How do 99% of unprofitable Web3 projects survive?

Author: Ryan Yoon Source: tiger-research Translation: Shan Ouba, Jinse Finance

99% of Web3 projects have no cash revenue, yet many still spend huge sums on marketing and advertising every month, and hold various events. This report will dissect the survival code of these projects and reveal the truth behind their cash-burning model.

Key Takeaways

1. 99% of Web3 projects lack cash flow support; their operating costs are not covered by sales revenue, but by tokens and raised funds.

2. Prematurely launching TGE leads to high marketing expenses, ultimately eroding the competitive advantage of the core product.

3. The reasonable price-to-earnings ratios of the top 1% of high-quality projects confirm the lack of real value support for the rest. Early token issuance allows project founders to cash out regardless of project success or failure, creating a distorted market cycle. The survival of 99% of unprofitable projects stems from a structural flaw in the market system—this model is built on investor losses, not on the project's own commercial profitability. "The core of a company's survival is having real revenue generation capabilities"—this is the most resounding warning in the current Web3 industry. As the market matures, investors are no longer paying for unrealistic visions. If a project fails to acquire real users and generate sales revenue, token holders will quickly sell off and exit the market. At this point, the lifespan of the funding becomes a crucial indicator determining the project's survival; it refers to the length of time the project can sustain operations without generating profit. Even without any sales revenue, a project still needs to bear fixed costs such as staff salaries and server rentals each month. For teams without revenue, the sources of funding to support operations are extremely limited. However, this model of relying on external funding is ultimately only a stopgap measure. The project's asset reserves and token supply are both limited. When all funds run out, these projects either cease operations altogether or quietly exit the market. This survival crisis is widespread within the industry. According to Token Terminal data, in the past 30 days, only about 200 Web3 projects globally have managed to generate even a mere $0.1 in revenue. This means that 99% of these projects lack the ability to even cover their basic costs. In short, almost all cryptocurrency projects have failed to validate a viable business model and are in the process of being slowly eliminated by the market. II. The Overvaluation Trap The seeds of this industry crisis were sown long ago. The vast majority of Web3 projects launched their token offerings based solely on a vision, often without even a fully developed product. This contrasts sharply with the listing logic of traditional companies—which must first prove their growth potential before applying for an IPO. In the Web3 space, project teams often only need to justify their high valuations after the token offering (TGE). However, token holders won't wait patiently. New projects flood the market daily, and if a project fails to deliver on expectations, investors will not hesitate to sell and exit. This directly puts pressure on token prices, threatening the project's survival. Therefore, most projects prefer to invest in short-term hype and hype rather than long-term product development. It's conceivable that if the product itself lacks competitiveness, even the most extensive marketing will ultimately fail. At this point, the project is caught in a dilemma: Focusing on product development would require a significant time investment, during which market enthusiasm would gradually wane, and the funding cycle would shorten; relying solely on hype and promotion would render the project an empty shell lacking substance. Both paths ultimately lead to failure. These projects ultimately fail to justify their initial high valuations and can only end in collapse. III. Seeing Through the Top 1% to Understand the Truth of the Remaining 99% However, there are indeed top 1% of high-quality projects in the industry that have proven their commercial viability through substantial revenue. We can use the price-to-earnings ratio (P/E ratio) to measure the true value of leading profitable companies like Hyperliquid and Pump.fun. The P/E ratio is calculated as market capitalization divided by annual revenue, reflecting whether the project's valuation is reasonable relative to its actual revenue. Data shows that the P/E ratios of profitable companies range from 1 to 17. In comparison, the average P/E ratio of companies in the S&P 500 is approximately 31. This means that these leading Web3 projects are either undervalued relative to their revenue or possess extremely strong profitability. The fact that these top-performing projects can maintain reasonable price-to-earnings ratios ironically casts doubt on the valuation rationality of the remaining 99% of projects. It confirms that the high valuations of the vast majority of projects in the market lack solid value support. IV. Can this distorted cycle be broken? Why do many projects maintain valuations of billions of dollars despite having no sales revenue? For many founders, product quality is a secondary goal. The distorted market structure of the Web3 industry makes "quickly cashing out and leaving" much easier than "building a real commercial project." The cases of Ryan and Jay are sufficient to reveal the reasons. Both launched AAA-level game projects, but their final outcomes were drastically different.

   

   Case Study 1: Ryan – Prioritizing Token Issuance Over Product Development

   Ryan chose to prioritize token issuance over product development, embarking on a path centered on cashing out. Before the game's official launch, he raised early funding by selling NFTs; subsequently, while the game was still in its semi-finished stage, he launched a token issuance and listed it on a second-tier exchange based on an ambitious roadmap.

   After the token listing, he maintained the price through continuous speculation, buying himself more time.

   Although the game's release was ultimately delayed, the final product was of extremely poor quality, leading token holders to sell off their holdings and leave the market. Ryan announced his withdrawal from the project citing "taking responsibility," but he was the real winner in this farce. While outwardly maintaining the project's operation, he not only offered himself a high salary but also sold off his unlocked tokens, reaping huge profits. Regardless of the game's ultimate success or failure, he had achieved financial freedom and quickly withdrew. Case Two: Jay – Adhering to a Product-Focused Approach, Focusing on R&D Conversely, Jay chose to follow the traditional path, dedicating all his energy to product development, prioritizing quality, and refusing hype. However, the development cycle for AAA games can take several years. During the long development process, the project's funds ran out, plunging into a serious financial crisis. In the old model, founders could only reap substantial profits after the product was officially launched and achieved sales. Jay raised funds through multiple rounds of financing, but ultimately declared bankruptcy before the project was even completed due to a broken funding chain. Unlike Ryan, Jay not only failed to earn a penny but also incurred huge debts, leaving behind a resume of entrepreneurial failure. Who is the real winner? The final result of both cases is that neither project created a successful product. But the winner is obvious: Ryan accumulated wealth by taking advantage of the distorted valuation system of the Web3 industry; while Jay attempted to build a high-quality product but ultimately suffered a complete loss. This is the harsh reality of the current Web3 market: it is far easier to cash out early by taking advantage of excessively high valuations than to build a sustainable business model. Ultimately, all the costs of failure are borne by the investors. Returning to the initial question of this article: How do 99% of unprofitable Web3 projects survive? This harsh industry reality is the most honest answer to that question.