Author | Terry

Produced by｜Baihua Blockchain

Memecoin and VC Token, which one would you choose?

Before 2022, everyone would probably choose star projects with high visibility and high valuations backed by well-known VC institutions without hesitation. Now, in just two short years, the wind direction has changed, especially the small trend set off by Ordinals in 2023, which quickly grew into a powerful anti-VC wave in the crypto world.

Even since the first half of this year, Memecoin has been leading the market performance compared with VC Token, attracting a lot of attention and capital inflows in a short period of time. The general public's call for fairness has gradually become a trend. So, is it that the funds are voting with their feet, or is it a short-term illusion within the market?

01. VC Token’s “Ice and Fire”

The first half of 2024 is almost an intensive cashing period for a series of former "king-level" star projects, from Wormhole to Polyhedra Network, from Starknet to LayerZero, and from Zksync to Blast, all of which are Airdrop projects that community users and wool parties have been looking forward to for a long time.

However, the price performance after actual redemption is not satisfactory, especially after the industrialization of Airdrop. While a large number of community users/Mao Studios help these star projects to obtain extremely beautiful paper data and thus push up project valuations, the increasingly exaggerated FDV caused by their own VC financing also lays the groundwork for the risk of selling early liquidity.

For example, the recent issuance of new VC-type tokens such as W (Wormhole), ZK, ZRO, and STRK has basically been a mess - the FDV is extremely high and the trend has been falling. Since its listing, it has ended with a negative line almost every day, and all users who entered the market have been deeply trapped.

Based on the data statistics in late June alone (not counting the recent sharp drop), PORTAL and SAGA have fallen by about 80% compared to their opening prices, and W, ZKJ, STRK, OMNI, and ALT have also fallen by more than 50% compared to their opening prices.

Source: @terryroom2014 /X

From a data perspective, for ordinary users, the era of "buying and easily earning high returns" of this glamorous VC Token has come to an end.

At least for the recent new tokens, buying them in the secondary market is almost more cost-effective than the later financing valuation. There is even a sign of an inverted valuation between the primary and secondary markets:

The latest data as of July 10:

ZRO has raised a total of $3 billion in financing in its history, and its current total market value is only $3.8 billion;

W has raised a total of US$2.5 billion in financing and currently has a total market value of US$2.9 billion;

ZK has raised a total of US$1.25 billion in financing and its current total market value is US$3.1 billion;

ZKJ has raised a total of US$1 billion in financing in its history and its current total market value is US$1.2 billion.

But what’s interesting is that Dune statistics show that even when the market continues to fall, major VCs still have floating profits of dozens or even hundreds of times the book value of their investments in these tokens, and the overall unrealized profits of VCs are still as high as 7 times.

Source: dune.com

DYOR co-founder hitesh.eth also counted the top 10 "VC Tokens" in terms of overall VC returns on the market. Most of them are the main forces that are currently falling in the market, which has also dealt a great blow to market confidence.

But at the same time, although ENA, DYM, SAGA and others caused heavy losses to secondary market investors, VCs were still able to lock in more than 10 times the profit - the highest ENA return rate was as high as 100 times, and the lowest ALT was more than 10 times. The feelings of VCs and secondary market investors can be described as "ice and fire".

02. Memecoin "eats up" the market

Compared with the falling trend of the star VC Token on the online trading platform, the secondary market price performance of on-chain asset attributes such as Memecoin is far ahead, almost "swallowing" the entire market and becoming the symbol of Web3 culture at this stage.

Among them, whether it is the emerging Memecoin leaders such as PEPE and FLOKI, or GME and other new Memecoins on the public chain, wealth codes of several times or even dozens of times are constantly emerging, which once made people dream back to the market environment during the DeFi Sunmmer in 2020.

Especially since April this year, the volatility of the new star VC Token that has been launched intensively has decreased, making it difficult for secondary market traders to profit from it. The market's FUD sentiment towards VC Token has become more serious. Memecoin has demonstrated its unique charm and attracted a lot of attention and capital inflows in a short period of time with the community consensus.

In contrast, although VC Token has strong background support, its performance has not fully met investors' expectations amid the rapid changes in the market.

