How to find meme coins with potential?

This cycle is called the "memecoin cycle" by some, and some even call it the "memecoin super cycle." We’ve seen new memecoins like WIF go from zero to billions of dollars in market cap in a matter of months. We’ve also seen various products built around the memecoin phenomenon, such as the launch of pump.fun. Like it or not, memecoin cannot be ignored.

As most active crypto players will be keenly aware of, memecoin has performed extremely well during this cycle, outperforming all others as a sector by a wide margin. When we hear stories of traders making multi-fold gains on memecoins, the question is always: “How did they identify that specific memecoin?” Of course, there is an element of survivorship bias, but is there something else at play? Is it working?

Generally speaking, at HFAResearch we focus on fundamentals-driven ideas from an investing, trading, and mining perspective. This makes it difficult for us to cover the memecoin sector - like NFTs, the investment logic of memecoins is often more vague and more dependent on the "atmosphere" and memes themselves, which makes fundamental analysis more difficult. At least, that’s what we thought before discovering what we call the “Memecoin TVL Pump Theory.”

The Memecoin TVL pump theory posits that a major memecoin, or a basket of major memecoins, will act as a leveraged bet for on-chain TVL. Before we list various examples from the past, let’s first understand why this makes sense.

We know that as the TVL on the chain increases, a certain proportion of funds will flow into certain applications or "destination" on the chain...for example, X% will enter the currency market, and Y% will flow into major decentralized exchanges. (DEX) etc. Therefore, it is reasonable to assume that a small group of funds will want to find the highest beta way to stake the chain. How do they do it? By purchasing a major memecoin or a basket of major memecoins. Maybe this is obvious to some of you, but we think this provides a valuable and potentially risk-reducing way to participate in memecoins, as it provides some "fundamental" ways to evaluate future memecoin performance ( either up or down).

Let’s look at a few historical examples of this situation:

Base

Base TVL

TOSHI's performance starts to match Base TVL's growth in March

Both of BRETT's parabolic price increases occurred during an uptrend in Base TVL

TON

YOUR TVL

REDO is the main memecoin on the TON network

The above example clearly shows; TVL inflow = major memecoin performance. If a TVL increase is predicted, then one can take a position on the major memecoin on the chain as a leveraged bet on the TVL prediction.

Critics of this strategy would say that it is designed to reduce returns because it requires knowing which memecoin is the most important in order to determine where the TVL will flow. This criticism is valid, this strategy certainly does not allow sniping a memecoin at $100,000 market cap and letting it rise 1000x to $100 million, but it can be very effective in finding some slightly larger, slightly more mature memecoins , and let it go up from there. For example, Base experienced a parabolic TVL run between late February and early April, with Toshi rising from a market cap of $40 million to over $300 million, with almost no mediocre results in less than 2 months. Return.

Forecasted TVL growth can be divided into two categories: long-term and short-term. Long-term forecasting is essentially predicting where TVL will flow over many months. We might point out that Base uses Coinbase as a funnel for retail users to get onboarded, which is why TVL growth will remain steady. We can look at the almost incestuous relationship between TON and Telegram to understand the impact on TVL of having all 900 million Telegram monthly active users on-chain. We might mention Solana and its excellent on-chain user experience and mobile wallet as a reason to believe TVL will be in the mix too. You get my point; in the long term, to predict TVL's growth over a longer time span, one has to look at the deeper distribution fundamentals along the chain. You will then research the main memecoin or memecoins on the chain and place your bets accordingly.

The short-term approach considers short-term catalysts such as points programs or airdrops as the cause of TVL growth. For example, $FOXY, the premier memecoin on Linea, performed extremely well with the ensuing TVL inflows after announcing its surge points program:

Linea TVL, Surge released mid-May

$FOXY Market Cap

A short-term approach requires a more active focus on the market and where capital may flow based on incentive schemes. This is similar to the game some of us played last cycle; enter Pool 2 of a top DEX on a new chain to bet on TVL growth from incentive programs.

A more specific example is Scroll. We've already seen explosive growth in its TVL following the introduction of its latest points program. Could Scroll be the next ideal target for short-term strategies?

We feel this approach provides a more systematic and less risky way to participate in the memecoin sector, but we're still relatively new to this space so would love to hear your feedback!

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