Expert Highlights Key Red Flags in the Crypto Industry

The crypto market reached a historic milestone this week, with its total market capitalization nearing $4 trillion. This was driven by a rally that saw numerous digital assets hit all-time highs. Bitcoin, Ethereum, and several altcoins led the charge, buoyed by renewed investor enthusiasm and institutional adoption. 

Amid this bullish surge, a prominent crypto market watcher and author has issued a sharp critique of the crypto industry. He has raised concerns about its integrity and long-term viability.

Expert’s Crypto Critique: Industry’s Integrity and Long-Term Viability at Risk

​​In a detailed post published on X (formerly Twitter), Omid Malekan, an adjunct professor at Columbia Business School, publicly criticized the crypto industry, raising several concerns.

His argument centered on three core points. First, he contended that many crypto projects are driven by team profit motives rather than a commitment to decentralized solutions and innovation. 

Malekan highlighted a concerning trend in which projects, especially those that raise significant funds, often lose sight of their original vision. He explained that raising a huge sum of capital can ultimately become a distraction. This shifts the focus away from decentralization, a core value within the crypto ecosystem. 

“Funds raised are negatively correlated with long-term success. The data is indisputable. Bitcoin raised no money, ETH raised a little (by modern standards), Punks were given away, etc, while there is a long tail of projects that raised hundreds of millions or even billions and achieved abos-Fing-lutely-nothing,” he said.

Furthermore, Malekan pointed to the issue of conflict of interest, particularly when projects simultaneously raise funds through both tokens and equity. 

He suggested that this dual approach to fundraising often leads to decisions that benefit insiders rather than the broader community. This, in turn, undermines trust and the project’s long-term potential.

“The most likely motivation of a central player (founder, Labs, Foundation, whale) who contributes in kind (giving tokens in exchange for shares) to a public treasury vehicle is backdoor exit liquidity. Tokens are trackable, shares are not….VCs that encourage projects to do a token (which is most of them) are trying to make money for their LPs as soon as possible, as opposed to funding successful long-term projects,” Malekan claimed.

Second, Malekan stressed the issue of widespread market manipulation. He cited practices such as pump-and-dump schemes, inflated total value locked (TVL) metrics, and questionable staking mechanisms. 

These tactics, he argues, artificially inflate project valuations and mislead investors about the health and adoption of certain platforms.

“Every meme coin fan or philosopher is one degree of separation removed from someone who is in a bunch of chat groups coordinating the next pump and dump scheme (many do this themselves),” he remarked.

Third, the author expressed skepticism about the growing number of new Layer 1 (L1) blockchains and Layer 2 (L2) solutions entering the market. 

According to him, the launch of new L1 blockchains is often unnecessary. He believes any technological innovation can be integrated into existing chains or developed as L2 solutions. 

“The most likely reason a new project (dApp, RWA, CEX going on chain, Web2 firm doing new Web3 stuff) picks a specific L1 or L2 is because they were paid to. It’s not “because they like the tech,” he added.

He also critiqued the rise of permissioned blockchains. Malekan sees them as a form of ‘innovation theater.’ He stressed that they hinder the adoption of public blockchains.

Meanwhile, Malekan reserved particularly pointed criticism for Ondo Finance, a decentralized finance (DeFi) protocol. He labeled its operations as ‘shady.’

“Years ago, I watched one of the founders wondered publicly whether Ethereum stakers should all be required to get broker-dealer licenses. That’s the least cypherpunk thing I’ve ever heard. Even Gensler didn’t believe that,” Malekan alleged.

The professor’s remarks sparked a discussion among the crypto community. Notably, several industry leaders have expressed agreement with his points. 

“I don’t know this guy Omid, but he makes a lot of sense. There are a lot of scams and scammy behavior in crypto. That’s why most of us have been calling for sensible regulation of the space. Because we want to see the technology thrive,” MetaLawMan replied.

Thus, as the crypto market celebrates its latest milestone, Malekan’s warnings serve as a sobering reminder of the challenges it faces. With investor confidence at a high, the question remains whether the crypto stakeholders can address these criticisms and deliver on their promise of a decentralized, transparent financial future.