Why Do Crypto Projects Fail?

Reading Time: 3 minutes
  • There are multiple reasons why crypto projects fail, as thousands have over the years
  • From rug pulls to hackers, the list of reasons (and cases) seems to grow each cycle
  • Here are the most common reasons your holding can suddenly drop to nothing

For every crypto success story like Bitcoin, there are a thousand that don’t make it. The crypto landscape is littered with projects that are no longer with us, and the reasons are many and varied. Here we look at the most common reasons that crypto projects fail and hopefully allow you to spot some red flags if you’re a token holder.

Changing Trends

Crypto trends can change almost overnight, with creators and developers moving onto the next big thing in the blink of an eye. This means that smaller projects which don’t see much traction can simply get abandoned by their creators, but users wouldn’t necessarily know it;  the code keeps running and the website is still up, so there’s sometimes no telling that there’s no one working on it.

This is particularly a problem if you’re holding the cryptocurrency associated with the project; you may have bought it believing in the potential, only to find out that the founders lost faith or got bored and walked away, leaving your investment to dwindle to nothing.

Untested Ideas

One of the great things about crypto is the creativity on display. The space has come a long way since it was only possible to trade Bitcoin, with whole sub-sectors springing up and seeing billions of dollars’ worth of investment.

However, with new ideas come new risks. If those ideas are rushed through, or all the permutations aren’t thought out in advance, trouble isn’t far away. This was the case with the LUNA/Terra collapse in 2022. Terraform Labs thought that they could create a stablecoin that wasn’t backed by collateral but would instead maintain balance through market forces. However, its creators didn’t forecast how its UST and LUNA coins would react when put under tremendous sell pressure. What resulted was a death spiral, and the two coins lost all value, taking the platform, and $40 billion in investments, down with it.

Terra will be forever known as the poster child for crypto shortsightedness and lack of planning.


Crypto hacks remain a scourge of the space, with illicit actors exploiting bad designs or human weakness to gain access to protocols and steal the funds inside. However, these days, hackers don’t even need to do anything untoward to bring a platform to its knees; they just need to work out how to game the system.

This concept of gaming a system isn’t new—after all, people make a living from playing gambling houses at their own game—and with crypto, it can cause huge and lasting damage. Working out how to game a DeFi platform is hugely complex, but there have been cases where individuals have studied the code and worked out the steps they need to take in order to manipulate certain features of a platform. This has allowed them to steal tens or even hundreds of millions of dollars worth of cryptocurrencies.

These actions are often within the bounds of the platform and are simply backdoors that the developers never considered. As a result, there is a constant battle going on between developers and would-be attackers with regard to the exploitation of systems.

Rug Pulls

The most galling reason a project can collapse is when its founders simply shut up shop, sell their holdings at a massive profit and run off with the cash. This is known as a ‘rug pull’ and is highly illegal, but the international nature of crypto means it hardly ever has repercussions.

Often you can’t see rug pulls coming, but keeping your ear to the ground and watching for odd price action with the token can be a sign that all is not well.