Source: Talk Li Talk Outside
On Monday (November 4), Binance Research released a research report on MemeCoins (Understanding the Rise of Memecoins). However, I found that very few people seem to have the patience to read through the content of this report. Therefore, in this issue, we will provide a simple summary and interpretation of this report.
The original research report is as follows:
(Image source: https://public.bnbstatic.com/static/files/research/understanding-the-rise-of-memecoins.pdf)
This report mainly summarizes insights from several aspects including Narratives, Cultural, Accessibility, Risks, and Future Predictions.
Next, we will officially begin interpreting this report:
From 2022 to 2024, the total market capitalization of MemeCoins in Total3 (excluding BTC, ETH, and stablecoins) has more than doubled, increasing from 4% to 11%. However, it is worth noting that this percentage is still lower than the peak of 12% in 2021, when the market caps of DOGE and SHIB reached 80 billion and 39 billion dollars, respectively.
So, why have participants in the crypto market been attracted to this category of assets called MemeCoins over the past time? Perhaps fair launch, accessibility, and transparency are fundamental factors contributing to this outcome.
Of course, this also includes some other comprehensive factors, such as:
1. Macroeconomic Background
One way to understand and explain market participant behavior is to examine macroeconomic conditions, as this broader context drives people to speculate on MemeCoins as non-traditional financial instruments. For example, the Covid-19 crisis that broke out in 2020 led to an unprecedented increase in the supply of fiat currencies by global central banks. Between 2020 and 2022 alone, the total supply of global fiat currency increased by over 25%, from $81 trillion to $102 trillion.
Here we can briefly explain that with the expansion of the money supply, prices of global goods and services began to rise, leading to the well-known phenomenon of inflation. Taking the United States as an example, by then, inflation had reached very high levels, with a year-over-year growth rate of 7% in 2021 and 6.5% in 2022.
In this context, we find that rational individuals facing continuous depreciation of fiat currency will invest their assets in what they believe to be long-term valuable assets to avoid value loss due to currency depreciation. Among these assets is real estate (referring to the United States), where we can clearly see that home prices have been on a long-term upward trend since 1963. At the same time, people's wages have failed to keep up with home price increases; over the past several decades, the average wage required to purchase a typical home has nearly doubled, from 4.4 years in 1963 to 8.1 years in 2021.
Similarly, under this background, certain special types of 'financial nihilism' may grow, especially among the younger generation. Due to persistent high inflation and the depreciation of fiat currency, many people may begin to lose faith in traditional beliefs, and this sentiment seems to be spreading rapidly. In the crypto market, the buying group of millennials and Gen Z (referring to those born between 1995 and 2009) accounts for 94%. This is also understandable; when the younger generation loses confidence in their ability to gradually become wealthy, they will seek unique ways to get rich quickly, and the crypto market just meets this demand.
2. The legendary Gamestop incident
Those who experienced the last bull market cycle should be familiar with Gamestop. The 2021 Gamestop Short Squeeze event reflected a shift in the mindset of many young people, who began to question traditional financial structures.
The rise of MemeCoins currently seems to echo certain aspects of the legendary Gamestop incident from years ago. The Gamestop incident demonstrated the community and cultural movement's ability to create prices for financial assets, and this phenomenon of community and cultural movements is also a major reason driving the emergence and explosive growth of many MemeCoins. The difference is that MemeCoins appear to be more transparent and decentralized overall, as they are shaped by blockchain technology and digital culture into a new financial system.
In terms of MemeCoins, they may not generate any real value; in other words, their symbolic value is greater and not driven by traditional valuation metrics, but they may resonate with like-minded investors due to interesting narratives and culture.
In short, the Gamestop phenomenon and the MemeCoin phenomenon we see today may be viewed as the younger generation of participants voting with their capital against existing TradFi systems, fiat currencies, and the broader socio-economic system.
Next, we will continue to interpret the intrinsic value of MemeCoins:
1. Low survival rate of projects
Memecoins are a new type of asset based on blockchain technology and internet culture, completely unbound by traditional financial systems.
In 2017, the ICO boom led to countless new teams and projects sprouting up like mushrooms after rain. Many projects claimed to be building the next revolutionary product on the blockchain, thereby attracting more retail attention and participation.
