The value consensus mechanism, future trends and investment logic of meme coins

Original source: BillyWen, partner of Negentropy Capital


Editor's note: BillyWen first came into contact with meme coins in 2015, and sold Dogecoin because of his prejudice against meme coins. Later, the meme FOMO brought by PEPE made him realize that the fair launch mechanism of meme is the ultimate goal pursued by all fields. During the meme pre-sale boom, BillyWen donated 6,000 SOL to SLERF, and currently still holds 5 million SLERF, which can be said to be one of the people who donated the most to this project.

The first time I bought meme coins in 2015 was because the Internet company held an annual meeting at that time, and HR proposed to use virtual currency as one of the prizes for the employee lottery game in the lottery session. I found a link from a seller in the Babbitt forum, jumped to a Taobao store and bought 1,500 yuan of Dogecoin as a prize for the lottery (more than 20 million yuan at the ATH price).

At that time, most people did not have a crypto wallet, so they could only print the private key on a small piece of paper and put it in the lottery box for everyone to draw. It's still very funny when I think about it now.

In the bull market in 2021, Elon Musk started to shout Dogecoin and the price of the currency soared a thousand times. I was heartbroken because I didn't hold on to the Dogecoin I bought early, and I couldn't understand why so many people asked me how to buy Dogecoin. The logic at that time was still in the so-called new world of web3. Crypto must be able to solve certain problems to have value and reason to exist. For those friends who came to ask, they were advised not to buy this worthless meme coin. My bias against meme coins caused me to ignore the most important point: consensus is value, and existence is reasonable!

When the time came to April 2023, the frog meme coin $PEPE broke through 1 billion US dollars in a very short time, and was soon listed on major first-tier exchanges, which once again set off a huge meme coin FOMO wave.

When the fund held an internal meeting to review and discuss the intrinsic investment value and trading model of meme, we gradually realized that this is a new consensus mechanism, that is FAIR PLAY! Fair competition! This is also the ultimate goal pursued by humans in various fields! This value consensus mechanism combined with blockchain technology has formed a new financial product, namely the crypto Native meme coin.

Why FAIR PLAY is the core of the meme coin value consensus mechanism, we have to start with the pricing, valuation and trading of cryptocurrencies. Since Satoshi Nakamoto created Bitcoin, the fixed number of 21 million bitcoins that cannot be issued has become the cornerstone of cryptocurrency pricing. Blockchain technology has realized the non-inflationary nature of Bitcoin, thus forming a unique mechanism for cryptocurrency to be unable to inflate and create scarcity.

The world's legal tender has been increasing and inflating. In contrast, cryptocurrencies that cannot be issued and cannot inflate naturally have a theoretical basis for the corresponding legal tender prices to continue to rise.

Although cryptocurrency has solved the problem of fixed total amount and non-increase through blockchain technology, it is not a fair competition model and is even full of fraud and scams. When Ethereum's smart contract realized the ability to issue TOKEN quickly at a very low cost, the ICO model quickly became popular. The token issuance led by smart contracts is essentially to pre-mine the project assets at one time, that is, Fully Diluted Valuation.

Pre-mining these tokens means that all the assets of the project are manufactured in advance. The project party uses the token economic model to allocate tokens to various stakeholders and formulate unlocking and release rules, such as the part left for VC investment institutions, the part left for ecological funds, the part left for the team, etc.

In contrast, the crypto secondary market is piled with a large number of crypto projects with low circulation and high market value. Retail investors buy this kind of inflationary asset that is continuously diluted in the secondary market (although the total amount of tokens is fixed, the number of tradable tokens is in continuous inflation). There are more and more circulating coins in the market, and the tokens in the hands of secondary market investors are becoming less and less valuable. This is why a large number of retail investors complain about being constantly taken over and being cut.

Meme coins appeared at the right time. There is no complex token economic model, no investment support from VC institutions, no actual product business process, and even the founders of the project are anonymous without public identity information. But they have one thing that is most attractive to the younger generation of crypto investors or speculators, that is, the token distribution is transparent and fully circulated.

Speaking of this, most people may not realize that meme coins have gone through several bull and bear cycles and have been recognized and sought after by the crypto market and investors. Its essence is that the consensus mechanism of human beings on the value of crypto assets has been upgraded to the 2.0 stage, that is, from the earliest 1.0 stage where crypto assets (trading targets) cannot be arbitrarily issued, to the 2.0 stage where crypto assets (trading targets) cannot be arbitrarily diluted. This is also the inevitable trend of the development of the cryptocurrency industry under the FAIR PLAY consensus mechanism.

The value model of meme coins is a new type of virtual asset that most traditional investors or VC institutional investors in the crypto industry cannot understand, even hate, and hate. The pricing model of this asset is not supported by any product, user or business data, nor is there a calculable asset price evaluation formula. The only thing is community consensus and group trading sentiment.

