Original title: (The Meme Craze: A New Battlefield for VCs, Opportunity or Trap?)
Original author: Ray, ArkStream Capital
TL;DR
1. Memes experienced a slow budding phase from 2013 to 2019, followed by a rapidly changing chaotic period from 2020 to 2022, and finally entered a period of rapid development from 2023 to 2024, gaining widespread recognition and audience base as a distinct sector.
2. The average turnover rate of memes is about 11%, while DeFi is at 5%, Layer2 is at 7%, and Layer1's average turnover rate is 4%. This ratio not only highlights the high liquidity of memes but also indicates a higher interest and trading frequency among users.
3. By the end of Q3 2024, the market cap share of memes in the entire crypto market has risen from 0.87% two years ago to 2.58% today, with a continuous growth trend. If we conduct a simple linear regression simulation, this proportion is expected to reach 3.54% in 2025 and 7.81% in 2030.
4. Memes are leveraged Layer1, meaning that when the market improves, there will be around 5 to 10 times the increase in Layer1.
5. Animal memes and cult culture memes are types that are suitable for long-term attention. In contrast, other categories of memes are often associated with short-term trends, and their attention and popularity may rise sharply and then fall back quickly.
In 2024, the industry and market are undergoing a dramatic reshuffle. In the context of many VC-supported projects performing poorly upon launch, memes, however, are swimming against the current, becoming a new force that cannot be ignored. The rise of PvP mode, the wealth effect brought by single-token hits, and the meme-friendly Solana all showcased their unique brilliance this year. The new generation of meme representatives, Murad, has quickly become a popular figure in the meme world through his Supercycle speech. However, behind this meme wave, what changes has the meme actually experienced? From the VC perspective, how should we participate? These questions are worth exploring in depth.
Overview of the Meme Market: Origins, Evolution, and Market Data Analysis
Origins and Impact
Memes, as a cultural dissemination phenomenon, are closely linked to human history. Originating from early societal language, beliefs, and customs, they spread within groups through imitation and learning. The emergence of the internet has greatly accelerated the dissemination of memes, which rapidly spread among users in the form of images, videos, text, and emojis due to their humor, satire, or resonance. Memes meet people's needs for expressing emotions, sharing viewpoints, and establishing resonance in social interactions, reflecting social trends, group psychology, and cultural changes. Their dissemination and popularity are influenced by multiple factors, including content attractiveness, dissemination environment, community acceptance, and KOL influence.
In Web2, meme culture primarily emerged and developed on the platforms of 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, gathering a large number of Pepe memes and related content. At the same time, 4chan is also the breeding ground for Boy's Club comics, providing us with an important perspective to understand meme culture in depth. Reddit, on the other hand, has nurtured classic memes like Dogecoin and Success Kid. Thanks to the active community atmosphere and solid user base of these two platforms, they remain the birthplace of many new memes to this day. Besides these two platforms, other widely used social media platforms (such as Twitter X and Telegram) have also birthed some popular memes. For example, dogwifhat, a meme of a dog wearing a pink knit hat, has formed a 'hat' totem culture within the community since its early days, with many fans and well-known personalities sharing related images of the hat dog.
Evolution and Development
Starting in Web2, obsessed with Web3. In this article, we refer to memes and their related tokens collectively as 'memes', without further distinction. Looking back at the development history of memes, we notice that they were not prominent in their early days and did not receive enough attention. Referring to the cyclical changes in the industry's bull and bear markets, we can divide the development of memes into three stages: the budding period (2013 to 2019), the chaotic period (2020 to 2022), and the rapid development period (2023 to 2024). By consulting historical snapshot data from CoinMarketCap, single currency data from Coingecko, historical information from search engines, and social media content, we can gain a more comprehensive understanding of the evolution of memes.
Chart: Evolution and Development of Memes
As of December 31, 2019, during the budding period, Dogecoin was the only meme-type coin on the list of the top 100 cryptocurrencies, ranking at 34. Reviewing the period from 2013 to 2019, meme-type coins did not occupy a significant position in the market. During this time, the industry was in a rapid infrastructure construction phase, exploring various new concepts. The mainstream new coins were usually those with more efficient transaction processing capabilities and faster confirmation times, or new public chains equipped with powerful smart contract functions. For meme-type coins, the challenges they faced included the need for higher costs to establish dependent carriers and the difficulty of liquidity construction, resulting in smaller transaction volumes and difficulty in garnering widespread support from centralized exchanges. Therefore, in the budding period of meme coins, apart from Dogecoin, which featured the 'Doge' meme and had significant propagation effects, there were not many other meme coins that could survive.
