Original author: Honest Mai (X: @Michael_Liu93)
I haven't written such a long article in a while; this is a piece with a strong "investor flavor" because the logic needs to be interconnected, which may not be very easy to read. However, if you read it carefully, it will definitely give you a new understanding of the cryptocurrency market and the Meme track. Today, from an "institutional investor's perspective," I will attempt to answer three questions:
1. Has the cryptocurrency industry already ushered in mass adoption?
2. Will Memes become the killer application that opens up mass penetration of the cryptocurrency market? What is the underlying logic of the Meme track?
3. At what stage is today's Meme market in the cycle?
1. Has the cryptocurrency industry already ushered in mass adoption?
Before discussing Memes, I want to ask everyone a controversial question. Do you think the cryptocurrency industry has already ushered in mass adoption? The two extreme viewpoints I often hear on this question are: one side says that cryptocurrency has already achieved mass adoption, Wall Street has entered, and retail investors who should buy coins have already bought them. Where are the newcomers in this cycle? The other side believes that it has not yet been popularized and often compares it to AI, because the cryptocurrency market has not seen a killer app like ChatGPT with over 200 million users.
I believe both sides are correct, but essentially they are discussing two different things: one is discussing mass adoption, while the other is discussing mass penetration. What is the difference between these two points? I will try to explain what I mean using the history of the development of the internet in the US.
In 1995, the computer penetration rate in the US was about 40%, with approximately 85 to 90 million Americans using computers. Meanwhile, the internet penetration rate in the US was only about 13%, totaling 25 million users. So in 1995, one out of every three computers in the US was connected to the internet. It might be hard for you to imagine what the other two computers were doing at that time. The remaining two computers were being used as calculators and typewriters (since computers began to gain popularity in work scenarios and only gradually entered household scenarios by the end of the 20th century).
Why did I choose 1995 as an example? Because the 40% computer penetration rate in the US in 1995 is precisely equivalent to today's digital currency penetration rate in the US. Yes, by 2024, 40% of the US population will hold digital currencies, totaling about 93 million people. Next, if we compare "going on-chain" to "going online," we can see that Solana's largest wallet, Phantom, has around 7 million monthly active wallets, while Ethereum's largest wallet, Metamask, has about 30 million monthly active wallets (both taken at the highest values available). Assuming that Americans comprise half of the on-chain users, and each person has three wallets, a rough estimate puts the number of on-chain users in the US at about 6 million. Of course, this estimate is not completely accurate, as there are many other wallets, and the average number of wallets per person may exceed three. The assumption that the US accounts for half of the global on-chain player count may also not be accurate, but since I have taken optimistic assumptions, regardless of how it is calculated, the number of people "going on-chain" in the US is unlikely to exceed 10 million, which means it occupies at most about 3% of today's total US population.
Thus, today’s cryptocurrency industry is in an even more awkward position than the internet industry in 1995. The 40% penetration rate of digital currencies is already clearly sufficient, but the less than 3% on-chain penetration rate is evidently still too low, even less than the 13% internet penetration rate in 1995.
This is why I say that when everyone is discussing whether crypto has been mass adopted, both sides are correct; they are just discussing different dimensions. One side talks about the penetration rate of "computers = digital currency," while the other side discusses the penetration rate of "the internet = on-chain applications." (It's worth mentioning that the internet penetration rate in the US was at 3% in 1993, and from 1994 to 2000, the US internet penetration rate rapidly grew from 3% to 43%. So what happened in 1994? The Netscape browser appeared, which was the first killer application of the internet era. A truly killer application can drive rapid growth in the overall industry penetration rate.)
As I write this article at my desk, I can imagine that the pioneers who first went online in 1995 were probably discussing the same issues we face today, feeling that computers have already been so popular that there seems to be nothing that is "impossible without a computer." Going online feels somewhat tasteless yet regrettable to abandon, purely for love. Isn't this how we feel in the cryptocurrency industry today?
