Research firm Castle Labs argued in a detailed analysis that the crypto market is structurally oversaturated with tokens, pointing to data showing that 84.7% of major token launches in 2025 traded below their initial valuation and that only 76 out of more than 5,600 protocols generated over $1 million in monthly revenue.
What Happened: Token Oversupply Crisis
The firm published its thesis in a lengthy post on X, framing the current environment as a selection phase rather than a broad recovery. The top five crypto assets now account for 84.4% of total market capitalization, Castle Labs said, leaving roughly $330 billion spread across thousands of smaller tokens.
For comparison, the MAG7 stocks represent 31% of the US equity market, while the S&P 500 accounts for 84.7%. Crypto has reached the same concentration level as the top 500 American companies — but with just five assets.
"Over the years, so many coins have been created that 99% of them need to go to zero for the industry's good," the firm wrote.
Castle Labs also flagged $8.51 billion in token unlock value scheduled for this year and $17.12 billion over the next five years, adding persistent supply pressure to a market where demand is already thin.
Revenue concentration reinforces the picture. The top 10 protocols in 2025 generated 80% of total crypto revenue, with Tether (USDT) alone accounting for 44%, according to the firm's data. Of those top 10 earners, only three had launched tokens — Hyperliquid (HYPE), Pumpfun, and Jupiter (JUP) — and only HYPE materially outperformed.
Why It Matters: Market Repricing Ahead
Castle Labs outlined three possible paths forward: smaller tokens gain share from majors, new external liquidity lifts the broader market, or weaker tokens lose value while majors absorb capital. The firm said the third scenario is the most probable.
The practical implication is that token selection now matters more than market exposure. Castle Labs pointed to buybacks as one of the clearest signals of tokenholder alignment, highlighting Aave (AAVE) and Hyperliquid as examples, while noting that Uniswap (UNI) only reached full alignment with holders after more than five years.
Capital, the firm concluded, should rotate toward protocols with real revenue, credible dilution offsets, and economic structures that tie token value to product performance. Whether that thesis plays out may depend on whether more projects adopt KPI- and revenue-led launch models.