Starting from the chaotic period beginning in August 2020, triggered by the DeFi Summer's wave of IDOs, the DeFi Summer led to the ability to build liquidity on-chain at a low cost, providing trading and quickly constructing trading scenarios. This allows for low-cost token issuance and direct secondary market circulation without going through exchange listings, giving rise to many on-chain memes. During this period, surviving meme tokens included SHIB, FLOKI, and PEOPLE. However, despite this, these early meme tokens did not gain market attention, their popularity largely based on speculative concepts. In addition, the popularity of memes during this chaotic period often arose in the context of industry liquidity excess, usually appearing as the final relay after various sectors took turns rising. Notably, memes during this period also gained widespread attention due to their association with celebrities, particularly Elon Musk's continued advocacy for Dogecoin in 2021, which not only caused significant price fluctuations for Dogecoin but also propelled its market cap to new heights, significantly expanding its community.
With the arrival of 2023, the trend of meme coins continues to heat up, giving rise to a diverse array of meme coins such as BONK, PEPE, CHEEMS, Cult culture-related BITCOIN (HarryPotterObamaSonic10Inc) and SPX (SPX6900), WIF, and MOG, among others. During this period, the types of meme coins began to refine, with other public chains like Solana also coming to the fore. By 2024, the development of meme coins has directly entered an acceleration phase, with new tokens like BOME, lowercase NEIRO, and GOAT continuously emerging, each with its own characteristics. Memes have officially gained widespread recognition and audience base as a distinct sector.
Chart: Data indicators of some memes
By analyzing the market cap share and performance indicators of memes in the cryptocurrency market from 2013 to 2024, we can clearly see the growth of meme market cap and the expansion of categories and quantities. During this period, the market cap of memes not only achieved significant growth, but its types and numbers also increased. By the end of Q3 2024, the market cap share of memes in the entire crypto market has risen from 0.87% two years ago to 2.58% today, and there is still a growing trend. If we conduct a simple linear regression simulation, this proportion is expected to reach 3.54% in 2025 and 7.81% in 2030.
Perhaps we once doubted whether memes were just a fleeting phenomenon, quickly fading after the hype. However, with further research and understanding of memes, we believe our perspective has shifted. Memes will not only not disappear but will continuously evolve, with new leading memes potentially emerging in every era cycle. However, behind these dazzling leading memes lies a harsh reality that reminds us to always remain calm and clear-headed.
Market Data Analysis
By analyzing the development and historical data of memes, we can roughly understand their development trends. Therefore, studying the current market landscape can provide us with an intuitive perspective to observe changes in market hotspots and the flow of funds. Below, we further explore the macro indicators of the meme sector, including market cap, trading activity, and average daily trading volume. These analyses reveal not only the latest dynamics of the meme sector but also its future development trajectory.
Market cap and quantity changes: The changes in the market cap and circulation quantity of memes can reflect the market's demand and acceptance levels. Although some meme tokens may have low market caps, the increase in the number of new memes indicates a growing community interest in the entire sector. Compared to other sectors (Layer1/Layer2/DeFi), memes have been far ahead in terms of overall market cap and new quantity in the past two years.
Trading activity: The trading activity and turnover rate of memes are usually higher than other sectors. According to CoinMarketCap data, the overall market cap of meme tokens is about 50 billion USD, with a daily trading volume of about 5 billion USD. This level of trading activity far exceeds other sectors. On average, the daily turnover rate of meme tokens is about 11%, while the daily turnover rate for DeFi is about 5%, Layer2 is about 7%, and Layer1 is about 4%. This ratio not only highlights the high liquidity of memes but also indicates a higher interest and trading frequency among users. For meme tokens that are above the sector level, especially those with larger trading volumes, they often become targets pursued by market funds.