However, many project teams were selling investors more of a narrative story or idea at that time, without even having corresponding products; they could start attracting retail funds just by making a random PPT. This also led to many scams at that time; of course, some people made their first pot of gold during that boom.
Nowadays, the craze for ICOs has become history, as ICOs later faced dissatisfaction from global regulatory bodies. Gradually, some ICO projects began to shift to private venture capital rounds to continue raising funds. Especially in recent years, this venture capital financing approach has shown significant growth, leading to the entire crypto project being overshadowed by the issue and shadow of 'low liquidity, high FDV.' Many new altcoins face a massive supply release over the next few years, which will make retail investors the scapegoats for early venture capital investors.
In this situation, retail investors gradually became aware of the issue and began to steer clear of 'low liquidity, high FDV' VC projects, turning instead to engage with MemeCoins that seemed relatively fair and transparent.
Therefore, if this trend continues, MemeCoins may continue to grow and remain popular among retail investors. A possible new outcome of this is that some institutions may also start participating in MemeCoins, as wherever there are a large number of retail investors, institutions will need to go there to harvest profits.
2. More easily understandable narratives
Compared to some altcoin projects supported by complex products, MemeCoins seem more acceptable to new retail investors or less mature (without mature investment methods) retail investors. Sometimes, just a cute avatar and a group of people's excitement can attract more newcomers to join and buy. For example, compared to Layer2 or DeFi, which are complex concepts and projects that new users find difficult to understand, MemeCoins are easier for new users to accept and understand.
In other words, the user conversion time for MemeCoins is much faster than that of technical altcoins. This could allow MemeCoin narratives to spread faster and wider, quickly attracting more retail buyers and building a community to further promote speculative speed.
On the other hand, this will also lead to extremely fast-paced market dynamics and the adoption rate of new products. Capital will flow into new MemeCoins faster than ever before. For instance, WIF reached a market cap of 1 billion dollars in just 104 days, while the original SHIB took 279 days, and DOGE took 8 years to achieve.
At the same time, the speed of creating new MemeCoins is faster than ever. Currently, over 75% of all MemeCoins on-chain were created in the past year.
Next, we will interpret some aspects related to risks:
1. Low survival rate of projects
From the data above, we know that currently over 75% of MemeCoins were created in 2023 and 2024. However, from another dimension of data, we can clearly see that 97% of MemeCoins have gone to zero (or are close to zero trading volume).
Although some MemeCoins have proven to withstand the test of time, such as the well-known DOGE existing for 10 years and SHIB for 4 years, it cannot be denied that the survival rate of the vast majority of MemeCoins is very low.
In short, rapid growth and speculative effects have made MemeCoins a very popular investment tool with huge return potential, but this effect heavily relies on market sentiment. People can hardly assess or evaluate their value through any fundamental assessment methods, making MemeCoins highly risky and a category of assets with high loss risks.
2. MemeCoin Cabals
Although the core value proposition of MemeCoins is primarily reflected in their fair launch, accessibility, and transparency, we cannot deny that even so, the problem of retail investors being ruthlessly harvested cannot be avoided.
Certain cabal groups (also known as conspiracy groups), including some KOLs, are hyping various MemeCoins to seek and exploit retail investors to enter and take over. Although on-chain transaction records are publicly transparent and can be checked, allowing retail investors to see specific token holding addresses and transaction data through some on-chain tools or browsers, the so-called higher power still has methods to evade detection by retail investors.
At the same time, cabals will collaborate with some KOLs to promote specific tokens, thus triggering hype and FOMO emotions on social media, creating a false sense of prosperous trading to lure more retail investors to join and take over.
3. Lack of technological progress and innovation
Currently, capital and attention in the crypto industry are overly concentrated in the MemeCoin space, largely no longer focusing on driving technological development and innovation. The current MemeCoin narrative, although it has given rise to a vast number of projects and numerous so-called derivative products, does not differ significantly from the past in many aspects of hype surrounding MemeCoins.
Looking back to the DeFi Summer of 2020, with the explosive popularity of the Uniswap model, various DEXs emerged on different chains, and the corresponding DEX tokens were used for farming, ultimately being sold off as market sentiment changed. In the later stages of that phase, there was almost no meaningful differentiation or innovation, as many DEXs were redesigned forks based on Uniswap V2.