Source: dune.com

More interestingly, Dune statistics also show that in this round of Meme super cycle, the number of actual on-chain holder addresses of the top 46 Memecoins has indeed been in a clear growth trend in the past 90 days:

Among the 46 Memecoins, except for 4 that are in a growth slump (FLOKI only saw a slight decline), the number of on-chain holders of the remaining 42 Memecoins have generally achieved double-digit or even more than 100% growth. This data undoubtedly reflects that the market's attention and enthusiasm for participation in these Memecoins are indeed rising sharply.

In addition, the relative ratio of buyers/sellers in the past 30 days has been basically above 1, which also indicates that investors are relatively optimistic about the future trend of Memecoin and are willing to invest more funds to obtain potential returns.

In short, unlike many previous crypto projects with large financing and VC-dominated narratives, which have high thresholds and are more oriented towards crypto OGs and on-chain whales (rich elites), Meme gives an opportunity to more ordinary people outside of OGs and whales, especially allowing the general public to participate fairly and share dividends.

Therefore, in comparison, the discussion and doubts about Memecoin and VC will inevitably become the mainstream of the community again. Meme will at least continue to bring in incremental funds and attention thanks to its user flow, while the new projects with valuations of billions of dollars in recent times are all outdated concept products that are disguised as grand narratives or old gameplays, so it is natural that they are disliked by the community.

03. Community resistance behind the meme wave

In fact, if we carefully examine the current market environment, we will find that in addition to short-term speculation, the call for fairness from the general public represented by Meme has gradually become a trend, and funds are voting with their feet.

To put it bluntly, the rise of the Meme wave actually represents, to a certain extent, the correction of the traditional "financing-cash-out" model of the past two years by community users and the market: the previous star projects relied on top VCs to gather together, combined with high-end technical narratives to obtain high-valuation and large-scale financing, and finally used the so-called "Airdrop" to attract the community to pile up a series of beautiful on-chain data. This gameplay has basically come to an end.

Especially since this year, long-awaited projects such as ZKsync and LayerZero have sparked major Airdrop-related controversies in the community, such as "Wyrm Attack" and "Rat Trading". This basically means that the Web3 world is gradually entering the "post-Airdrop era" - when star project owners begin to regard Airdrop as an arrogant power of resource allocation, Airdrop is no longer a mutual fulfillment between community users and project owners.

It is for this reason that the rise of Memecoin is due to the fact that they are often not bound by the traditional rules of the primary and secondary markets. Although this also means that the risks are higher and the price fluctuations are more drastic, it at least provides ordinary users with an additional option.

If we analyze the reasons behind the rise and fall of Memecoin and VC Token, we can see the objective market conditions:

First, there is the selling pressure caused by high valuation and low circulation. After all, almost all star projects nowadays have high FDV and low actual circulation as the issuance rule, which has formed a potential unstable factor. The selling cycle is extremely long, which brings huge pressure to the market.

Secondly, users are gradually becoming immune to technical narratives, especially from L2 to Restaking. After experiencing the hype of technological innovation by many projects, especially celebrities, users have become more rational and cautious, and are no longer easily impressed by technical narratives that seem mysterious but lack substantive breakthroughs.

In addition, the high-frequency capital pumping effect cannot be ignored. Similar to the large-scale IPO blood-draining phenomenon in the stock market, the community has recently debated whether the intensive launch of star projects has led to a large amount of funds being withdrawn from the market, seriously affecting the liquidity of the market.

After all, real money and real voting will not deceive people.

To some extent, the alliances and interests among VCs in the crypto world and Web3 industry have reached a stage where a breakthrough is clearly needed (further reading: "Who is in control of Uniswap? Where will DeFi, which has been playing out the "House of Cards" game, go?"), and there is nothing wrong with users' spontaneous pursuit of real money-making effects and hot spots.

After all, in this market full of temptations and opportunities, users instinctively tend to those opportunities and hot trends that can bring tangible benefits. Once existing projects cannot meet this demand, they will express their dissatisfaction and resistance in various ways to seek better investment returns and market environment.

This also sounded the alarm for VCs and project parties who are accustomed to path dependence.