So what happened from the emergence of the internet to its large-scale popularization? The first batch of online users must have been the most geeky individuals, using the first batch of useless applications on the internet, such as online radio, online TV, and online phone books, which were already satisfied through offline means at that time. They went online purely out of love for novelty.
As the first batch of computer users went online, the first batch of "killer applications" gradually emerged, such as email and e-commerce (although e-commerce at that time was still much more complicated than offline shopping, and could be considered a pseudo-demand, such as when Amazon, in its early days selling books, realized this point; they could only compete with offline bookstores by selling niche books that offline retailers seldom sold). With the growth of the number of internet users, user dividends brought about the possibility of new killer applications emerging. For instance, when you have only one friend using WeChat versus having 100 friends using WeChat, your motivation to download WeChat is completely different (many times whether an application is a killer or not depends on the user base; telephone, email, and social networks are the most typical examples).
So you can see that after the number of internet users reached the threshold of quantitative change, the speed of innovation began to accelerate, and the frequency of killer applications appearing increased. Every couple of years there is a wave of innovation. The first batch of VC investors in China from 2000 to 2020 should empathize the most with the evolution of this process (I entered the industry in 2016, just catching the tail end of the internet era).
2. Will Memes become the killer application that opens up mass penetration of the cryptocurrency market? What is the underlying logic of the Meme track?
If we take the internet era as a reference, the explosion of the internet must be based on the premise that computers were already sufficiently popular. For the cryptocurrency industry today, with a 40% penetration rate, it has already become sufficiently popular, but we are like the first batch of internet users in 1995, still looking for that killer application that can bring hundreds of millions of users on-chain, and I believe I see the shadow of a killer application in Memes.
I previously discussed this concept in my space. I believe memes are a new form of streaming media, the TikTok of the new era. Have you noticed that since you started using http://pump.fun, your time spent on TikTok has decreased? Or even stopped? Both are products of the attention economy and are products of the larger historical context. TikTok is a product of a generation whose time is increasingly fragmented, seeking brief and timely dopamine amidst the hustle of work and life; it is fast entertainment. In contrast, memes are a form of entertainment urgently needed by young people in the context of social class solidification, a way to take a gamble; it is "poor entertainment." One satisfies lust and laziness, while the other satisfies greed. Essentially, both satisfy the most basic "original sin" of human nature in the dopamine business, which is why everyone tirelessly scrolls through TikTok or pumps memes for 24 hours. It's truly addictive.
If I compare the various "terms" of TikTok with memes, you will understand better:
1. Content creator = dev/project party (producing content = producing meme schemes)
2. TikTok recommendation algorithm = meme KOL (the recommendation algorithm determines what content you see, while the meme KOL determines which meme coins you will pay attention to; both are the core positions for distributing traffic)
3. Traffic monetization = market makers (by pumping and dumping to draw more attention to their memes and helping the project parties monetize in the process)
4. Advertising placement = dexscreener, CMC, TikTok ads (attracting retail eyeballs and traffic)
5. Professional Generated Content (PGC) = Strong market schemes
6. User Generated Content (UGC) = Purely CTO schemes
7. Junk advertisement videos = Rug pull if
If you can understand the logic above, then by using the development path of TikTok as a guiding stone for the meme industry, the meme industry will likely have the following trends in the future:
1. The division of labor in the industry chain will become increasingly detailed and specialized. Those who are not professional in each link will gradually be eliminated, including devs, project parties, KOLs, and market makers. This is an extremely strong market where the strong get stronger.
2. Initially, there are UGC contents (purely community schemes), but over time, traffic will increasingly concentrate at the top, and new content will become more PGC (strong market schemes). UGC content will gradually fade from view (but you can still see hidden UGC that is actually produced by professional teams, because some audiences prefer UGC styles, and these schemes also aim to cater to this group). The logic is simple: on Solana, any scheme that can take off must have a market maker pushing it from behind, with high control pulling in attention. Professional marketing teams are needed to tell the story well, and then during the upward trend, the market will gradually disperse the chips until a strong community is formed over time. Therefore, it’s always strong market makers first, then building a strong community. That’s why I emphasize countless times in spaces that good meme coins are always a mutual achievement between market makers and retail investors. You need to look for “good market makers,” check the quality of the produced content, analyze the trading methods of market makers, and observe the dedication of the team in community operations.
