Crypto Doctor’s Coin Talk for Beginners Lesson 17: Why You Should Be Extra Cautious With Coins Funded by Dilution Rewards?

Crypto Doctor’s Coin Talk for Beginners Lesson 17｜08:32
Why should you be extra cautious with coins funded by dilution rewards?

New friends may see a project with very high returns and think: “You can receive coins every day. At least take the rewards first.”

But there’s an easy-to-overlook question here: who is actually paying for the rewards you receive?

If the rewards come from real revenue—say, users are willing to pay for the product—and then a reasonable portion of that is distributed to participants, then this loop still has value to research.

But if the project mainly relies on continuously issuing new coins to subsidize users, then the apparent high returns are, in essence, just issuing more tokens.

You can think of it like a store that attracts customers by handing out large amounts of vouchers every day. At first, there are fewer vouchers and more customers, so everyone thinks it’s very valuable. Later, more and more vouchers get issued, but the number of people genuinely willing to buy vouchers doesn’t increase in step. When voucher holders try to cash out, they find the market can’t absorb it.

So when I look at this kind of project, I usually don’t get drawn in by “how much is being issued,” but instead focus on why the rewards can exist.

First: distinguish whether the rewards come from operating revenue or from newly issued tokens. The former at least has external cash flow support; the latter is more about diluting every token holder’s share.

Second: look at why the people receiving rewards would keep holding. If the token has no real use beyond claiming the next round of rewards, and there’s no ongoing demand, then the more participants there are, the more likely future potential sell pressure becomes.

You also have to ask: after the subsidies decrease, will users stay? People drawn in by rewards often leave right along with the higher rewards. As long as growth must depend on an ever-increasing amount of new coins, the loop is hard to maintain indefinitely.

My judgment boundary is: dilution subsidies themselves don’t necessarily mean the project is definitely problematic. It’s common for early-stage projects to kick-start the network with subsidies. The key is whether the subsidies can be exchanged for real users, real usage, and income that doesn’t rely on subsidies. If these things don’t show up for a long time, then the so-called returns may just be settled with token depreciation.

What in-depth research needs to solve here is to break down those “beautiful” return figures: where the rewards come from, how fast the token supply is increasing, and whether real demand can absorb the added supply. Only if those three things improve step by step can subsidies be a launch cost rather than pressure being pushed onto later people.

If you’re looking at a project with very high rewards, leave the token name and the reward source in the comments. Clarifying “who is footing the bill” is often more useful than the annualized number.