Written by: Jaleel plus six, BlockBeats

"Meme is the real value coin, and institutional VC coin dogs don't play with it." said a community member.

With the price of Bitcoin approaching a record high, the new coins listed on several major trading platforms have performed poorly, sparking widespread discussion. According to the currency circle KOL Chuanmu, the circulation of most of the new coins listed on Binance this year is only about 10%, while the unlocked market value is as high as billions of US dollars. This model of high valuation and low circulation has led to a serious diversion of market funds. It is estimated that the circulation part of Binance's IEO project may have absorbed tens of billions of liquidity, while the unlocked part will absorb hundreds of billions of funds at the end of the bull market and in the bear market.

In such a market environment, these new coins with high FDV and low circulation are likely to become the culprits for accelerating the arrival of the bear market at the end of the bull market. Obviously, Binance is also aware of this, so it recently issued an announcement to intend to modify the listing rules. The dissatisfaction of retail investors in the market with the performance of these new coins has gradually shifted to VCs. Community retail investors and VCs don’t understand each other and look down on each other.

Meme coins have become a means for the community to resist VCs. Through fair distribution and high participation, Meme coins have gained wider support and love, while VC coins have been widely condemned. In the end, the absurdity of the capital formation process led to the confrontation between venture capital and retail investors. Venture capital accuses Meme coins of disrupting the market, while retail investors in turn accuse VCs of doing evil.

Binance Modifies Listing Rules

On May 20, Binance announced that it would modify its listing rules and start supporting small and medium-sized crypto projects, aiming to provide opportunities for more small and medium-sized projects with good fundamentals, organic community foundation, sustainable business model and industry responsibility, and promote the development of the blockchain ecosystem. According to the official announcement, Binance will invite high-quality teams to apply for listing projects through direct listing, Launchpools and Megadrops, and contact the team after preliminary screening, reserving the right to decide whether the project is suitable for listing.

However, this strategic shift did not happen suddenly. As early as seven years ago, Binance founder CZ (Changpeng Zhao) published an article on Steemit, expounding his doubts about large-scale ICOs.

From 7 years ago, CZ has seen today

In the article "CZ: I don’t like large ICO projects. It may not be right to obtain huge funds at one time", CZ expressed several core views: realizing the maximum value of a project at the time of ICO is usually not conducive to its long-term development. Instead, it may bring a series of negative effects, including price drops, reputation damage and user loss.

CZ explicitly opposed the practice of large-scale ICOs in the article, pointing out that "ICO maximization = bad, I don't like to see projects achieve their maximum value on ICOs. In the long run, this is usually harmful to these projects. This is counterintuitive for many ICO entrepreneurs." At the same time, he also emphasized the negative consequences of high-valuation ICOs, including short-term traders selling off and causing prices to fall, which in turn triggered a series of negative effects such as negative news dissemination and user loss.

Therefore, CZ suggested setting ICO valuations at a lower level to make it easier to be oversubscribed, thereby ensuring that the price of tokens will rise after listing, attracting more users and positive attention. This low-valuation ICO will not only bring positive market reactions, but also provide better support for the subsequent development of the project, forming a virtuous circle.

In 2023, six years after this article was published, Binance was caught up in the "Bestie Coin" rumor. Since Binance's IEO pinnacle Stepn, Binance finally restarted IEO at the end of last year, nearly nine months later. However, it coincided with the bear market, and the performance of several IEO markets last year was not as good as expected, causing some dissatisfaction in the community. The rumors of "Bestie Coin" intensified, and Binance, as one of the largest platforms in the industry, has often faced heavy selling pressure on new coins launched in the past six months, and the situation of peaking as soon as they were launched has appeared.

In the face of the increasingly intense rumors, He Yi made a lot of responses, see "He Yi's 19 responses: About Binance listing, IEO bestie rumors and market share".

Among them, in clarifying the listing standards, He Yi replied: "Binance makes money from users, so the underlying logic of Binance listing is to try to list projects that can survive longer and bring returns to users. This is actually the gap in investment research capabilities and aesthetic differences. The platform that can identify suitable listing projects and opportunities in the long run will have users who can survive longer. This is the core competitiveness of the platform."