Emerging meme coins' price increases and low success rates: New tokens continuously emerge in the meme market, and their price increases sometimes even surpass mainstream cryptocurrencies like BTC. This indicates that the meme token field has high volatility and speculative opportunities. However, among many new memes, taking pump fun data as an example, only less than 2% of launched memes are successful, and currently, only 0.23% maintain a market cap above 1M, meaning the probability of surviving the test of time is extremely slim.
Huge trading volume and new users: Memes can generate massive trading volumes and have a relatively loyal user base. Therefore, for CEXs, listing meme tokens can be an important strategy to attract traffic and users. Taking Binance's spot market as an example, among the top 30 trading pairs by trading volume, 20% are memes.
Chart: CMC's Binance Spot Trading Data
Scarcity of blue-chip memes: Blue-chip level memes appear relatively scarce. Facing a large number of hundreds of meme tokens, those truly deserving the blue-chip label are less than 1%. Taking the memes recorded on Coinmarketcap as an example, although the market is flooded with new memes, few can withstand the test of time and ultimately emerge. Additionally, the market cap distribution in the meme sector also shows a significant 80/20 rule: the entire sector's market cap is driven mainly by less than 10% of top memes. This highly concentrated market cap distribution undoubtedly increases the difficulty of finding genuine value investments in the meme space. If participating in meme investment from a VC perspective, this aligns with the venture capital experience rule of thumb '80/20 rule': about 10% of successful meme investments can compensate for the losses of other meme investments.
Summary
Combining the recent predictions from the highly regarded Murad speech in the meme community, he forecasts that the market cap of memes will reach $1T in the future, implying a 25-fold increase in space, with over 25 memes expected to enter the industry Top 100, as well as VCs purchasing blue-chip memes, etc. Referring to our statistical data, this prediction seems overly optimistic; currently, memes, both in quantity and market cap, already represent a significant sector in the industry. Future development is more likely to break out on Layer1, which itself is also an important soil for memes to grow. The development of memes will undoubtedly push Layer1 forward, leading us to conservatively believe that memes are leveraged Layer1, meaning that when the market improves, there will be around 5 to 10 times the increase in Layer1. However, regardless of the situation, we must acknowledge that memes are a field worthy of long-term observation and research. Therefore, establishing a systematic trading framework can help us better understand and participate in this market full of potential and challenges.
Explore and study memes
As the wave of memes sweeps through the market, combining our previous research on the meme market overview and future trend predictions, we believe that in-depth exploration and study of memes are very necessary research tasks. Through this, we found that the value of memes does not stem from technology or actual applications, but from community enthusiasm and recognition of meme culture. This motivation makes the performance of memes in the market full of uncertainty and volatility, while also bringing unprecedented vibrancy. By summarizing these characteristics, we constructed a clear analytical framework to understand and grasp the potential value and risks of memes.
Basic Characteristics of the Sector
While analyzing a single meme can provide deep insights, a broader perspective is needed to fully grasp the development trends of the entire meme sector. Therefore, we first conducted a comprehensive study and analysis of the basic characteristics of the meme sector. In the current market environment, the meme sector has exhibited the following significant characteristics:
Low entry threshold: The issuance threshold for memes is extremely low; as long as there is a social media account, a Telegram group, and some creative images, a new meme can be easily launched, without the need for product development and application building like traditional crypto projects, where the token itself is the product. The issuance threshold for memes is significantly lower than for traditional projects. As long as there is a social media account, a Telegram group, and some creative images, a new meme can be easily launched. This process does not involve complex product development or application construction, making the token itself the core and direct market-facing 'product'.
Surge in numbers: Due to the extremely low threshold for creating memes, a large number of new memes emerge daily, rapidly expanding the market's token pool and leading to a drastic increase in supply. With the continuous addition of new memes, users will face more choices, while also bringing higher filtering difficulties.
Significant wealth effect: Although the risks in the meme market should not be underestimated, it also offers huge potential returns for early players. The wealth effect of single-token hits and small bets yielding big returns acts like a magnet, attracting many users' attention and stimulating their high engagement and active participation in the meme market.
Market resilience: Memes have shown considerable resilience when facing market fluctuations, able to quickly recover and rebound from shocks. This rapid recovery is mainly attributed to the driving value of community sentiment and the enthusiastic pursuit of funds for memes.
