Author: YettaS, Source: Twitter @YettaSing
"Yetta, are you anxious in this market?", this was a serious question asked by someone at a dinner, and I was initially taken aback, not understanding why they thought we should be anxious, "because many people think meme is rampant and VC coins are going to die haha". The biggest discussion at this Devcon was indeed about Meme, and my peers joked that talking about Layer 1 would delay meme trading, and some also asked if we included meme in our asset allocation.
To be honest, we are not very anxious, or rather, we had already anticipated this situation at the beginning of the year. Primitive is an evergreen fund without external capital, which allows us to take a longer-term view of the industry. We also don't have the pressure of capital deployment, so we don't need to explain to LPs who don't understand our industry why we invest in any track (often LPs are a huge pressure). We do everything out of our own curiosity to learn where the value and talent flow in this industry.
In the crypto market, where the primary and secondary markets are intertwined and the secondary market is in a bubble, the definition of VC is closer to its essence: bet on things with venture return. Following any ideology or participating in any political struggle is meaningless, the key is to learn from the market.
First, let me talk about our understanding of the structural changes in the industry
At the beginning of this year, we did a lot of retrospection on the structural changes in the industry and wrote this internal report "Cycle of Front Running", TLDR: the polarization in our industry is becoming more and more serious. On the one hand, the industry has grown in scale, and traditional finance has integrated a large amount of crypto assets into Wall Street through compliant means such as ETFs, and this part of liquidity has been snatched away and is difficult to be converted into our on-site capital; on the other hand, the strong expansion of populist capitalism, the further compression of the attention economy, and the entire financialization process is becoming more and more simple and brutal, the most crypto native way has become direct meme trading, which is also an area that traditional finance cannot reach.
Against this macroeconomic and social background, the on-site liquidity is constantly shrinking. In the past, we said that the barbell strategy was hoping that the two ends could be integrated, but the result is exactly the opposite, our polarization is becoming more and more intense. As a result, the middle state in our industry is becoming increasingly difficult.
Who are these middle states? They include all the institutions that have emerged due to the bonus of the wild era. Offshore CEXs, trading firms, crypto financial service providers, and VCs, none of them can avoid it.
This structural change will make offshore CEXs anxious, as CME's future OI has already exceeded Binance. If mainstream coins are traded more and more on compliant trading venues due to the entry of traditional finance, and meme projects can also pump out projects worth over $1 billion on-chain, is Binance's space being squeezed?
In addition to offshore CEXs, those market makers who have relied on crypto to rise up are seeing Wall Street's high-frequency quantitative teams bring their own infra and capital, so how can they break through? Accompanying their decline, the presence of the third-party financial institutions that served them is also becoming increasingly weak, not to mention the VCs who cannot actively trade.
This polarization and liquidity squeeze is the fundamental change in our industry. Whoever finds the breakthrough point will be the winner.
Secondly, what's the problem with VC Tokens
I fully understand the market's emotions towards VC tokens. Projects with extremely high FDV at launch, and constant unlocking and dumping for profit after launch, since it's all a casino, why not go to a relatively fairer casino and play meme pvp, where you can only blame yourself for being slow if you lose, rather than helping dozens of billions of dollars of VC coins to be the bag holder.
What is the essence of this problem? It is that there is a problem with the liquidity supply chain in our industry.
Why can Solana keep hitting new highs? Because they have real product implementation, and the product can make SOL holders continuously earn money, so the user community has transformed into a trading community, and the positive flywheel between the two has become a self-fulfilling prophecy, which is the key to forming buy pressure.
The DeFi of the last cycle was also like this, the product launch had micro-innovations and was fun to play with, DEXs created liquidity and continued value discovery, until the product community and the coin trading community formed a consensus, CEX listing further released liquidity, and the project, community and CEX achieved a three-way win-win.
A healthy ecosystem is one where everyone playing on-chain is willing to buy the coin, and even more willing to evangelize it, and this liquidity supply chain has formed a virtuous circle.
But now? The problem faced by VC tokens is the disconnection between these two communities, the mainnet just launched with TGE, the product hasn't really landed, the community is all here to grab the airdrop, bringing only sell pressure; and in the last cycle we still had Sam/Su helping us leverage buy Alts, but this cycle the leverage has basically been cleared; at the same time, many VCs raised a lot of capital in the last bull market, and have the pressure to deploy, but in order to show good account returns to LPs, they have to push up the valuation of projects round after round.
So this has led to the current situation of VC Tokens, high valuation at launch but no buy pressure, there's nothing to do but drop.
