Original source: BillyWen, partner of Negentropy Capital
Editor's note: This article was published in May this year, and recently, the issue of meme coin consensus has attracted community attention again due to the Neiro farce (Related reading: "Neiro's Death: Trading Platforms Are Becoming the "National Football Referee" of the Meme Market|100x Review"). Initially, BillyWen 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 memes 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 SLERFs. It can be said that he is one of the people who donated the most to this project.
I first bought meme coins in 2015 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. 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 lottery prize (more than 20 million yuan at the ATH price).
At that time, most people did not have encrypted wallets, 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 still feels very funny when I think about it now.
In the bull market of 2021, Elon Musk started to call for Dogecoin, causing the price of the currency to soar 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. At that time, the logic 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. Friends who came to ask were advised not to buy this worthless meme coin. The prejudice 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 all fields! This value consensus mechanism combines blockchain technology to form a new financial product, namely the crypto Native meme coin.
Why FAIR PLAY is the core of the meme coin value consensus mechanism, we should start from the pricing, valuation and trading links of cryptocurrency. Since Satoshi Nakamoto created Bitcoin, the fixed number of 21 million Bitcoins has become the cornerstone of cryptocurrency pricing. Blockchain technology has realized the non-inflationary nature of Bitcoin, thus forming a unique mechanism for cryptocurrency that cannot be inflated and creates scarcity.
The world's legal tender has been increasing and inflating. In contrast, cryptocurrencies that cannot be increased and cannot be inflated 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-inflation 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 issuance of tokens led by smart contracts is essentially a one-time pre-mining of project assets, that is, Fully Diluted Valuation.
Pre-mining these tokens means that all assets of the project are manufactured in advance. The project party adopts the token economic model to allocate tokens to various stakeholders and formulate unlocking and releasing rules, such as the part left for VC investment institutions, the part left for ecological funds, the part left for the team, etc.
Correspondingly, the crypto secondary market is piled up with a large number of crypto projects with low circulation and high market value. Retail investors buy this kind of continuously diluted inflationary assets in the secondary market (although the total number 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 that they keep taking over and being cut.
The meme coin 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 one thing they have is that they are the 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 based on 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, or even 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, some cognition and judgment of this track have gradually been formed. There are three main aspects to analyze the future development trend of meme coins:
1. It is expected that the market value of the meme sector will 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 US dollars. 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 have 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 transactions 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.
I generally analyze the investment logic of meme coins from three perspectives: meme cultural influence, community size and cohesion, and unique storytelling, but these do not represent any investment advice.
1. Meme itself is a product of Internet emoji culture output. Of course, there are non-emoji meme coin projects like $People and $Trump, but they are all Internet popular 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. The image of $PEPE comes from the frog in the comic "Boys Club". Its emojis 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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