1. Five stages of development of memecoin
2. Trading strategies at each stage
3. Definition of Social Score and Financial Score
Most meme coins (more than 99%) will quickly return to zero, so how can we use data to improve our investment success rate? Following the previous article on how to use Farcaster social data to find crypto hotspots, this article will further explore how to calculate the social score of meme coins and combine it with the financial score to comprehensively evaluate their development stage. This analysis method and data come from ilemi, an on-chain data analyst.
Further reading: How to analyze Farcaster social data and gain insight into the next narrative hotspot in the market?
The five stages of memecoin development
1. Bot Arena
When memecoins were first launched, there were many competing coins with low social scores (how much discussion there was on Farcaster) and financial scores (trading volume, liquidity, etc.). Most memecoins were unable to stand out at this stage.
2. Volatile Growth
Meme coins that successfully stand out begin to receive attention and promotion from some KOLs, their social scores increase, and their financial scores fluctuate significantly (prices may change drastically by 100-500% within a day). This phase is usually driven by bots until early backers come on board.
3. Well Established
At this stage, the community activity and financial health of memecoins are outstanding, with small weekly data fluctuations and attention maintained in balance. Currently, on the data panel designed by ilemi, only $DEGEN is in this stage, and the closest to this stage is $TN100x.
4. Sleeping Giant
During this phase, community buzz decreases and financial volatility is low. At this point, the memecoin community is formed and other products or features are released in the hope of attracting attention again.
5. Extreme Risk
Memecoins with low social and financial scores will eventually go to zero (the fate of most memecoins). This may be a transition from the "Volatile Growth" or "Sleeping Giant" phase. These memecoins are extremely risky and susceptible to Rug Pulls when retail investors lose interest and traders turn to other tokens with potential upside.
Trading strategies at each stage
@apurvkaushal, co-founder of the Intract platform, said that the coin age, social score and financial score can be used to identify which stage the meme coin is in, and provide corresponding trading strategies for each stage.
1. Launch phase
At this stage, the meme coin has just been released and we need to find clues to alpha:
- Has the token been discussed in inner circles?
- Are OG traders buying?
- To understand who deployed the token, you can refer to the relevant tweets.
2. Fluctuating growth
At this stage, the market noise is the greatest, and it is necessary to use financial scores and social scores to screen out high-quality tokens. The key lies in timing:
- Prioritize by WoW growth: higher reward opportunities, but also higher risk.
- Enter the TG group to check the atmosphere and make sure there are no bots.
- Monitor OG's purchasing behavior.
- Use the sniping tool and hope you are right.
3. Established status
There is limited room for growth at this stage, so only a small portion of the portfolio is allocated to these coins, with the focus on the community:
- Trust in the power of a strong community.
- New product construction, such as Doge Chain, Degen L3, etc.
4. Sleeping Giant
For newly added coins, it is recommended to wait and see. If based on market macro or community announcements (such as CEX listing, new product release), small investments can be made.
Social Score and Financial Score Definition
Social Score
The metrics used to measure social scores include:
- Casters: The number of users who mentioned a specific token (e.g. $DEGEN).
- % Recipients: The percentage of these users who have ever received (i.e. purchased or obtained from another address) this token.
- Casts: The number of tweets containing a specific token.
- Channels: The number of channels that contain a specific token.
- Activity Level: Engagement (likes + replies) plus the number of tweets multiplied by the cube root of the number of tweeting users and channels.
The financial score is calculated as Activity Level multiplied by (weekly change in users who tweet) times (weekly change in users who receive).
What this measures is if a token has significant growth in the number of users tweeting and receiving users, this is a positive sign.
Financial Score
The financial score is measured by:
- Fully Diluted Value (FDV): Total supply multiplied by price.
- Price: The latest price based on decentralized exchange (DEX) transactions.
- % DoD, WoW, MoM Price Change: daily, weekly, monthly percentage change in price.
- Liquidity: Non-token liquidity, for example, in the DEGEN-WETH pool, only the WETH portion is counted.
- Trades: The number of DEX transactions in the past 30 days.
- Transfers: The number of ERC20 transfers in the past 30 days.
- DEX Volume: USD trading volume on DEXs over the past 7 days.
By combining the social score and the financial score, investors can more effectively assess the current market position and potential risks of memecoins, thereby making more informed decisions in their investments.
