Castle Labs says that the long tail of crypto is structurally over-engineered and that many tokens will eventually be priced down to zero unless they can prove real business viability and strong token alignment. The thesis, published in the long post of X, presents the current market as an optional category rather than a widely supported recovery story.
The main point is not that crypto itself is failing, but that the supply of tokens has far outstripped sustainable demand. Castle Labs says the result is a market where a handful of students dominate while thousands of smaller outfits compete for less money.
Crypto tokens are plentiful
Castle Labs points to concentration data to make the case. According to the post, the top five crypto assets account for 84.4% of the total market capitalization, leaving the rest of the market with 15.6%, or about $330 billion, spread across thousands of tokens.
Related Reading
It compares to US figures, where MAG7 represents 31% of the market and the S&P 500 represents 84.7%. In the Castle Labs framework, crypto has reached almost the same level of concentration as the top 500 US companies, but with only five assets raising the most.
“Over the years, so many coins have been created that 99% of them need to go to zero to benefit the industry,” the company wrote. It adds that the disparity has become more difficult to ignore for investors who have bought into the crypto institutional recovery narrative but remain deep underwater in heavy portfolios.
Castle Labs presents three broad ways of rebalancing: majors lose share to smaller tokens, foreign currencies lift the broader market, or weaker tokens lose value while majors take a larger share of the capital. It argues that the third outcome is the most likely, even if the first could be theoretically viable.
A big part of the debate is the market for simple machines. Castle Labs says that the opening of tokens will continue to increase availability in a market where demand has already been selected, citing $8.51 billion in opening value this year and $17.12 billion in the next five years.
That goes beyond, it contradicts, it conflicts with the poor performance of the business in every sector. Of the more than 5,600 deals listed on DeFiLlama, Castle Labs says only 76 have generated more than $1 million in revenue in the past 30 days, and only 237 have issued $100,000.
Income is also fixed. The post states that the top 10 contracts in 2025 will account for 80% of crypto revenue, while the top three will account for 64%, with Tether alone representing 44%. It also notes that only three of those top 10 coin makers have launched tokens so far: Hyperliquid, Pumpfun, and Jupiter and says that only HYPE is doing very well.
Related Reading
That background helps explain Castle Labs’ reluctance about the new listing. It says there were about 118 major token launches in 2025, with 84.7% trading below their TGE value, which it describes as evidence of bullish pricing and a weak post-launch structure.
Alignment Problem
Castle Labs also says that the market penalizes tokens that do not match the economics and products they represent. It cites Circle’s acquisition of Interop Labs, where Axelar’s AXL token was not part of the deal, as an example of product value and token value differences.
“Tokens are not a legal representation of the business and do not give any real rights to the profits of the company, unlike equity,” the company wrote. “The investors, when they get the tokens, they have these rights in equity. So they’re in a better position, but the token holders? They’re at the mercy of the project when it comes to combining their product with their token.”
In that framework, buybacks are considered one of the clearest signs of alignment. Castle Labs highlights Hyperliquid and Aave, and says Uniswap is fully compatible with token holders after more than five years of its token’s existence.
The firm’s conclusion is vague but clear: capital must circulate in deals with real income, token holder alignment, and reliable decontamination methods. Whether that thesis will continue in the next cycle may depend less on the narrative and more on how many projects using the type of KPI- and revenue-led delivery models Castle Labs says are starting to emerge.
At the time of publication, the total crypto market stood at $2.16 trillion.
The featured image was created with DALL.E, a chart from TradingView.com