This situation seems to have occurred again in the current MemeCoin space. Although new MemeCoins can bring some fresh themes and narratives, a large number of similar tokens may lead to market saturation. Taking dog-related MemeCoins as an example, with the rapid occurrence of new ideas and iterations, whether it’s a dog in a sweater at first or a dog wearing sunglasses later, the marginal effect of such iterations will significantly diminish. The direct result of this is that, in the absence of innovative technology or ideological progress, MemeCoins will inevitably lead to sustained inefficiency.
At the end of the article, let's make some forecasts and outlooks on the future of MemeCoins:
Altcoins and MemeCoins have different levels and angles of appeal, targeting different types of investors (or speculators).
For those investing in altcoins, they may be more interested in purchasing a form of value or the development potential and vision corresponding to that value. In contrast, for those investing in MemeCoins, they may be more concerned with buying those that can be transformed into some form of ideology, narrative, or social movement.
From a long-term perspective, the success of altcoins requires creating and sustaining useful, sufficiently differentiated products that truly fit the market. The success of MemeCoins may need to create and sustain differentiated, unique narratives and stories that have long-term appeal to a sufficient number of groups.
Summary:
Overall, the core principles of Web3 are transparency, fairness, and decentralization. The rise of MemeCoins is an exciting new trend, at least proving that blockchain technology can unite people globally.
But in the short term, retail investors may be more concerned with how to make money from MemeCoins. Here, we will provide a brief summary based on Binance Research's report.
- Understand and study market sentiment
MemeCoins are more driven by community and market sentiment hype. In this respect, we can utilize some on-chain tools previously introduced in articles about the MemeCoin series, such as DexScreener, GMGN, Bullx, Dexx, etc., for necessary on-chain filtering and mining work.
- Seek tokens with high transparency
Fairness may sometimes just be a slogan; we need to utilize some channels or on-chain tools to search for and analyze those tokens with high transparency. For example, tokens issued directly on DEXs often lack transparency and may have many snipers, insiders, and VCs waiting to sell off after retail investors take over. In this respect, we can pay more attention to tokens that are fairly launched and listed on DEXs through platforms like PumpFun (of course, this is not absolute, just relatively better).
- Appropriate diversification strategy
As mentioned earlier, the survival rate of MemeCoins is very low, so we need to implement appropriate diversification strategies to avoid severe losses from overly concentrated investments. In other words, even when gambling, never put all your bets on a single coin, as the volatility of MemeCoins is high; you might lose everything in the blink of an eye.
- Pay attention to unique narratives
Generally speaking, MemeCoins with unique narrative stories (such as the recent concept of AI + Memes) are more likely to attract more user attention and quickly form loyal communities; this is something we need to keep an eye on. Moreover, the concepts or stories that can be easily understood by most people have higher chances of success.
- Try to guard against cabal groups
In general, a sudden price change in a token may indicate that there are organized efforts behind it to pump and dump, especially with the push of KOLs. Do not be overly trusting of some KOLs' calls and recommendations; only focus on those you consider trustworthy. Additionally, try to use some on-chain tools for data analysis to avoid participating in tokens with overly concentrated supply and signs of wash trading. As for specific identification tools and methods, previous articles in the Talk Li Talk Outside MemeCoin series have also provided some relevant sorting, interested partners can search and revisit historical articles.
- Prioritize liquidity issues
It is important to focus on those tokens with good liquidity across major platforms, which can greatly avoid purchasing scam tokens. Additionally, pay attention to whether liquidity is locked or destroyed; if the risk appetite is low, then consider buying those MemeCoins that have already been listed on major CEXs, as these tokens often have better liquidity and credibility. However, it is also important to note that certain wallets in the market may have instances of wash trading; for example, some partners in the group have reported buying Pixiu coins on the OKX Web3 market trading volume leaderboard.
Finally, always remember the two basic principles of trading: first, protect your capital; second, if you don't understand something, don't touch it. Before deciding to purchase any project, make sure to manage your positions and conduct DYOR (Do Your Own Research).
