Source: Talk Li Talk Outside
This Monday (November 4th), Binance Research released a research report on MemeCoin titled "Understanding the Rise of Memecoins", but I found that it seems that very few people can patiently read through the content of this report, so in this issue we will make a simple summary and interpretation of this report.
The original text of the research report is as follows:
(Image source: https://public.bnbstatic.com/static/files/research/understanding-the-rise-of-memecoins.pdf)
The report mainly summarizes and provides insights through aspects such as Narratives, Cultural, Accessibility, Risks and Future Predictions.
Next, let's start interpreting this report:
In the more than two years from 2022 to 2024, the total market value of MemeCoin has more than doubled in the Total3 (excluding BTC, ETH and stablecoins of the crypto total market value), increasing from 4% to 11%. However, it is worth noting that this percentage is still lower than the peak of 12% in 2021, when the market values of DOGE and SHIB reached $80 billion and $39 billion respectively. As shown in the figure below.
So, in the past, why have crypto market participants been attracted to assets in the MemeCoin category? Perhaps fair launch, accessibility and transparency are a few basic factors that have contributed to this result.
Of course, there are certainly other comprehensive factors involved, such as:
1. Macroeconomic background
One way to understand and explain the behavior of market participants is to examine the macroeconomy, as this broader context will drive people to speculate on MemeCoin as an unconventional financial instrument. For example, the outbreak of the Covid-19 crisis in 2020 has led to an unprecedented increase in the supply of fiat currency by central banks around the world, with the total supply of global fiat currency increasing by more than 25% from 2020 to 2022, from $81 trillion to $102 trillion. As shown in the figure below.
Here we can simply explain that with the expansion of the money supply, the prices of goods and services around the world have started to rise, leading to the well-known phenomenon of inflation. Taking the US as an example, the US inflation rate has reached a very high level, with a year-over-year (YoY) growth rate of 7% in 2021 and 6.5% in 2022. As shown in the figure below.
In this context, if we change our perspective, we will find that faced with the continuous depreciation of fiat currency, rational people will flock to invest in assets they believe have long-term value in order to avoid value loss due to currency depreciation. Among them, a portion of the assets are real estate (referring to the US here), and we can clearly see that housing prices have been on a long-term upward trend since 1963. At the same time, people's wages have failed to keep up with the rise in housing prices, and the average number of years of wages required to purchase a regular home has increased from 4.4 years in 1963 to 8.1 years in 2021, nearly doubling. As shown in the figure below.
Similarly, in this context, a certain type of "financial nihilism" may grow, especially among the younger generation. This is because the persistent high inflation and depreciation of fiat currency may cause many people to gradually lose faith in traditional beliefs, and this sentiment seems to be spreading rapidly. In the crypto market, Millennials and Gen Z buyers account for 94% of the buyer group. This is also understandable, as when the younger generation loses confidence in their ability to gradually accumulate wealth, they will want to get rich quickly through some unique means, and the crypto market just meets this demand of this group. As shown in the figure below.
2. The Gamestop legend
Partners who have experienced the last bull market cycle should not be unfamiliar with Gamestop. The 2021 Gamestop Short Squeeze legend well reflects the change in the mindset of young people, as many young people at that time had already begun to question the traditional financial structure.
Now the rise of MemeCoin seems to echo some aspects of the Gamestop legend, as the Gamestop legend demonstrated the ability of community and cultural movements to create asset prices, and this phenomenon of community and cultural movements is also the main reason driving the proliferation and explosion of MemeCoin. The difference is that MemeCoin appears to be more transparent and decentralized overall, as it is shaped by blockchain technology and digital culture into a new financial system.
As for MemeCoin, it may not be able to generate much real value in itself, that is, its symbolic value is greater than its dependence on traditional valuation indicators, but it may resonate with like-minded investors due to its interesting narratives and culture.
In summary, the Gamestop phenomenon, as well as the current MemeCoin phenomenon, may be seen as the younger generation of participants using their own capital to vote against the existing TradFi system, fiat currency, and the broader socioeconomic system.
Next, let's continue to interpret the intrinsic value of MemeCoin:
1. Fairness and transparency
MemeCoin is a completely new asset class based on blockchain technology and Internet culture, which is not constrained by the traditional financial system.
