Meme coin's value consensus mechanism, future trends and investment logic

Original author: BillyWen, partner of Negentropy Capital


Editor’s note: Initially, BillyWen came into contact with meme coins in 2015, and because of his interest in memes There was a bias in the currency and he sold Dogecoin. Then the meme FOMO brought about by PEPE made him realize that a fair launch mechanism for memes is the ultimate goal pursued in all fields. During the meme pre-sale craze, BillyWen donated 6,000 SOL to SLERF and currently holds 5 million SLERF. He can be said to be one of the largest donors to this project.

The first time I purchased meme coins in 2015 was because the Internet company held its annual meeting at that time, and HR proposed using virtual currency as one of the prizes in the employee lottery game during the lottery. I found a link given by a seller in the Babbitt forum, jumped to a Taobao store and purchased 1,500 yuan of Dogecoin as a lottery prize (more than 20 million yuan based on ATH price).

At that time, most people did not have encrypted wallets, so they could only print the private key on a small piece of paper, and then put it in the lottery box for everyone to draw. Even now when I think back on it, I still find it very funny.

In the bull market of 2021, Elon Musk began to place orders for Dogecoin, causing the price of the currency to skyrocket a thousand times. He was heartbroken because he did not hold on to the Dogecoin he purchased early. What I don’t understand is why so many people ask me how to buy Dogecoin. The logic at that time was still stuck in the so-called new world of web3. Crypto must be able to solve certain problems to have value and reason for its existence. Friends who asked about it were advised not to buy this worthless meme coin. My bias against meme coins caused me to overlook the most important point: consensus is value, and existence is reasonable!

When the time came to April 2023, the frog meme currency $PEPE broke through 1 billion US dollars in a short period of time, and was soon traded on major front-line The listing once again set off a huge wave of meme currency FOMO.

When the fund held an internal meeting to review the inherent investment value and trading model of memes, we gradually realized that this is a brand new consensus mechanism, that is FAIR PLAY! Fair play! This is also the ultimate goal pursued by human beings in various fields! This value consensus mechanism combined with blockchain technology forms a new financial product, the crypto Native meme currency.

Why FAIR PLAY is the core of the meme currency value consensus mechanism, it starts with the pricing, valuation and trading of cryptocurrency. Since the creation of Bitcoin by Satoshi Nakamoto, the fixed number of 21 million Bitcoins that cannot be issued has become the cornerstone of cryptocurrency pricing. Blockchain technology has realized the non-increasing nature of Bitcoin, thus forming a unique mechanism that prevents inflation of cryptocurrency and creating scarcity. sex.

The legal currency in the world has been increasing in inflation. In contrast, cryptocurrencies that cannot be issued and cannot be inflated naturally have a theoretical basis for the corresponding rising prices of legal currency.

Although cryptocurrency solves the problem of a fixed total amount and no additional issuance through blockchain technology, it is not a fair competition model and is even filled with a large number of frauds and scams. When Ethereum's smart contracts realized the ability to quickly issue TOKEN at extremely low costs, the ICO model quickly became popular. The issuance of tokens led by smart contracts is essentially a one-time pre-mining of project assets, which is Fully Diluted Valuation.

Pre-mining these tokens means that all the assets of the project have been manufactured in advance. The project team uses a token economic model to allocate tokens to various stakeholders and formulate unlocking and release rules, such as leaving it to VC investment institutions. The part left for the ecological fund, the part left for the team, etc.

Correspondingly, the crypto secondary market has accumulated a large number of crypto projects with low circulation and high market capitalization. Retail investors purchase this inflationary asset that continues to be diluted in the secondary market (although the total number of tokens is Fixed, but the number of circulating tokens is subject to continuous inflation), There are more and more circulating coins in the market, and the tokens in the hands of secondary market investors are becoming less and less valuable. This is why a large number of retail investors keep complaining. The receiving plate is constantly being cut.

meme coin appeared at just the right time. There is no complicated token economic model, no investment support from VC institutions, no actually usable product business process, and even the founder of the project is Anonymous people do not have public identity information, but they have one thing that is most attractive to the younger generation of crypto investors or speculators, that is, the token distribution is transparent and fully circulated.

Speaking of this, most people may not realize it. Meme coins have gone through several bull and bear cycles and been recognized and sought after by the crypto market and investors. Its essence is the upgrade of human consensus mechanism on the value of crypto assets. To the 2.0 stage, is from the 1.0 stage in which the earliest encrypted assets (trading objects) cannot be arbitrarily issued, to the 2.0 stage in which encrypted assets (trading objects) cannot be arbitrarily diluted. This is also based on the cryptocurrency industry under the FAIR PLAY consensus mechanism. an inevitable trend of development.

The value model of meme currency is a new type of virtual asset that most traditional investors or VC institutional investors in the crypto industry cannot understand or even hate. The pricing model of this asset does not have any products. It is not supported by user or business data, and there is no calculable asset price evaluation formula. The only thing it has is community consensus and group trading sentiment.