At the same time, He Yi also expressed a similar view to CZ that year. The phenomenon that IEO projects reached a market value of nearly 10 billion as soon as they were listed was because the market value of that batch of projects was priced by the previous bull market and was generally over-sought after by capital. Binance also believed that this situation was very unreasonable.

From today's perspective, Binance's modification of the listing rules seems very sudden, but in fact, Binance's modification of the listing rules to support small and medium-sized crypto projects is not a temporary decision, but has far-reaching causes and consequences. It can be said to be a return to the original intention in a sense.

Retail investors who embrace Meme collectively curse VC coins

After Binance modified the listing rules, large and small Meme coin communities flocked to organize community members to submit listing applications to Binance.

"First of all, attitude is above all else", "Really good coins should be verified on DEX before listing on trading platforms, otherwise the market control will be too serious", "After talking about high FDV for so long, finally some trading platforms have started to take action", BlockBeats received these positive responses after asking several traders for their opinions, which may represent the thoughts of many retail investors.

While most community members support Binance's new listing rules, they also believe that this is a counterattack against large VCs manipulating the market, and retail investors' dissatisfaction with VCs has also increased significantly.

Therefore, we can see that KOLs lead retail investors to "charge", and their disgust for VC coins has reached a peak.

Although there have been discussions on the circulation of VC coins in the community before, this is the first time such a large-scale discussion has taken place.

"As early as 2021, I encouraged everyone to play Meme coins and embrace Meme." KOL Coin Circle Philanthropist said this to BlockBeats on the other end of the phone.

"The total assets of the vast majority of retail investors are between 50,000 and 300,000 RMB, that is, between 8,000 and 50,000 US dollars. These people are the main force in the market, and for them, the increase in VC coins is really too limited."

Take some recent examples, TIA is currently the most prominent one in the "VC coin" track, but it can only increase by 10 times for a long time, while others like ENA have only increased by 3 times from 0.5 to 1.5 at the opening. Meme coin Bome once rose from 20 million US dollars to 1.6 billion US dollars in a short period of time, achieving an 80-fold increase. Even if it only gets a lower increase, it can still be 20 to 30 times.

For those retail investors who are looking to get rich quickly, such an increase does not make much sense, and the profit and loss ratio is not cost-effective compared to Meme. "In short, VC coins are more suitable for investors with more than 1 million US dollars in funds, and retail investors with less than 50,000 US dollars are more suitable for playing Meme, dividing the funds into 100 parts, and the odds are higher." The philanthropist in the currency circle suggested this.

From "Can you still get on the bus?" to "No one will take over each other", the slogan of this round of cycles has changed significantly.

But in fact, in the currency circle filled with PVP "mutual cutting games", the relationship between retail investors and VCs has always been bad. This "contradiction" is not sudden and without reason. Looking back at 2020, there was a "conflict incident".

The past and present of retail investors fighting against VCs in the currency circle

In July 2020, when Uniswap was finally discovered by value and the wealth effect reached its peak, another DEX SushiSwap came out. There is no nonsense, SushiSwap is fighting Uniswap.

This is a community-initiated DEX, the code copied Uniswap, and the biggest difference is the token gameplay. SushiSwap completely stands on the standpoint of retail investors, giving retail investors enough returns, and even said that Uniswap's LP can migrate over and give rewards when they come. At that time, Uniswap was not even sure about issuing coins. Uniswap was a VC project, and they were on the VC side. The support of retail investors for SushiSwap shocked the industry.

So, SushiSwap got 700 million US dollars of liquidity within 65 hours of its launch, and two weeks later, half of Uniswap's liquidity was transferred to Sushi, a hearty community plunder of VC.

That was the first large-scale confrontation between the community and VC, and 4 years later, the confrontation is still intensifying. This time it is Meme.

Meme maker, Pump.fun's history repeats itself

The rise of Pump.fun is like Uniswap in 2020, and the rise of trading bots has made Meme coin transactions faster and more efficient.