Celebrity effect: The participation of well-known individuals significantly enhances the hype surrounding memes and market attention, thereby intensifying price fluctuations. This celebrity effect not only attracts more attention but may also lead to a series of information arbitrage behaviors, where some top players in the information chain may exploit their influence and information advantage to gain improper benefits.
Low liquidity and limited funding capacity: In the early to mid-stage of memes, specifically during the on-chain market period, the liquidity of memes is not high, which means a considerable portion of their large market cap and trading volume contains significant fluff. Due to insufficient liquidity, large funds encounter higher slippage when buying or selling, resulting in increased transaction friction costs. Thus, the on-chain capital capacity of the meme market is relatively limited, making it challenging for institutions to enter and exit on a large scale without significantly impacting prices. This limitation not only increases trading difficulty but also restricts the depth and breadth of the market, making the meme market more vulnerable when facing large-scale capital flows.
Extremely high trading risk: Due to a lack of actual application support and intrinsic value, many meme prices often fluctuate dramatically, rising quickly before plummeting sharply. Even more concerning is that many memes ultimately face the fate of going to zero, meaning their market value and trading volume drop to nearly nothing. This high-risk trading environment requires us to be especially cautious when venturing into memes, fully recognizing the potential risk of financial losses we may face.
Active trading and susceptibility to manipulation: The frequent trading and huge volumes of memes also indicate significant market interest in them. However, lurking behind this trading volume may be undisclosed manipulated funds. Therefore, unlike VC projects, the meme market resembles a public gambling speculation market where 'you win or lose at your own risk'.
After a thorough analysis of the basic characteristics of the meme sector, we can conclude that the meme sector indeed possesses some distinctive traits that make it stand out in the crypto market. The low entry threshold for memes, the surge in quantity, low liquidity and limited funding capacity, extremely high trading risks, significant wealth effects, active trading and susceptibility to manipulation, market resilience, and celebrity effects collectively constitute this sector's unique ecosystem. For this reason, the meme sector is often seen as a PvP arena, and this is not without reason. In this fiercely competitive field, everyone needs to identify those true blue-chip memes and hidden gems from the vast array of meme coins like prospectors.
Characteristics and Categories
As the meme sector matures, we should no longer be bound by outdated concepts. Standing on the periphery and being indifferent cannot unveil the underlying laws of memes. Today's meme culture has long since transcended the simple image macros of the past; it has become a diversified expression of market sentiment and an important vehicle for communicating with outsiders. Therefore, it is necessary for us to have a basic understanding of its key characteristics and classifications.
Memes have several characteristics, some of which can be quantified by data indicators while others are relatively difficult to quantify and are more qualitative in nature. The key characteristics are roughly as follows:
1. Cultural uniqueness: This is the core of memes. It often originates from specific cultural phenomena or social trends, establishing its unique identity and appeal. Just like the humorous Dogecoin and self-deprecating Pepe, before entering Web3, they attracted numerous fans due to this cultural characteristic, whether through emojis or secondary creations of related expressions.
2. Sustainability: This is a key measure of whether it can exist long-term in the market. A successful meme often transcends short-term trends, forming a lasting cultural impact, similar to the concept of 'diamonds are forever'. The long-standing Dogecoin has accompanied the growth of the cryptocurrency industry and has become the origin of the entire meme. We cannot demand that new memes immediately undergo years of testing like Dogecoin, nor can we fantasize that each one is a BOME that completes its launch on Binance in three days. Therefore, we believe memes should be able to sustain themselves for about half a year to a year, which also aligns with the time cycle that centralized exchanges consider for project launches.
3. Spreadability: This is an important factor in whether a meme can rapidly spread and be widely accepted. A meme that is easy to spread and has good conversion effects can attract a large amount of attention in a short time. Generally, we observe the discussion volume of related memes on social media and the growth speed of community size. For instance, it is a basic requirement for a meme's Twitter followers to reach tens of thousands, and a better standard would be in the hundreds of thousands or even millions.
4. Stickiness or loyalty: Refers to the loyalty and engagement of meme community members. A meme community with high stickiness can maintain long-term participation from its members; even during market fluctuations, members will not easily withdraw. This loyalty is crucial for the long-term success of the meme.