In 2017, the ICO craze led to the emergence of countless new teams and projects like mushrooms after the rain, and at that time many projects claimed to be building revolutionary products on the blockchain to attract more retail attention and participation.
But at that time, what was sold to investors by many project parties was more of a narrative story or idea, and they didn't even have a corresponding product, they could just make a PPT to start absorbing the funds of retail investors. This also led to many scams at the time, although some people did make their first fortune in that boom.
Now the ICO craze has become history, as ICOs have since been dissatisfied by global regulatory authorities. Gradually, some ICO projects have started to turn to private venture capital rounds to continue raising funds. Especially in recent years, this venture capital financing approach has seen a relatively significant increase, which has also led to the entire crypto project being shrouded in the problem of "low liquidity, high FDV" under this cycle, with many new altcoins facing a large supply release in the coming years, which will make retail investors become the bag holders of early venture capitalists.
In this context, retail investors have gradually become aware of this problem, and they have started to move away from those "low liquidity, high FDV" VC projects and turn to play relatively fairer and more transparent MemeCoin.
So if this trend continues, MemeCoin may continue to grow and continue to be welcomed by retail investors, and a possible new result of this may be that institutions will also start to participate in MemeCoin, after all, where there are a lot of retail investors, institutions need to go there to harvest.
2. More understandable narratives
Compared to some Altcoin projects with complex product support, MemeCoin seems to be more easily accepted by new retail investors or immature (without mature investment methods) retail investors, and even just a cute avatar and a group of people's CX can attract more new people to join and buy in. For example, compared to complex concepts and projects like Layer2 and DeFi that are difficult for new users to understand, MemeCoin is easier for new users to accept and understand.
In other words, the user conversion time of MemeCoin is much faster than that of technical Altcoins, and within a wider range, this may allow the MemeCoin narrative to spread faster, wider, and quickly attract more retail buyers, and establish a community to further drive the speed of speculation.
On the other hand, this will also lead to extremely fast-paced market dynamics and new product adoption rates, with capital flowing into new MemeCoin faster than ever before. For example, WIF went from $0 to a market cap of $1 billion in just 104 days. This speed was previously achieved by SHIB in 279 days and DOGE in 8 years.
At the same time, the creation speed of new MemeCoin is faster than ever before, with over 75% of the tokens on the chain created in the past year, as shown in the figure below.
Next, let's take a look at some of the risks:
1. Low project survival rate
From the data chart above, we can see that over 75% of MemeCoin have been created in 2023 and 2024. However, from another dimension of data, we can clearly see that 97% of MemeCoin have already gone to zero (or have trading volumes close to $0).
While some MemeCoin have proven to withstand the test of time, such as the well-known DOGE which has existed for 10 years and SHIB for 4 years, it is undeniable that the vast majority of MemeCoin have very low survival rates.
In short, the rapid growth and speculative effect have made MemeCoin a very popular investment tool with the potential for huge returns, but this effect is heavily dependent on market sentiment, and people can hardly assess or evaluate their value through any fundamental analysis, making MemeCoin extremely risky and a high-loss asset class.
2. Meme Coin Cabals
Although the core value proposition of MemeCoin is mainly reflected in its fair launch, accessibility and transparency, we cannot deny that this still cannot avoid the problem of retail investors being mercilessly harvested.
Some Cabals (also known as conspiracies) groups, including some KOLs, are creating various MemeCoin to hype and seek to lure and bag hold retail investors. Although the on-chain transaction records are publicly transparent and accessible, and retail investors can use some on-chain tools or browsers to see the specific token holding addresses and transaction data, the so-called "high wall and higher devil", the Cabals still have ways to avoid being discovered by retail investors through some special means.
At the same time, the Cabals also collaborate with some KOLs to promote specific tokens, thereby triggering hype and FOMO emotions on social media and creating an illusion of prosperous trading, in order to induce more retail investors to join and bag hold.
3. Lack of technological progress and innovation
Currently, the capital and attention of the crypto industry is overly concentrated in the MemeCoin field, and to a large extent no longer focused on driving technological development and innovation. The current MemeCoin narrative, while spawning a massive number of projects and a large number of so-called derivative products, is in many ways no different from the past.