This naturally makes it understandable why meme has emerged, since VC-invested projects can't land, and it's all just trading hot air, why not trade a lower-valued and more fair one?
Meme has become the most undeniable and indispensable track-level opportunity in our industry
Under the polarization analyzed at the beginning of the article, Meme has become one of the most undeniable tracks in our industry.
I always thought Meme was a pure speculative play, but until now I realized I was wrong, it is a carrier of cultural trends, its value lies not in specific functions and technologies, but in its unique ability to carry collective consciousness, emotions and identity, which is no different from the logic of religion. Beneath the absurd surface, it expresses deep-seated social psychological needs and values, it is tokenizing, productizing and capitalizing on trends and emotions.
In other words, the product core of Meme is the trends and narratives it carries, and the size of these trends and narratives determines the ceiling of a meme. Pioneering technology, idol worship, IP emotion, subculture trends, we analyze the potential behind them, just like VCs analyze the prospects of the track a product is in and its position in the track.
For Meme, the token is its product, so what it needs to do around the product is to promote the interaction between price and community, the price is in a sense the iteration of the product, building a solid community foundation in the ups and downs of the price, turning paper hands into diamond hands, and getting them to do the evangelism, ultimately completing the self-fulfilling prophecy.
In this respect, Meme tokens actually have a huge advantage that VC tokens don't have. Because the token is the product itself, the product community and the coin trading community are integrated, forming a synergy.
Meme has a very low signal-to-noise ratio due to the low issuance of capital, and it is impossible to analyze it from the form of tangible products, it requires an excellent understanding of trends and market sentiment, I am still learning whether there is a structured methodology to study this track, so that I can select targets with extremely low signal-to-noise ratio, and if so, what kind of targets are suitable for us to intervene and when to intervene.
But I firmly believe that Meme will become an opportunity across cycles, because it is essentially a cultural phenomenon in the digital age, and the trend is immortal and the emotions are iterative, so it will never be exhausted.
More importantly, I've always felt that giving the marginalized a chance to get rich is where the vitality of our industry lies. Before this wave of meme, they said the requirements for entrepreneurs in this cycle are more than 10 times that of the past, and it seems that investment has all been eaten up by VCs, the emotions of the community and the retail have been greatly suppressed. But through meme, young people can still realize 100x opportunities through early deployment, anti-authority is one of the core spirits of crypto, and I believe it will always be there.
How long can this meme cycle last?
When everyone is enthusiastic and thinks they can sacrifice themselves for the community and can earn money forever, don't forget that the profit pool will definitely be harvested, which is an unchanging principle in the financial industry. Think about the NFT community in the past: everyone was proud to use a monkey avatar, helped them connect with brands, held events and collaborations everywhere, and NFT Parties were held all over the world, and then what?
When various inflated self-confidence and unrealistic expectations appear, when holding Major is not as good as holding Meme, when various hackers and Rugs appear, we should start to be vigilant. Once our industry lacks greater liquidity opportunities, and BTC starts to encounter resistance, all enhanced versions of Alpha will plummet faster.
By the way, is DeSci the same as the logic of the previous cycle's PeopleDAO and the rescue of Assange? Under the banner of "justice", do we have the ability to distinguish belief from speculation.
In fact, the huge turning point of the meme happened when Binance listed small Neiro, at that time the VC token was in trouble, the breakthrough was the discovery of the listing of small Neiro, embracing the community meme allowed the project, community and CEX users to all make money, and then there was ACT.
But now, the blind liquidity of on-chain memes, isn't it like the TVL competition of high TVL projects after Binance, isn't it like the competition of the Ton ecosystem coins with a huge user base on Binance.
CEX will change its listing strategy based on market expectations, thereby guiding the market direction, and our industry will inevitably fall into a homogenized competition mess due to the low cost of asset issuance and liquidity premium, and this mess will definitely make everyone numb and tired.
This is the power of the cycle.
In the small cycle, don't do whatever you bet CEX will support, the projects that are really building for the industry will definitely come out.
In the big cycle, the bear market will definitely let the pile of useless oversupply be cleared by the market, and then let the market return to the right track.
The market is always swinging between long-term constructionism and short-term emotionalism, it is a spectrum, Main Character and Meme will become the two ends of the Barbell, and will rise and fall with the change of market sentiment.
No need to worry, just find your own rhythm.
Investing is such a game, we make judgments and bets based on cognition, if we are right we make money, if we are wrong we reflect, always curious and always in awe.