The original Dogecoin brought us memes featuring adorable cats and dogs, but today, some new categories of memes have emerged, integrating and expanding upon past animal memes. Below, we have streamlined the classification of memes; different categories can be combined to some extent:
1. Animal memes: Based on animal imagery, these express emotions or viewpoints through humorous text, and are widely loved for their cuteness and approachability. The most famous examples undoubtedly include Dogecoin featuring dogs and Pepe the Frog.
2. Celebrity hype memes: These creatively rework by leveraging the influence of celebrities or public figures, focusing on capturing their statements and behaviors, and using imitation or parody techniques. Typical examples include memes derived from Elon Musk's tweets, personal profiles, and avatars, such as 'Troll'.
3. Political figures and events memes: These use humor or satire to reflect political figures or events. Representative memes include slogans generated from Trump's campaign activities and memes arising from sudden events, such as MAGA and FIGHT. Additionally, there are related memes that misspell Trump and Biden's names.
4. Cult culture memes: Originating from the popular culture of specific groups, these contain specific symbols or tropes that can only be appreciated by those who understand the context, and their uniqueness and exclusivity make them favored by specific groups. Such memes bear some resemblance to the past DAO concepts, with representative examples including the PEOPLE meme, which started with fundraising auctions to purchase the U.S. Constitution and then transformed into a people's code.
5. IP Derivative Memes: Token creation based on traditional anime IP or well-known NFTs, leveraging their existing popularity to attract corresponding target fan groups. For example, the associated memes launched by the NFT project mfer, which once featured a 'sick culture'.
6. Mechanism-based memes: Early mechanisms featured special setups, such as fair distribution, destruction, buy-sell tax repurchase, etc. Nowadays, they mainly refer to memes issued using emerging AI technology. The hottest is the first meme goat GOAT created by Terminal of Truths.
Dogecoin/Troll/Maga/People/mfer/GOAT
Memes exhibit unique cultural characteristics and audience bases across different categories, influencing their sustainability, spreadability, and community stickiness. Among these categories, animal memes and cult culture memes, due to their deep cultural foundations and loyal fan bases, are deemed suitable for long-term attention. In contrast, other categories of memes are often associated with short-term trends, and their attention and popularity may rise sharply and then fall back quickly. To quickly recognize and understand the core features of various memes, we provide the following evaluation framework.
Primary market and launch platforms
In-depth observation of the birth process of the primary market for memes is helpful for understanding memes, especially those based on public chains. Even after several years, it is still possible to see the initial liquidity establishment. Taking SHIB as an example, we can learn about its astonishing market cap growth by examining the initial transaction when SHIB added liquidity pools. Initially, SHIB's market cap was only equivalent to 20 ETH, valued at about 10K USD at that time. Converting to today's ETH market price, SHIB's initial market cap was merely 50K USD. For a meme that grew to a billion-level market cap within a year, its wealth growth effect is undoubtedly highly attractive and has significant publicity value.
https://dexscreener.com/ethereum/0x811beed0119b4afce20d2583eb608c6f7af1954f
https://etherscan.io/tx/0x7f1be2ac40313400c83f23fbe3926bf6bf1d6b2b363264b3016444ea28fe21c7
As a leader in meme culture, SHIB's brilliant achievements have inspired the birth of numerous memes. However, not all memes can sustain development in this wave. Users face many challenges when participating in these memes, such as bizarre circulation volumes and initial market caps, as well as a series of security issues, such as sudden withdrawals from liquidity pools, buy-only but unable to sell pixiu platforms, token issuance, and ticker confusion due to inconsistent or case-sensitive names. These factors not only undermine user trust but also pose challenges to the robust growth of the entire meme.
This situation continued until the emergence of meme launch platforms like pump.fun. Although it specifically targets low market cap memes, pump.fun successfully promoted a standardized meme mechanism, including the use of bonding curve pricing models, unified total token supply, platform-backed contract security, standardized initial circulation pool additions, and destruction. These standardized practices not only enhance the transparency and credibility of memes but also provide a solid foundation for the healthy development of the meme ecosystem.