3. KOLs ultimately compete in their ability to match high-quality "content." Whoever does the best project research and can find the highest quality "content" to push to fans, enabling fans to make money, will have larger traffic. This creates a positive feedback loop. Those who have studied Murad closely will understand how he operates. If your TikTok recommendation algorithm constantly feeds you junk videos—if you are female, and it shows you videos of beautiful women dancing with a heavy tea flavor; if you are male, and it shows you how to choose cosmetics—you will likely keep clicking "Not Interested" to adjust your recommendation algorithm. This is also why I believe that in the future, rug developers are likely to decrease (as long as you don’t go panhandling in the internal market), because KOLs are gradually becoming more specialized and they won’t want to call out junk schemes. Every call-out is a hit to their most valuable resource: traffic. Therefore, this group of rug developers will find it increasingly difficult to push traffic (of course, matrix accounts and scam KOLs will always exist, but every time they scam, their "influencing" ability will drop a level until no one pays attention to them anymore).
4. Top content creators will gather more and more traffic. The meme track is also like this; top schemes will crazily siphon blood from long-tail schemes. In the future, the meme track will produce top "Meme schemes" like Xinba, Xiao Yang Ge, Li Jiaqi, Wei Ya. Think about those secondary market meme traders; won't everyone want to "stock up" on memes like PEPE, WIF, POPCAT, SPX, which have already shown strength and have very large communities? (But this does not mean that there won't be new "content creators" emerging; there will definitely be new Memes popping up.)
I present the underlying logic so starkly that it may make some people uncomfortable, but this is the truth, and such a trend has already occurred. You must first understand the truth of the game rules in order to win in this game; don’t you think?
3. At what stage is today's Meme market in the cycle?
First, let’s take a look at the current user data for Pump fun. It can be checked on Dune, where Pump fun currently has around 150,000 daily active wallets. During the peak of Solana memes two weeks ago, it reached a maximum of 200,000 daily active wallets. If we divide this by the previously discussed Phantom's 7 million monthly active total, we get a rough penetration rate of about 2.9%. So, merely considering the user count of Phantom, Pump fun is still far from being a mass penetration.
In addition to looking at the number of participants in internal gameplay like Pump fun, we can also look at the number of holders of the largest meme coins to roughly understand the scale of on-chain players (many addresses are inflated, so the actual result will likely be lower; my personal judgment is that the address count/user count is at least 2-3 times). Currently, WIF has 190,000 holding wallets, Popcat has 110,000, Bonk has 11,000, PEPE has 270,000, and SPX has 25,000 (this somewhat exposes whether Murad's constant promotion of SPX is truly backed by a strong community).
So regardless of whether we look at Pump fun's user data or the wallet data of the top blue-chip memes, you will roughly get a number within the range of 200,000 to 300,000. Therefore, the penetration rate of Memes among the current users who already have wallets on-chain is also around 3-5%. Just considering this group of on-chain users, there are still several million who have not been penetrated by Memes, which means that the current Meme user scale is 20-30 times.
If we assume that Memes will also penetrate a portion of users who were previously trading on exchanges onto-chain, we need to refer to the total number of global cryptocurrency users, which is around 500-600 million. This means that a 1% penetration rate could bring 20-30 times the incremental users, while a 10% penetration rate would be 200-300 times.
And if we consider Memes to be the true killer application of Web3 and will become the TikTok of the new era, we can look at TikTok's data from November 2024: 700 million daily active users, which is currently 2000-3000 times the total number of meme players worldwide.
This is the best era for cryptocurrency entrepreneurs and investors.
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