Recalling the DeFi Summer period of 2020, with the explosive popularity of the Uniswap model, various DEXs emerged on different chains, and the corresponding DEX tokens were used for Farming. Eventually, when the market sentiment changed, they were all seen as bearish and experienced sell-offs. In the later stage of that period, there was almost no meaningful differentiation or innovation, as many DEXs were just forks of Uniswap V2 with a redesign.
This situation seems to be happening again in the current MemeCoin field. Although new MemeCoin can bring some new creative themes and narrative stories, the large number of similar tokens may gradually lead to market saturation. Taking MemeCoin with dog themes as an example, with the rapid occurrence of new ideas and iterations, whether it's a dog wearing a sweater at the beginning or a dog with sunglasses later, the marginal effect of this iteration will be significantly diminishing. The direct result of this is that, in the absence of innovative technology or intellectual progress, MemeCoin will also inevitably lead to persistently low efficiency.
Finally, let's look at some prospects and predictions for the future of MemeCoin:
Altcoins and MemeCoin have different levels and angles of appeal, and will target different types of investors (or speculators).
For those who invest in Altcoins, they may be more interested in purchasing a form of value or representing the development potential and vision of the corresponding project. For those who invest in MemeCoin, they may be more concerned about purchasing those that can be transformed into a form of ideology, narrative story, or social movement.
From a longer-term perspective, the success of Altcoins requires the creation and continuation of useful, sufficiently differentiated, and truly market-fit products. The success of MemeCoin may require the creation and continuation of differentiated, unique, and long-term attractive narratives and stories to a large enough group.
In summary:
Overall, the core principles of Web3 are: transparency, fairness and decentralization. The rise of MemeCoin is an exciting new trend, at least proving that blockchain technology can unite people around the world.
In the short term, however, retail investors may be more concerned about how to make money using MemeCoin. Based on the research report of Binance Research, here is a simple summary:
- Understand and research market sentiment
MemeCoin is more based on community and market sentiment hype, and in this regard we can use some on-chain tools mentioned in the previous MemeCoin series articles by Binance Research, such as DexScreener, GMGN, Bullx, Dexx, etc., to perform necessary on-chain filtering and mining.
- Seek out transparent tokens
Fairness may sometimes just be a slogan, and we need to use some channels or on-chain tools as much as possible to find and analyze those tokens with high transparency. For example, tokens directly issued on DEXs often lack transparency and may have a large number of snipers, insiders and VCs waiting to dump after retail investors bag hold. In this regard, we can pay more attention to those tokens that are fairly launched through platforms like PumpFun and then listed on DEXs (of course, this is not absolute, just relatively better).
- Appropriate diversified layout
As mentioned earlier, the survival rate of MemeCoin is actually very low, so we need to make appropriate diversified layout to avoid serious losses due to over-concentrated investment. That is to say, even if it is gambling, we should never bet everything on a single coin, because the volatility of MemeCoin is very large, and you may lose everything in the blink of an eye.
- Pay attention to unique narratives
Generally speaking, MemeCoin with unique narrative stories (such as the AI+Memes concept that was popular recently) may be more likely to attract more user attention and quickly form a loyal community, which is something we need to keep an eye on. Moreover, the more concepts or stories that can be easily understood by the majority, the higher the chance of success.
- Try to prevent Cabals
In general, if a token experiences a sudden price change, it is very likely that there are organized efforts to pump and dump the price, especially when driven by KOLs. Do not blindly trust the calls and recommendations of some KOLs, only focus on those KOLs you consider trustworthy. At the same time, try to use some on-chain tools to do some data analysis, and avoid participating in tokens with excessive supply concentration and signs of wash trading. As for the specific identification tools and methods, there have been some related discussions in the previous MemeCoin series articles, interested readers can search and review the historical articles.
- Prioritize liquidity issues
You can focus on the tokens with good liquidity on major platforms, which can largely avoid buying into those scam tokens. Also, pay attention to whether the liquidity is locked or burned. If you have a low risk appetite, you can also consider buying the MemeCoin that has been listed on CEX, as these tokens often have better liquidity and credibility. However, it should be additionally reminded that some wallets may have inflated trading volumes for certain MemeCoin, such as the Pixiu token that was previously reported in the group to be on the OKX Web3 market trading volume ranking.
Finally, you must always remember the two basic principles of trading: first, preserve your capital; second, do not touch what you do not understand. Before deciding to purchase any project, you must do proper position management and DYOR (Do Your Own Research).