Due to pump.fun's regulations on memes: liquidity will not transfer to external DEXs until the bonding curve is 100% completed, and trading can only occur within pump.fun. Therefore, players habitually refer to memes that have not completed the bonding curve as 'internal transactions'. On the pump.fun platform, the total issuance of meme tokens is set at 1 billion, with about 800 million sold in internal transactions. When internal sales reach their limit, approximately 85 SOL will be consumed. After pump.fun charges 1.5 SOL as a handling fee, 20% of the tokens will be minted, paired with 79 SOL, and then launched on the Raydium exchange. At this point, the initial circulating market cap of the token is set at 69K SOL. This process not only ensures liquidity management for meme projects but also provides a clear reference for setting the initial market cap of the projects.
For readers who want to delve into numerical simulations of the pump.fun protocol, Gryphsis Academy offers a detailed article titled 'Pump.fun Protocol Insights: From Bonding Curve Calculations to Profit Strategy Development'. This article not only explains how the pump.fun protocol works in detail but also provides profound insights into how to utilize bonding curves for numerical simulations. (Migration fees vary in real time based on official settings, currently at 1.5 SOL)
Currently, pump.fun is focused on launching low-market cap memes, but this does not mean that these memes have limited ceilings. Recently, two memes launched through pump.fun have successfully listed on top exchanges (in contract form). This achievement not only promotes the meme launch activities of pump.fun but also brings significant economic benefits to pump.fun. Consequently, new products challenging the status of pump.fun have emerged on the Solana chain, such as Moonshot, while other public chains have also seen meme launch platforms imitating pump.fun, like Tron’s Sunpump, all actively competing for shares of the meme market.
In terms of launch mechanisms, Moonshot's main improvement over pump.fun lies in the support for adding initial pools from different external DEXs, as well as variations when the initial market cap is filled. Apart from this, the differences between the two in other aspects are not significant. As for Sunpump, its overall mechanism is similar to pump.fun. Since the industry generally follows the 'first is first' principle, it is difficult for new entrants to achieve significant outperformance even through incentive methods such as token airdrops. Next, we will combine Dune's data to gain deeper insights into the data performance of pump.fun, Moonshot, and Sunpump, to evaluate their performance and competitiveness in the market.
According to Dune's data, the pump.fun platform shows a clear leading advantage in key indicators such as the number of token launches, revenue, and the number of new addresses participating. Specifically, on October 23 (at the time of writing), the number of tokens launched on pump.fun reached an astonishing 34,027. In terms of revenue, pump.fun's performance is also remarkable, generating over $2.09 million in revenue within 24 hours. Additionally, the growth of daily active addresses reached 107,355, of which 43,760 were new wallets, reflecting high user engagement on pump.fun. These data points collectively portray pump.fun's strong performance and broad user base in the meme market.
https://dune.com/adam_tehc/memecoin-wars
In contrast, the Ethereum mainnet, which is a traditional meme launching ground, has not produced any truly successful meme launch platforms, with the only recent launch of Vista's Etherfun platform not gaining much attention. Of course, this may relate to the mainnet's TPS and high gas fees, as launching low-market cap memes requires fast and low-cost transactions to achieve numerical advantages. Perhaps in the future, we may see some changes and developments in meme categorization on better Layer2s.
Lifecycle and Pricing Logic
The lifecycle of memes is unpredictable; their lifespan can range from just a few minutes to several years. Memes that can withstand the test of time and continue to be popular generally go through several different development stages. We outline the basic evolutionary process of memes from the early stages on DEX to the mature stages on CEX. During this process, key indicators such as market cap and community size show significant changes.
In the analysis of market cap and user quantity, we utilize some steadily developing meme projects to form preliminary judgments. According to the holder analysis from 0xScope, it was found that the number of retail holders is generally far greater than other types of holders (such as whales and large holders), and the market cap of tokens they hold is about 20% to 25% of the total market cap. By analyzing the average purchase amount of meme coins held by retail holders, we can estimate the market cap data.
Taking a meme coin with a market cap of 1 million USD as an example, the holding value of retail holders is about 200,000 to 250,000 USD. Assuming there are about 1,000 holders, the average value of meme coins held by each person is about 200 to 250 USD. This figure is within a reasonable range for single coin purchase amounts among crypto users.