Pump.fun has facilitated the issuance of millions of Meme coins and created billions of value for these Meme coins. For the first time in human history, anyone can create a financial asset with less than $2 and less than 2 minutes. Meme coins have become not only an excellent fundraising mechanism, but also an effective listing strategy. Traditionally, projects raise a lot of money by allocating 15-20% of tokens to VCs, then develop products, and finally build communities through memes and marketing. However, this model often leads to communities being abandoned by VCs.

In the Meme Era, people can raise funds by launching their own Meme coins (without a roadmap, just for fun), form a tribal community in the early stages, and then continue to build applications and infrastructure to add utility to Meme coins without making false promises or providing a roadmap. This approach takes advantage of the tribalism of the Meme community and ensures high engagement among community members, who become business developers and marketers for the project. This also ensures a fairer distribution of tokens, resisting the pump-and-dump strategy of low circulation and high FDV adopted by venture capital.

Retail investors have "woke up", and more and more retail investors are embracing Meme coins and community coins, with BOME being a typical example.

How long does it take for a god-level disk to be born? BOME's answer is three days, creating a market value of $1.5 billion in three days. The speed at which BOME was listed on Binance has "broken the defense" of many crypto projects, which have worked hard for several years but have not been listed, while BOME did it in just three days. This phenomenon shows that the market appeal and rapid listing capabilities of Meme coins have far exceeded the expectations of traditional crypto projects.

Related reading: BOME, which created a market value of $1.5 billion in three days, broke the defense of the encryption industry

The success of BOME lies not only in its own market performance, but also in the fact that it has stimulated a surge in the number of newly issued Meme coins on the Solana network, further promoting the improvement of network activity. Although BOME is not the first person to pre-sell Meme, its success has undoubtedly ignited the pre-sale boom.

The increase in BOME's price is also reminiscent of the original inscription ecology, "If you have prejudices, let the Bitcoin ecology rise until you have no prejudices."

Related reading: "Bull market characteristics emerge, old investors are left empty-handed, and new investors are showing off their orders"

After twelve years, the crypto industry has formed a set of accustomed logic: project parties create new concepts and new narratives, tie up with VC institutions, and after preheating through airdrops, they set up various schemes to let the secondary market take over. In this bull market, only TIA and SOL are considered good projects in the minds of old investors—with a team, good VC, Binance listing, and hype in the track.

However, the Meme track has undergone a series of mutations and derivations, and the inscription Ordinals, which is a "spoiler", was born. The emergence and popularity of all "inscriptions" in the Bitcoin ecosystem was completely unexpected.

Since its birth, "inscriptions" naturally carry the community spirit of "fair launch" and "first is first", which happens to be the slogan of Meme. Since its birth in March, prejudice has been closely associated with the Bitcoin ecosystem, but it seems that it has never given up persuading everyone: "If you are biased, let the Bitcoin ecosystem rise until you have no prejudice." The cost of printing an ORDI (1 sheet includes 1,000 coins) is between 2 and 3 US dollars. If it is not sold at the high point, this is an investment that has increased by more than 20,000 times.

Interest Game and Conflict between Retail Investors and VCs

The antagonism between retail investors and VCs has intensified, almost to the point of "breaking off ties".

"I can't understand it anyway, so I might as well speculate on Meme." Many old investors in the community seem powerless in the face of the rapid changes in the market, and new investors are even more at a loss. Compared with the iterations of the narrative in the currency circle, Meme culture has always been prosperous.

The continued popularity of Meme seems to be a mockery of VCs' long-term value investment philosophy. In an article on April 25, Eddy Lazzarin, chief technology officer of a16z Crypto, severely criticized Meme coins, saying that they undermined the "long-term vision" of cryptocurrency, tarnished the views of "the public, regulators and entrepreneurs" on the industry, and acted as a casino for "a relatively small number of people." He pointed out: "Meme coin has changed the public, regulators and entrepreneurs' views on cryptocurrency. At best, it looks like a risky casino, or a series of false promises covering up a casino. This has deeply affected adoption, regulation/law, and the behavior of blockchain builders. I see this damage every day."

Similarly, Michael Dempsey, managing partner of Compound, also said: "I have seen Meme coins lead to a loss of cryptocurrency developers, even more than the bear market in the past few years." These views all reflect VC's deep dissatisfaction and concerns about Meme coins.