Through continuous participation in the investment and trading of meme projects, we have gradually formed some cognition and judgment on this track. There are three main aspects to analyze the future development trend of meme coins:

1. The market value of the meme sector is expected to increase rapidly in the next few years.At present, the overall market value of the meme coin sector led by $Doge, $Shib, $Floki and $Pepe is less than 70 billion. It is expected to grow to 400-500 billion US dollars in the next 2-3 years, and the proportion of the entire cryptocurrency market will increase to more than 10%. There will be more than 20 unicorn meme projects with a single currency market value of more than 100 billion US dollars and more than 10 billion US dollars.

2. The meme track will show obvious generational stratification. With the continuous evolution and development of blockchain public chain technology, meme coins are also constantly upgrading and replacing with the development of blockchain technology.

The ancient Dogecoin was forked from the Bitcoin code, representing the first generation of meme coins derived from the Bitcoin mainnet technology. The second generation of meme coins starting from $Shib used Ethereum's smart contract to issue tokens to enter the secondary circulation market. This year's very popular third-generation meme coins such as $BOME and $Slerf were generated on Solana, and benefited from users using on-chain DEX transactions, meme coins have become mainstream.

The blockchain public chain technology used by these three generations of meme coins also has obvious generational differences. For example, Bitcoin is the earliest blockchain technology, which does not support smart contracts and only has simple point-to-point transfers. Therefore, the transactions of Dogecoin are mainly concentrated in major centralized exchanges CEX. The second and third generation meme coins use smart contracts to issue tokens, fully support on-chain transactions, and open the door to a new world of memes. The realization of AMM liquidity on DEX by meme coins quickly attracted a large number of users to enter the secondary market for transactions.

3. The fair launch model will become the mainstream trend of meme coins. In order to gain recognition from the community and the market, the Fair Launch model must be adopted. The traditional IXO model will not be supported by community users and the secondary market.

The presale model that became popular since $BOME is a typical fair launch. 50% of the tokens are airdropped to users who participate in the presale, and the remaining 50% are added to the DEX liquidity pool and the LP burns and publicizes. This simple and even primitive fair launch model has been widely supported, and many subsequent meme projects have also successfully launched in this way.

Recently, some meme coin project parties have directly Rug the funds raised in the presale stage, or only used a small part of the funds to add liquidity pools, making this simple fair launch model unsustainable. The key is that without an automated mechanism, it is unreliable to rely on people.

So recently, a meme launch platform project pump.fun, which is based on smart contracts and is a one-stop automated coin issuance and liquidity addition platform, has appeared on the market. The meme project Dev can issue coins and add DEX liquidity in just one minute. The threshold for traders to use is also very low, which is more suitable for early speculative trading of small-cap meme projects. It is expected that the one-stop launch platform of pump-type automatic coin issuance and liquidity addition will become the infrastructure of the meme coin track.

Regarding the investment logic of meme coins, I generally analyze it from three perspectives: meme cultural influence, community scale and cohesion, and unique storytelling, but these do not represent any investment advice.

1. Meme itself is a product of Internet emoji cultural output. Of course, there are also non-emoji meme coin projects such as $People and $Trump, but they are all Internet pop culture outputs with wide influence. Most memes have unique and distinctive animal images. For example, Dogecoin's Japanese Shiba Inu has hundreds of millions of fans around the world. $PEPE's image comes from the frog in the comic "The Boys Club". Its emoticons are very popular and highly recognizable on the Internet.

When the cultural influence of a meme is projected onto the underlying transaction, a huge consensus on value will be formed, causing the market value of the project's token to rise rapidly to an unimaginable height.

2. The scale and cohesion of the meme community are also very critical.When the community scale reaches a certain level, the cohesion of community members will be spontaneously generated, including creating secondary content or peripheral products for the meme, expanding influence on various social media, and allowing more people to understand the meme image and unique cultural connotation.

Of course, the most effective way is to attract more people to buy and hold the meme tokens of the project. By observing the information density and quality of communication between community members, the cohesion of the overall community and the token holding situation can be grasped.

3. The unique storytelling of meme will bring a strong consensus on value. For example, the founder of Dogecoin sold all his Dogecoins for a second-hand Honda car, V God donated all the $Shib tokens worth $1 billion airdropped to him by the Shiba Inu project to the victims in India, Musk once claimed that Dogecoin will be used as the universal currency for Mars immigrants in the future, and recently the Slerf project accidentally destroyed the pre-sale airdrop tokens into a black hole, and will issue NFTs to sell and repay the pre-sale investors.

These are unique and interesting crypto stories, which are very conducive to the rapid spread of their cultural influence on social networks, thereby forming a consensus on the value of meme tokens and a driving force for price increases.

Finally, I figured out one thing: BTC is the most awesome meme and the meme coin that best represents the crypto Native culture!!!

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