Why Launching a Crypto Token Presale with Staking Rewards Can Lead to Price Crashes

When launching a new cryptocurrency token, many projects offer presales to raise funds and build a community. To attract investors, some projects also introduce staking rewards during the presale phase, enticing participants with the promise of passive income. However, while this strategy might seem like a great way to boost initial interest, it can actually set the stage for significant problems down the line—most notably, a price crash when the token is launched on decentralized exchanges (DEXs). Here’s why:

1. Over-Inflated Supply Before Launch

Introducing staking rewards during the presale creates an immediate inflationary pressure on the token’s supply. Staking typically rewards users with additional tokens, which, while incentivizing early participation, also means that a large number of tokens are generated and distributed before the token is even listed on a DEX.

When the token finally launches, many of these tokens, accumulated as staking rewards, are released into the market. This sudden influx can lead to an oversupply of tokens relative to demand, putting downward pressure on the token’s price right from the start.

2. Profit-Taking Behavior by Early Investors

Participants in the presale, particularly those who received staking rewards, are often motivated to take profits as soon as the token becomes liquid on a DEX. Since they acquired the tokens at a lower presale price and possibly received staking rewards on top of that, these investors can afford to sell at a lower price than the initial listing price and still make a profit.

This collective profit-taking can lead to a flood of sell orders, driving the token’s price down rapidly. If too many investors offload their tokens at once, it can trigger a sharp price decline, undermining the token’s long-term potential and eroding investor confidence.

3. Misalignment of Incentives

While staking rewards are designed to encourage long-term holding and network participation, offering them during the presale can create a mismatch between short-term incentives and long-term project goals. Early investors might not have the project’s long-term success in mind—they are more likely focused on short-term gains.

This misalignment can be detrimental. When a significant portion of the token’s supply is in the hands of investors primarily interested in quick profits, it creates a fragile market structure. This can lead to heightened volatility, as these holders are more likely to sell at the first sign of a price decline, exacerbating any downward movement.

4. Weak Post-Launch Market Confidence

A sharp post-launch price drop can have lasting effects on the token’s market perception. New potential investors, seeing the price plummet immediately after launch, may lose confidence in the project, assuming that it is either poorly managed or that it was overhyped. This loss of confidence can depress trading volumes and hinder the token’s ability to recover, leading to a prolonged period of low prices and low interest.

5. Reduced Effectiveness of Future Incentives

If staking rewards are overly generous during the presale, it can limit the effectiveness of future incentives. Once a large number of tokens are already in circulation, it becomes challenging to introduce new staking or reward programs without exacerbating inflationary pressures. This can limit the project’s flexibility in designing long-term incentives that align with its growth strategy.

Conclusion: A Flawed Strategy for Sustainable Growth

While offering staking rewards might appear to be an effective way to attract early investors, it often leads to unintended consequences that can harm the token’s long-term viability.

Inflated supply, profit-taking behavior, and weakened market confidence can result in a significant price crash upon the token’s launch on a DEX.