This estimation method provides us with an intuitive perspective to help assess the correlation between memes in different market cap ranges and user participation.
https://dune.com/dyorcrypto/memecoins
Of course, based on the rough pricing above, we can attempt to find more precise methods or frameworks to assess the fair value of memes. For this, we can adopt a similar approach to value investment valuation. Researching and studying existing meme valuations and their related data, statistically analyzing the valuation changes of different types of memes at various development stages, as well as the dynamics of on-chain data.
Generally, the initial price of memes is usually determined by the AMM model based on market supply and demand dynamics. Once the initial price is determined, the market cap of memes can be calculated by multiplying the price by the circulation amount. It should be noted that this market cap will fluctuate with changing market conditions and liquidity pool dynamics.
According to the constant product formula of AMM, the growth curve of fund inflow, the proportion of tokens in the initial liquidity pool, and selling pressure will all impact market cap. The simplest mantra of the basic model is: when market cap doubles, net inflow funds double; when market cap triples, net inflow funds are three times. However, this does not yet include some complex factors, such as:
1. Transaction fees paid to liquidity providers (LP);
2. The flow of funds into and out of liquidity pools (LP pools).
In the dynamically changing market, pricing models cannot be ideal; thus, we need to combine other indicators to estimate the fair price of memes, such as trading volume, number of transactions, distribution of holding users, etc. Of course, this is a cost-driven market cap thought process. As costs continue to increase, the market cap of memes should also rise correspondingly. When breaking down these costs, the first thing to note is the transaction fees brought by trading volume. These fees constitute the main cost of maintaining market cap. In addition, there are other hidden costs: every transaction incurs gas fees payable to the blockchain network and the time-cost of funds for holding users. The cumulative effects of these costs may have a significant impact on the overall market cap of memes. We believe this can partially explain the fair value of memes, but it is not a universal pricing formula.
Blue-chip memes from the VC perspective
From the data, memes have already evolved beyond being just a niche phenomenon; they now have their own distinct features, and as VCs, everyone is paying attention to this sector. Therefore, just like investing in other projects, VCs need to find those blue-chip memes that can withstand market fluctuations and demonstrate stable performance.
To identify quality memes, it is typically important to focus on several key characteristics: sustainability, spreadability, and community engagement. A quality meme should have long-term appeal, be easily spreadable, and have enthusiastic community support. These factors form the foundation of meme success.
For community-driven or capital market management team-led memes, it is crucial to understand the main participants driving the project. This may include whales or other key stakeholders. Understanding these backers is essential for assessing a meme's potential and credibility. In the absence of market capitalization management, the community plays an important role in meme projects. Their enthusiasm and engagement can influence the meme's popularity and market cap. Collective actions, often unconscious, such as promotions and discussions on social media, can greatly enhance the spread and acceptance of memes. Therefore, the role of the community in meme projects cannot be ignored; it directly affects the success or failure of the memes.
For this reason, we believe that the PvE memecoins proposed by Murad in his Supercycle speech are very vividly illustrated; see the two images below.
Conclusion
Memes are becoming a new battlefield for VCs, testing whether VCs can keep pace with market trends, while on-chain Degen user movements also provide VCs with a window into user demand. However, memes do not directly open their doors to VCs. The so-called Supercycle theory easily traps VCs in FOMO. Harsh data shows that we should not be blinded by survivor bias; successful memes are merely a minority. Therefore, to achieve success in the meme space, VCs must invest significant time and effort to unearth those true blue-chip memes. This battlefield is not a place where broad net investments can yield rich returns.
Reference
dogecoin: https://dogecoin.com/
pump.fun: https://pump.fun/
Vista's etherfun: https://etherfun.app/
0xScope: https://0xscope.com/
CoinMarketCap: https://coinmarketcap.com/
gmgn: https://gmgn.ai/
dogwifcoin: https://dogwifcoin.org/
Murad: https://x.com/MustStopMurad
Dune Memecoin Wars: https://dune.com/adam_tehc/memecoin-wars
Pump.fun Protocol Insights: From Bonding Curve Calculations to Profit Strategy Development https://www.techflowpost.com/article/detail_18340.html
The initial trading pool of SHIB: https://dexscreener.com/ethereum/0x811beed0119b4afce20d2583eb608c6f7af1954f
The first LP addition transaction of SHIB: https://etherscan.io/tx/0x7f1be2ac40313400c83f23fbe3926bf6bf1d6b2b363264b3016444ea28fe21c7
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