"Are you anxious about the current market, Yetta?" This was a serious question asked by someone at a dinner party. I was initially taken aback, not understanding why they thought we should be anxious. "Because many people think Memes are dominating and VC tokens are going to die haha." The biggest discussion topic at this DeVCon was indeed Memes, with peers joking that talking about level 1 is delaying Meme trading, and some also asking if we have included Memes 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 a self-sustaining evergreen fund, 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). Everything we do follows 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 conducted 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 volume has grown, and TradFi 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-chain 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 an area that TradFi cannot reach.
Against this macroeconomic and social background,
the on-chain 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. So, the middle state in our industry is becoming more and more difficult.
Who are these middle states? They include all the institutions that have emerged due to the bonus of the frontier era. Offshore CEXs, Trading Firms, Crypto financial service providers, and VCs, no one can avoid it.
This structural change will make Offshore CEXs anxious, as CME's Future OI has already exceeded Binance. If mainstream coins are increasingly traded on compliant trading venues due to TradFi's entry, and Memes can also Pump over $1B projects on-chain, is Binance's space being squeezed?
In addition to Offshore CEXs, those Market Makers who have risen with Crypto, seeing Wall Street's high-frequency quantitative teams bringing their own Infra and capital, how can they break the deadlock? Accompanying their decline, the presence of the third-party financial institutions that served them is also becoming increasingly weak, let alone the VCs who cannot actively trade.
This polarization and liquidity squeeze is the fundamental change in our industry. Whoever finds the breakthrough point will win.
Secondly, what's the problem with VC Tokens?
I fully understand the market's emotions towards VC Tokens. Projects with super high FDV at launch, and constant unlocking and dumping for profit after listing, 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 slow hands if you lose, rather than helping dozens of billions of VC tokens to be bagged.
What is the essence behind this problem?
It is that there is a problem with the Liquidity Supply Chain in our industry.
Why can Solana keep hitting ATH? Because they have real product implementation, and the product can make Sol holders continuously make 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, DEXs created liquidity and continued value discovery, until the product Community and the trading Community reached 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 token, and even more willing to evangelize it, and this liquidity supply chain has formed a virtuous cycle.
But now? The problem faced by VC Tokens is the disconnection between these two Communities. The mainnet just went live with TGE, the product hasn't really landed, and the Community is all here to grab the airdrop, bringing only sell pressure; while in the last Cycle we still had Sam/Su helping us leverage buy Alt, 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 beautiful 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 explains the logic of Memes, since the projects invested by VCs can't land, and they are all just trading hot air, why not trade a lower valuation and more fair one?
Meme has become the most undeniable and indispensable track-level opportunity in our industry.
I always thought Meme was just a speculative play, but until this time 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 social psychological needs and values,
it is tokenizing, productizing and capitalizing on trends and narratives.
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 it, just like how 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 mutual reinforcement of price and community, the price is in a sense the iteration and development 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 regard, 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 trading Community are integrated, and they form 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 as to select targets in the 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 that transcends cycles, because it is essentially a cultural phenomenon in the digital age, and as long as the trends are immortal and the emotions are iterative, it will never be exhausted.
More importantly, I have always felt that providing opportunities for the marginalized to get rich is where the vitality of our industry lies. Before this wave of Memes, it was said that the requirements for entrepreneurs in this Cycle are more than 10 times that of the past, and it seems that all the investments have been eaten up by VCs, the emotions of the community and the retail have been greatly suppressed. But through Memes, young people can still achieve 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 cycle Meme 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 the eternal truth of the financial industry. Think about the NFT Community in the past: everyone was proud to use the monkey avatar, helped them connect with the brand, 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 Rug appear, we should start to be vigilant. Once our industry lacks greater liquidity opportunities, BTC starts to encounter resistance, all enhanced Alpha will fall faster.
By the way, is DeSci the same as the logic of PeopleDAO and the rescue of Assange in the last cycle? Under the banner of "justice", do we have the ability to distinguish belief from speculation.
In fact, the huge turning point of 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 made the project, community and CEX users all make money, so there was ACT.
But now, the blind liquidity of on-chain Meme is like the competition of TVL after the high TVL projects on Binance, like the competition after the Ton ecosystem coins with 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 the homogeneous competition chaos due to the low cost of asset issuance and the liquidity premium, and this chaos will definitely make everyone numb and tired.
This is the power of the cycle.
In the small cycle, don't do whatever to bet on CEX support, the projects that really build for the industry will come out.
In the big cycle, the bear market will let those 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 bets based on cognition, make money when we're right and review when we're wrong, always curious and always in awe.
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