Through continuous participation in the investment and trading of meme projects, I have gradually formed some understanding and judgment of this track. There are three main aspects to analyze the future development trend of meme coins:

1. The market value of the meme sector is expected to increase rapidly in the next few years. Currently, the overall market value of the meme currency sector, led by $Doge, $Shib, $Floki and $Pepe, is less than 70 billion. It is expected to grow to 400-500 billion US dollars in the next 2-3 years, accounting for the entire cryptocurrency market. If it increases to more than 10%, there will be more than 20 unicorn meme projects with a single currency market value exceeding 100 billion US dollars and a market value exceeding 10 billion US dollars.

#2. There will be a clear generational stratification in the meme track. With the continuous evolution and development of blockchain public chain technology, meme coins are also constantly upgrading and upgrading following the development of blockchain technology.

In ancient times, Dogecoin was forked from the Bitcoin code, representing the first generation of meme coins derived from Bitcoin mainnet technology, and the second generation of meme coins starting from $Shib. Ethereum's smart contract-issued tokens have entered the secondary circulation market. The third-generation meme coins such as $BOME and $Slerf, which are very popular this year, were generated on Solana, and benefited from users adopting on-chain DEX to trade meme coins. Meme coins have become mainstream .

The blockchain public chain technology used by these three generations of meme coins also has obvious generational differences. For example, Bitcoin is the earliest blockchain technology and does not support smart contracts and only simple point-to-point transfers. Therefore, Dogecoin The transactions are mainly concentrated on CEX, the major centralized exchange. The second and third generations of meme coins use smart contracts to issue tokens and fully support on-chain transactions, opening the door to a new world of memes. Meme coins achieve AMM liquidity on DEX and quickly attract a large number of users to enter the secondary market for transactions.

#3. The fair launch model will become the mainstream trend of meme coins. To gain recognition from the community and market, the Fair Launch model must be adopted. The traditional IXO model will not be supported by community users and the secondary market.

The Presale pre-sale model that has become popular since $BOME is a typical example of fair launch. 50% of the tokens are airdropped to users participating in the pre-sale, and the remaining 50% is put into DEX to add a liquidity pool and the LP burn is announced. This This simple and even primitive fair launch mode has been widely supported, and many subsequent meme projects have also successfully launched in this way.

Recently, some meme currency project parties have directly RUG the funds raised during the pre-sale stage, or only use a small part of the funds to add to the liquidity pool, making this simple fair launch model unsustainable. The key is still The reason is that without an automated mechanism, relying on people is unreliable.

So recently, the meme launch pad project pump.fun, a one-stop automated coin issuance and liquidity based on smart contracts, has appeared on the market. The meme project Dev can issue and add coins in just one minute. DEX has liquidity and the threshold for traders to use it is also very low, making it more suitable for early speculative trading of small-market meme projects. It is expected that a one-stop launch pad for pump-type automatic currency issuance to add liquidity will become an infrastructure facility for the meme currency track.

I generally analyze the investment logic of meme coins from three perspectives: meme cultural influence, community size and cohesion, and unique storytelling, but these are not It does not represent any investment advice.

1. Meme itself is a product exported by the Internet emoticon culture. Of course, there are also non-emoticon meme currency projects like $People and $Trump, but they all have a wide impact Powerful Internet pop culture output. Most memes have unique and distinctive animal images. For example, Dogecoin's Japanese Shiba Inu has gained hundreds of millions of fans around the world. The image of $PEPE comes from the frog in the comic "Boys Club" and its emoticon package. Very popular and highly recognizable on the Internet.

When the cultural influence of a meme is projected onto the subject matter of a transaction, a huge value consensus will be formed, causing the market value of the project's token to rapidly rise to unimaginable heights.

2. The scale and cohesion of the meme community are also very critical. When the scale of the community reaches a certain level, the cohesion spontaneously generated by community members includes creating secondary content or peripheral products for the meme. , expand influence on various social media, and let more people understand the meme image and unique cultural connotation.

Of course, the most effective thing is to attract more people to buy and hold the meme tokens of the project. By observing the density and quality of information exchanged between community members, we can grasp the cohesion and tokens of the overall community. holding status.

3. The unique story of a meme will bring about a strong value consensus. For example, the founder of Dogecoin sold all his Dogecoins in exchange for a second-hand Honda car. Buterin donated all the $Shib tokens worth one billion US dollars airdropped to him by the Shiba Inu project team to the Indian disaster victims. Musk has declared that Dogecoin will be used as the common currency for Mars immigrants in the future, as well as the recent sloth Slerf The project team accidentally put the pre-sale airdrop tokens into the black hole and destroyed them, and will subsequently issue NFT and sell them to repay previous pre-sale investors.

These are unique and interesting crypto stories that are very conducive to quickly spreading their cultural influence on social networks, thereby forming a meme token value consensus and driving force for price increases.

Finally I figured it out: BTC is the most awesome meme and the meme Coin that best represents crypto Native culture!!!

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