Pantera Partner: Memecoin will not disappear, they are a "Trojan Horse" for cryptocurrencies

Paul Veradittakit, partner of crypto investment institution Pantera Capital, recently published an article on the value of memecoin. He believes that memecoin will not only not disappear, but will enhance NFT projects, social protocols and the entire blockchain. Memecoin is a Trojan horse for cryptocurrencies - they are the easiest gateway for the next generation to experience the latest DeFi applications and introduce them to all web3.

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Memes, often defined as units of cultural ideas that spread between people, have been deeply intertwined with crypto culture over the past decade.

The first memecoin - Dogecoin - was launched as a derivative of Bitcoin in 2014 (probably in late 2013), marking the dawn of memecoin and reaching a peak market value of $75 billion during the 2021 bull run.

The memecoin market has seen explosive growth recently. Pepe The Frog’s ERC-20 token (PEPE) has surged 400% in less than a year, reaching a market cap of $2 billion. Another memecoin featuring a purple top hat, launched on decentralized social network Farcaster, has impressively surpassed $1 billion in market cap, surpassing Farcaster’s own valuation. Finally, there’s the meme of a dog wearing a knitted hat (WIF), which rose to fame on Crypto Twitter with its viral appeal and has surged more than 20x since the start of the year, with a current market cap of around $4 billion.

Community graphic representing the Memecoin dog wearing a knitted hat

Memecoin is here to stay, and this article will explore why. We will provide a framework to better understand Memecoins, examine the evolving infrastructure that supports them, and discuss how they can significantly enhance network participation.

First, it is important to realize that Memecoin thrives on attention. In the world of Memecoin, attention is everything; attention drives community behavior, surrounding discussions, and Memecoin price movements.

You’ll often find comments sections on Twitter filled with people promoting memecoins. This behavior stems from a simple fact: the price of a memecoin ultimately depends on how much attention it receives. The more attention a memecoin receives, the more potential buyers there are. If the associated meme is interesting or entertaining, these potential buyers are more likely to make a purchase.

Community members promote memes to draw attention to their tokens

In addition to sharing memes on social media, Memecoin enthusiasts have found creative ways to draw attention to their tokens. For example, the community around the dog wearing a knitted hat Memecoin (WIF) has raised $700,000 for a campaign to showcase their meme at a landmark building, the Las Vegas Sphere. As a result, the value of its token (WIF) surged 25% in the time in anticipation of the buzz this publicity stunt would create.

Sometimes, memecoins leverage existing attention rather than generating it themselves. For example, while prediction markets like PredictIt and Polymarket let users bet on presidential election outcomes, attention-based “Politifi” memecoins around presidential candidates were developed to speculate on the public interest surrounding the candidates. As the 2024 U.S. election approaches, speculation and prices of these “Politifi” memecoins have surged.

So which memecoins will perform well? The ones that people think will consume the most attention.

When evaluating memecoin, token distribution remains a key factor that influences many potential buyers.

Some memecoin projects decide to reserve a portion of their tokens for their team and other initiatives. In addition to airdropping to community members and developers, many choose to set aside a portion of the supply for marketing campaigns, the team, and their DAO.

Setting aside a portion of the supply creates stronger incentives and a better chance of long-term success. By allocating a given token to yourself, you can incentivize the team to get more involved in the project and ensure the success of the token in the long run. Second, DAOs can be used to fund large projects.

Memecoin DAO Governance Initiative

Other memecoins, such as WIF, may be seen as “more organized.” In addition to the initial liquidity supply, tokens must be purchased on the open market. While this strategy may mean that it becomes more difficult to fund and market the project, fair distribution is still a key factor that attracts many memecoin enthusiasts.

The Memecoin market is getting huge - currently, the top 10 meme tokens have a combined market cap of over $50 billion. Memecoin's on-chain volume is staggering - over $1 billion in daily volume on Solana is driven primarily by memecoin. You can always check out the top 10 tokens on Dexscreener:

Memecoin accounts for a large portion of the top 10 tokens in daily trading volume (Source: Dexscreener)

Therefore, there is a valuable market opportunity for developers in memecoin. Tools and applications that cater to the process of memecoin creation and trading have gained a lot of attention. For example, Bonkbot is a simple Telegram trading bot that makes it easy to trade memecoin on Solana. In just 5 months, its revenue has exceeded 23 million US dollars.