At the same time, retail investors are increasingly dissatisfied with VC's manipulation of the market. Most governance tokens are backed by venture capital, which usually start at high valuations and gradually transfer to retail investors. Today, VCs are not only trying to control "VC coins", but also trying to manipulate Meme coins to further "play" retail investors.

On May 21, community member Rahul | Polygon Intern published a long article on the social media platform , accusing Polygon's senior executives and internal staff of manipulating a Meme coin called $ELE, and attached a large number of screenshots as evidence. These evidences not only involve Polygon executives, but also Symbolic Capital, Multibit, BounceBit, GeekCartel, Salus Security and other projects and their leaders. This revelation triggered a strong reaction from the community. Although the relevant allegations have not been confirmed, the fermentation of the incident has attracted widespread attention. Related reading: "The community exposed the Polygon scandal, are the top management controlling the Meme coins and cutting the leeks? "

In the eyes of retail investors, VCs are just "instigators" in the core circle, while in the eyes of VCs, retail investors who play memes are of no help to the industry.

Retail investors and VCs, neither understands the other, and neither looks down on the other.

"I think the sense of opposition comes from the community's belief that VC is 'money without value'. The main value that most VCs bring to projects is money, which has actually become a liability for the secondary market community." Ye Su, founder of ArkStream Capital, expressed his views, "The fundamental reason is that the reservoir (buying) of altcoins has not increased, but the fundraising amount (selling) of industry VCs has increased fivefold compared to 2020. I think the current split is more serious. With Binance's new policy, more non-Meme projects may consider fair distribution and listing with low market capitalization. "

"This sense of opposition between retail investors and VCs is more serious than in 2020 because this time it is due to systemic contradictions." KOL trader and cryptocurrency philanthropist believes.

A cryptocurrency philanthropist further explained to BlockBeats: "In the traditional venture capital model, VCs are indeed solving problems. They invest in areas such as consumption, chips, and high-tech, and provide financial support for these start-ups. However, only a very small number of current crypto VCs can promote long-term positive innovation. Most of them are just for short-term interests, colluding with project parties to participate in market manipulation and obtain profits through capital pools. Retail investors will eventually become the leeks that are harvested."

In the view of cryptocurrency philanthropists, young people embracing the crypto hype meme is the choice and result of the times, and it is also the most ideal way.

"The casino culture of cryptocurrency is actually an important way for ordinary people to change their class in today's society. Without fundamental changes in the current productivity and production relations, casino culture has become the best choice without bloody revolution. Some people may hate this casino culture, but for young people who are eager to change their destiny, cryptocurrency casinos provide an opportunity without bloodshed and sacrifice. Otherwise, they can only achieve class leap through more extreme revolutions, but this will cause greater harm to the stability of the entire society."

Against these backgrounds, the community's dissatisfaction and resistance to VC are becoming increasingly strong. Meme coins have become a means for the community to resist VC. Through fair distribution and high participation, Meme coins have gained wider support and love. VC's manipulation and market manipulation are widely condemned by the community.

Ultimately, the absurdity of the capital formation process led to the confrontation between venture capital and retail investors. Venture capital accused Meme coin of disrupting the market, while retail investors in turn accused VC venture capital of doing evil.

Whose fault is it?

"Some time ago, a project with a valuation of 2 billion US dollars came to me for KOL round financing. Can you imagine 2 billion US dollars? I was really angry." At this point, the tone and emotion of the philanthropist in the cryptocurrency circle gradually became excited.

“In 2014, Ethereum was valued at only $26 million during its ICO. In 2022, Optimism (OP) was valued at $150 million. Now, any new project can have a valuation of $1 billion to $2 billion. In the past, there was only one Optimism and one Ethereum, but now there are a lot of projects with FDV exceeding $1 billion. Is there really so much money in the market to take it?”

Image source: Binance Research

In Binance Research’s “Low circulation and high FDV tokens are prevalent, why has the market developed into what it is today? 》report also shows the market capitalization and FDV of tokens issued in the past three years, highlighting the growing gap between these indicators over time. Although it is only a few months away from 2024, the FDV of tokens launched in the first few months is close to the total number in 2023, which highlights the prevalence of high-valuation tokens.

