Original Author: YettaS, Primitive Ventures Investment Partner (X: @YettaSing)
"Yetta, are you anxious in this market?", this was a serious question asked by someone at a dinner, and I was momentarily 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 Tier 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 a general idea of this situation at the beginning of the year. Primitive is a 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 just follow 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 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 also 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 opposite is true, 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 risen up due to the bonus of the frontier era. Offshore CEX, Trading Firm, Crypto financial services, and VCs, no one can avoid it.
This structural change will make Offshore CEX anxious, as CME's Future OI has already exceeded Binance. If mainstream coins are traded more and more on compliant trading venues due to TradFi's entry, and Meme can also Pump out projects over $1B on-chain, is Binance's space being squeezed?
In addition to Offshore CEX, those Market Makers who have risen up with Crypto in the past are seeing high-frequency quantitative teams from Wall Street bringing their own Infra and capital, so how can they break through? Accompanying their decline, the third-party financial institutions that served them are also becoming increasingly invisible, 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. The projects have an extremely high FDV at launch, and there is 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 if you lose, you can only blame your own slow hands, rather than helping the VC coins worth tens of billions of dollars.
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 ATH? 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, the DEX created liquidity and continued value discovery, until the product Community and the trading Community reached a consensus, the 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 coins, and even more willing to evangelize, and this liquidity supply chain has formed a virtuous cycle.
But now? The problem with VC Tokens is the disconnection between these two Communities. The mainnet just launched and had the TGE, the product hasn't really landed, and 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 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 the 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 Meme, 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
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 is 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 them, just like VCs go to 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 trading Community are integrated, forming a synergy.
Meme has an extremely 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 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 have always felt that giving the marginalized the opportunity to get rich is where the vitality of our industry lies. Before this wave of Meme, it was said that 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 the opportunity of 10 0x 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's head as an avatar, helped them connect with the brand party, held events and co-branded activities 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 saving Assange in the last cycle? Under the banner of "justice", do we have the ability to distinguish between faith and 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 to find that small Neiro was listed, 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 it like the TVL competition of high TVL projects on Binance after that, is 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 the homogenized 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 are really building for the industry will come out.
In the big cycle, the bear market will let those who do nothing and the 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, make money when we are right and review when we are wrong, always curious and always in awe.
