. I expected it to work like every other network: spin up a node, keep it running, collect rewards for being online.

Instead, I hit a wall.

Canton is eliminating pure "liveness rewards" for validators. Starting April 30th, you can no longer earn money just for keeping a computer plugged in. If you want to earn on Canton, you need to bring something real; an application, a business, actual utility that people use.

Canton allocates 62% of all network rewards to application builders. On Ethereum and Solana, that number is 0%. Canton is saying something radical: the people who create the reasons others show up deserve the majority of the economics.

This is why there are so many worthless cryptocurrencies. Not because crypto is inherently broken, but because the incentives were overweight to validators and severely underweight to app builders. When you reward infrastructure operators for doing nothing beyond staying online, and you give nothing to the builders creating real products, the builders have to invent their own money. And invented money without real economic backing becomes worthless.

The free rider problem isn't some edge case in crypto. It's the foundational design flaw of most major networks.

Canton's approach is harder. It demands that participants actually build something. It's not passive income, it's earned income. And that distinction might be the difference between a network full of real businesses and a network full of empty tokens.

Munger was right. Get the incentives wrong and the outcome writes itself.

Cheers,

Louis Sykes
Senior Crypto Analyst, All Star Charts