The prevalence of high-valuation and low-circulation tokens in the current market stems from a variety of structural reasons and changes in capital operation models.

In the article Memecoins > Governance Tokens, researcher Yash Agarwal wrote: Take EigenLayer as an example, the largest Ethereum protocol in this cycle, in which venture capital and the team hold up to 55% of the governance token distribution, while the initial community airdrop accounts for only 5%. This low circulation, high FDV (fully diluted valuation) token issuance method allows insiders to greatly increase their wealth by controlling the token supply. This pattern is not only present in EigenLayer, but is becoming more and more common in the entire cryptocurrency market.

There is a deep logic behind VCs pushing for high FDV token issuance. Assume a large VC fund invests $4 million in exchange for a 20% stake in a project with an initial valuation of $20 million. To ensure high returns for VCs, they need to increase the FDV to at least $400 million at the time of token issuance. The larger the fund, the more likely it is to set an absurdly high private valuation for the project, and with the help of a strong narrative, eventually go public at a higher public valuation. This high-valuation issuance strategy forces retail investors to become "buyers" when the token is listed, causing the price to plummet.

For example, the case of Starkware shows that a high FDV launch only leads to a downward spiral in price and zero attention. On the other hand, Celestia's low FDV launch not only allowed retail investors to profit from repricing, but also helped form a strong community and mindshare.

Binance Research's report also points out several reasons for the current high FDV and low circulation tokens:The prevalence of high FDV and low circulation tokens is mainly due to the massive influx of private market capital, aggressive valuation strategies, and optimistic market sentiment. The inflow of funds from the private market has pushed up project valuations, making the prices of tokens high when they are launched on the public market. Aggressive valuation strategies are more obvious when the market is hot, and venture capital firms tend to invest at higher valuations. Coupled with the market's optimism, project teams use this sentiment to raise funds at high valuations, leading to the prevalence of high FDV and low circulation tokens.

After calming down, we need to restore some rational thinking. Is VC really unhelpful in this industry? Are Meme coins definitely better than VC coins?

Everyone is to blame

Let's go back to the beginning of this article. A batch of tokens launched on Binance recently have all fallen. Most of them are ridiculed as "high FDV (fully diluted value), low circulation" tokens, meaning they have quite high FDV valuations but very little circulating supply on the first day.

Ye Su also told BlockBeats that the current market funds are mainly flowing to Bitcoin through ETFs, while liquidity has not flowed significantly to altcoins. Binance, as a leading trading platform, has recently launched several IEO projects such as BounceBit, Renzo, Saga and Omni, all of which have hit new lows in yield, and there is a clear lack of buying. In response to this situation, Binance adjusted its listing rules to reduce the valuation range of new projects from the source, from a fully diluted valuation (FDV) of $200 million to $1 billion to between $50 million and $200 million. This change provides users with more room for participation and makes the market fairer and more open.

This new rule will greatly facilitate the listing of small projects. In the past, many projects had to go through 3-4 rounds of financing, with a total amount of tens of millions of dollars, before they could enter Binance's coin selection pool. Now, as long as the project's product technology is mature and the community foundation is solid, these projects have more opportunities to obtain financing and go public. Such rule changes not only provide more opportunities for small projects, but also allow more investors to participate in the development of these projects, promoting the healthy and sustainable development of the entire cryptocurrency market.

Coin circle philanthropists also believe that this is not a problem with a single trading platform, but a problem with the entire market pricing mechanism. After all, many people on Twitter have criticized the OKX trading platform, saying that many of its recently launched projects have also performed poorly and prices have fallen rapidly after they went online.

In the article "Why are all these low float / high FDV coins down bad?", Haseeb, a partner at the cryptocurrency venture fund Dragonfly, discussed the issue of market pricing. "When people lose money, everyone wants to know who to blame. Is it the founder? VC? KOL? Trader? Market maker? Trader? The best answer may be no one or everyone." He wrote.

