The Matthew Effect in the Crypto Market: Why Most Tokens Are Destined Not to Achieve Compound Growth?

In February 2026, the crypto market is silently but profoundly undergoing an “asset liquidation.” According to Gate market data, as of February 24, BTC/USDT prices have been highly volatile around $63,000. During this correction, Bitcoin’s decline appears “restrained” compared to many altcoins, while numerous small- and mid-cap tokens have experienced bloodshed and reshuffling.

This is not just a matter of cyclical forces but the extreme manifestation of the Matthew Effect in the crypto space: leading assets absorb most of the liquidity, while the vast majority of tokens are systematically abandoned by the market. This article will explore, from the essence of compound interest mechanisms and combined with Gate’s latest market data, why most tokens are destined not to achieve long-term compound growth under the current crypto structure.

The Essence of Compound Interest: The Deprived “Reinvestment” Engine

To understand why tokens struggle with compound interest, we need to dissect its source. In traditional finance, Berkshire Hathaway’s market cap reaching about $1.1 trillion is not due to Buffett’s perfect timing but because the company has a powerful compounding engine.

Every year, the company reinvests its profits—funding R&D, expanding markets, repurchasing shares. Every correct decision builds on the last, creating a positive feedback loop of “profit → capital allocation → more profit.”

However, most crypto tokens are deliberately designed to cut off this flywheel from the start.

Token economic models are essentially “coupons,” not “equity.” Take Ethereum as an example: staking ETH yields an annualized return of 3%-4%, which sounds like passive income. But the deeper logic is: regardless of how much network fee income grows (say from 5 million to 6.6 million), if the protocol chooses to distribute all these fees to stakers, the funds flow out of the protocol system entirely.

The earnings in the first year cannot be reinvested into the second year’s growth, so there is naturally no long-term compounding effect. Tokens capture only the current “use value,” not the future “growth value.”

Manifestation of the Matthew Effect: Liquidity Concentrates at the Top

This structural flaw of “no compounding” is masked during periods of abundant incremental capital, driven by bullish narratives. But in the deleveraging cycle of February 2026, it is laid bare.

The market is dividing assets into a brutal dichotomy:

On one side are mainstream assets with “bond-like” attributes. Bitcoin is shedding its pure tech faith premium and returning to a macro hedge asset. Despite price volatility, it has become a safe haven due to its high liquidity and stable institutional holdings (corporate addresses control 5.4% of the total supply).

On the other side are long-tail tokens lacking cash flow support. When the market’s tech filter fades, investors realize most protocols cannot retain earnings and grow via reinvestment like traditional companies. They are more like “casino chips” dependent on market sentiment. According to FT Chinese analysis, liquidity gaps caused by the “1011 event” have severely weakened market resilience, and once these tokens’ prices fall below support levels, they create liquidity vacuums.

This intensifies the Matthew Effect: institutional funds only acquire the highest quality assets (BTC, ETH, and some top public chains), while smaller players face acquisition or complete exit. Tokens that lack narrative, cash flow, and the potential for compound growth are being forgotten by capital.

Legal Original Sin: Giving Up Reinvestment to Survive

Why don’t developers design tokens as equity capable of compound growth? The answer lies in regulation.

Looking back at 2017–2019, the U.S. SEC scrutinized assets that appeared to be securities, and almost all legal advisors advised: do not make tokens look like equity.

Thus, the industry deliberately designed this system:

• No cash flow rights—avoiding dividends;
• No governance rights over Labs entities—avoiding shareholder-like rights;
• No retained earnings—avoiding corporate treasury functions.

This design successfully helped most tokens evade securities classification but at a heavy cost: the entire asset class was deliberately stripped of the core mechanism for creating long-term wealth.

Ironically, the entities that truly achieve compound growth are the “Labs companies” (core development entities). When Circle acquired Axelar, the acquirer bought the Labs’ equity, not the token. Because equity represents control over talent, IP, branding, and strategic choices—elements that can generate compound returns through capital allocation; whereas token holders only get a fluctuating “coupon” that cannot accumulate value.

Shift in Investment Paradigm: From Timing Power Law to Compound Power Law

In the absence of a reinvestment engine, crypto wealth creation follows a “timing power law.” Those who profit are often early buyers and accurate sellers. In Gate’s social discussions, a user lamented: “The top is bleeding, retail is giving away stocks… Every time I see news about institutions accumulating, I think of liquidation moments.” This confirms that in a zero-sum game, time is your enemy.

In contrast, in equity markets, wealth creation follows a “compound power law.” You don’t need perfect timing—just buy assets that can be continuously reinvested, and let time make you richer slowly.

By 2026, the market is realizing this. Capital is shifting toward companies that leverage blockchain technology to reduce costs and reinvest profits. Stablecoins are a typical example—Tether is a company with equity, not just a protocol. Truly becoming a compound machine are those embedding stablecoins into their core business (cross-border payments, supply chain finance), saving millions annually and reinvesting these profits into sales and R&D.

Conclusion

From Gate’s perspective, the price swings on February 24 are superficial; the deeper structural reshaping is key. When Bitcoin hovers around $63,000 and gas fees remain low, causing ETH to effectively become inflationary, we must recognize:

Most tokens cannot achieve compound interest—not because their technology is immature, but because their economic models were never designed to enable user compounding from the start.

For investors, this doesn’t mean leaving crypto altogether but redefining “value storage.” Under the current paradigm, true compound interest may not come from holding “coupon tokens” but from seeking assets that:

1. Generate exogenous cash flows;
2. Have capital allocation capabilities;
3. Or even directly hold stakes in high-quality enterprises.

The end of the Matthew Effect is not the demise of crypto technology but the elimination of tokens that cannot demonstrate their ability to “accumulate value.” The survivors will be those embedded into financial infrastructure, with genuine potential for compound growth.