Not only is it easier to trade memecoin through platforms like Bonkbot, but they are also building infrastructure to streamline the process of issuing memecoins. To create a memecoin, one would typically create a token, use their funds to build a liquidity pool on a decentralized exchange like Uniswap or Raydium, and then market the project.

Pump.fun, a platform that lets users launch memecoins with a single click, is one such example - thousands of users have used their platform to launch and find the latest memecoins. It currently earns hundreds of thousands of dollars a day in transaction fees!

Pump.fun daily revenue (Source: DefiLlama)

Memecoins combine the joy of sharing memes with economic incentives to encourage purchases, transforming ordinary memes into “super” memes. The community behind the first memecoin (Dogecoin) was incentivized by token ownership to elevate the Doge meme into a movement, catching the attention of figures such as Elon Musk. Understanding and applying the incentivized mass distribution properties of memecoins can significantly enhance or strengthen not only memes, but other parts of cryptocurrency as well.

Memecoins facilitate the distribution of memes due to incentives

NFTs are one of the areas that can take advantage of memecoin’s characteristics. Currently, most NFTs are not doing well in this bull run. Why? They have a distribution problem.

While the scarcity of an NFT collection makes it a great luxury asset, only a limited number of participants have an incentive to increase the collection’s popularity. A collection of profile pictures like Cryptopunks, which has a supply cap of 10,000, can serve as a status symbol of community prestige. However, such a cap limits the fan base to a maximum of 10,000 people, preventing the wider engagement and popularity enjoyed by memecoins.

Memecoins, because they are fungible, have an unlimited number of owners

The introduction of ERC-404, a new standard that facilitates fractional ownership of NFTs, has provided a creative solution to the problem of NFT distribution. Projects such as Pandora, DN-404, and Asterix are pioneering this space by allowing NFTs to enter multiple shared memecoins. This means that a single NFT that is traditionally owned by one person can choose to be divided into many parts. This space expands access to a wider audience that is motivated to create more visibility for the series while maintaining exclusivity for those who hold the entire NFT.

Activity in the Solana ecosystem dropped dramatically after the FTX collapse in November 2022. Many teams lost funding in FTX, which itself was closely associated with Solana, reducing community confidence and activity. However, on December 25, 2022, a memecoin depicting a playful orange Shiba Inu was airdropped to existing developers and users on the Solana network as a way to reward and reinvigorate the Solana community.

The strategy ultimately paid off. OrangeDog memecoin became a rallying point for the Solana community, quickly being integrated into hundreds of DeFi protocols and applications on the platform. Users discovered that they could earn yield on OrangeDog memecoin, use memecoin as collateral, and even use memecoin in games built on Solana. As memecoin activity and price soared, so did community enthusiasm, boosting developer activity and keeping the chain afloat during the bear market.

These stories are not isolated incidents; memecoins play a vital role in kickstarting network activity. Take the multi-billion dollar purple top-hat memecoin, for example, which started on Farcaster as a way to reward users for posting. Its launch gave people an extra incentive to post, greatly boosting activity on Farcaster. Memecoin has the power to enhance community vitality and stimulate interaction within the platform.

Since its inception, the Farcaster memecoin has incentivized a lot of activity on Farcaster.

There is a growing awareness of memecoins as a tool to stimulate network activity. For example, blockchain Avalanche has set up a $100 million "culture" fund, and Blast rewards users who participate in memecoin with Blast Gold. Social platforms such as short-term video platform Drakula have integrated Farcaster purple high-hat Memecoin to drive activity. I believe more networks and platforms should consider how to use memecoin to enhance activity.

Here are my main thoughts on memecoin.

First, it’s clear to me that memecoins are not going away. I’m watching the next generation embrace memecoins as a really fun social activity. At Pantera Capital, our Gen Z interns are having so much fun with their friends getting into those newly launched memecoins and it’s an easy and fun way to socialize, connect, and have a shared experience.

Secondly, memecoins greatly enhance the functionality of platforms and applications. While they are an incentive mechanism that helps spread the doge meme, memecoins can greatly enhance NFT projects, social protocols, and blockchains as a whole.

Ethereum founder Vitalik Buterin put forward interesting ideas about the uses of memecoin in a recent article, which focused on its use in charity and Robin Hood-style games.

I would say memecoins go a step further than that. Ultimately, while memecoins look like a toy, they are the Trojan Horse for cryptocurrencies — they are the easiest gateway for the next generation to experience the latest DeFi applications and introduce them to all of web3.