Haseeb pointed out that there is something wrong with the market's pricing mechanism, which is not only a problem for VCs and trading platforms, but also a problem for retail investors. If the market mechanism does not pay, it will force trading platforms and VCs to change their issuance models. This is a process of market self-regulation.

Everything is the choice of the market, and everyone is to blame.

Have retail investors completely fled VC coins?

Faced with the VC coins with high FDV and low circulation on the market, have retail investors really stopped playing? The answer from the cryptocurrency philanthropist is "yes and no".

Although, as mentioned above, cryptocurrency philanthropists have been encouraging everyone to pay attention to Meme coins, this does not mean that VC coins have no chance. He explained: "It doesn't mean that Meme coins are definitely good and VC coins are definitely evil. The key lies in the analysis of individual projects. Retail investors need to choose high-odds projects that suit them based on their investment preferences and risk tolerance."

Under the questioning of BlockBeats, the philanthropist in the cryptocurrency circle gave three criteria for selecting targets: chip structure, circulation and narrative space.

Specifically, the chip structure is used to understand the holding and distribution of project tokens, including the pre-sale, airdrop, project holdings and circulation in the market. Projects with a clear and reasonable chip structure are usually more worthy of attention. The circulation examines the release of tokens before and after the launch of the project. Those projects with reasonable release control before and after the launch are more likely to maintain a stable price. The narrative space evaluates the market positioning and future development potential of the project. For example, TIA, as a trending project, has a strong market space and narrative ability; while the IO project in the AI track has a high growth potential due to its technology and market demand.

"The focus of investment is to find mispricing in the market, and the focus of trading is to understand and manipulate market reflexivity", the philanthropist in the cryptocurrency circle also emphasized his recent insights.

Traders in the secondary market not only play Meme coins, but also cannot do without VC coins in the primary market.

"To do primary investment, you have to find VC coins, evaluate the investors behind the project, and then wait to cash out on Binance," a trader who focuses on primary investment told BlockBeats. Although they are also concerned about Binance's adjustment of the listing rules and the discussion on high FDV and low circulation VC coins, they believe that this has little impact on their overall logical architecture.

Is the existence of VC worthless?

When Meme coins become popular, VCs will inevitably make corresponding layouts and investments. On the question of "In this round of bull market and the subsequent cycles, VCs will invest in more small and medium-sized projects or Meme coins. Will this be a long-term trend?" Ye Su's answer is also "yes and no".

“VCs with high valuations will not invest in small and medium-sized projects. In the 2017 and 2020 cycles, VCs did tend to invest in more small and medium-sized projects, but as the industry matures and liquidity gathers, small and medium-sized projects face the dilemma of a short life cycle. Ultimately, Web3 venture capital will converge with Web2, with only a small number of top projects being able to get listing opportunities and bring long-term returns to VCs with a four-year lock-up period. Small and medium-sized projects are widely issued on DEX through fair distribution, and VCs with flexible fund strategies and community resources may become the main supporters of such projects.” Ye Su told BlockBeats.

And facing a more basic and direct question: If community coins become the mainstream of the market, then what is the value left for VC’s existence?

Ye Su, founder of ArkStream Capital, told BlockBeats: "The core investment of VC is to promote the industry's infrastructure construction, application development and large-scale popularization of projects. For example, in the early stage of investment projects, ArkStream Capital will not only deeply participate in the project's narrative and product construction, but also help the project to raise funds and formulate growth strategies. Whether in the Web2 or Web3 fields, VC has played a core role in the financing and development of all early companies."

"The essential interests of VC and retail investors are not in conflict," Ye Su further stated: "VC uses professional skills to help users identify high-quality projects and promote project development. At the same time, due to regulatory reasons, most projects will be accompanied by a one-year VC lock-up period when they go public. The core issue is still whether the project's token economic design and product iteration are competitive."

Finally, researcher Yash Agarwal said that venture capital like a16z should combine their transactions to allow anyone to participate, and using a platform like Echo is very suitable.

As he wrote, most retail investors are not against VC/private funds. The community advocates fairer distribution and a more level playing field.

This article thanks the interviewees: Ye Su, founder of ArkStream Capital, and cryptocurrency philanthropist

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