Source: Primitive Ventures
Original author: YettaS, Primitive Ventures Investment Partner (X: @YettaSing)
"Yetta, are you anxious about the current market?" This was a question someone asked me seriously at a dinner party. I was stunned at first, not understanding why we should be anxious, "Because many people think that Meme is popular and VC coins are going to die, haha." The biggest discussion at DeVCon this time was indeed about Meme. My colleagues joked that talking about Level 1 delayed the speculation of Meme, and some people also asked whether we included Meme in our asset allocation.
To be honest, we are not really anxious, or we have roughly anticipated this situation at the beginning of the year. Primitive is an evergreen fund without external funds, which allows us to look at this industry from a long-term perspective. We are not under pressure to deploy funds, and we do not need to explain to LPs who do not understand our industry why we invest in any track for the purpose of fundraising (LPs are often a huge pressure). All we do is follow our curiosity to learn about the value of this industry and where the talent flow is.
In the Crypto market, which is a primary-secondary market and a secondary-bubble market, the definition of VC is closer to its essence: Bet on Things with Venture Return. It is meaningless to follow any ideology or participate in any political struggle. Learning from the market is the key.
First, let me talk about our understanding of the structural changes in the industry.
At the beginning of this year, we reviewed a lot of changes in the industry structure and wrote this internal report "Cycle of Front Running". TLDR: The polarization of our industry is getting more and more serious. On the one hand, the industry has grown in size, and TradFi has integrated a large amount of Crypto assets into Wall Street through compliant means such as ETFs. This part of liquidity has been taken away and it is difficult to convert it into our on-site funds; on the other hand, the strong expansion of populist capitalism has further compressed the attention economy, and the entire financialization process has become more and more simple and crude. The most Crypto Native way has become to directly speculate on Memes, which is also an area that TradFi cannot reach.
In such a macroeconomic and social context, the liquidity in the market is constantly shrinking. In the past, we said that Barbell Strategy hoped that the two ends could merge, but the result was just the opposite. Our polarization became more and more intense. As a result, it became increasingly difficult for our industry to find the middle ground.
Who are these intermediate states? Including all the institutions that benefited from the grassroots era. Offshore CEX, Trading Firm, Crypto financial service providers, and VC, no one can avoid it.
This structural change will make Offshore CEX anxious. CME's Future OI has surpassed Binance. If mainstream currencies are increasingly traded in compliant trading venues due to the entry of TradFi, and Meme can also Pump out projects of more than 1B on the chain, then is Binance's space being squeezed?
In addition to Offshore CEX, how can Market Makers who used to rely on Crypto break out of the situation when they see Wall Street’s high-frequency quantitative teams bringing their own infra and funds into the market? With their decline, the presence of third-party financial institutions that serve them is also getting weaker, not to mention VCs that cannot actively trade.
This polarization and liquidity squeeze is the fundamental change in our industry. Whoever finds the breakthrough point will win.
Secondly, what exactly went wrong with VC Token?
I fully understand the market sentiment towards VC Token. The project opened with a very high FDV, and after going online, it continued to unlock and dump the market for profit. Since they are all casinos, why not go to a more relatively fair casino to play Meme PVP? If I lose, I can only blame myself for my slow hand speed instead of helping billions of dollars of VC coins.
What is the essence behind this problem? There is something wrong with the Liquidity Supply Chain in our industry.
Why can Solana continue to reach ATH? Because they have real products that can make Sol continue to make money, so the user community is transformed into a trading community, and the positive flywheel of the two has become a kind of self-fulfilling prophecy, which is the key to forming Buy Pressure.
The same is true for DeFi in the previous cycle. The product launch was interesting with micro-innovations, and DEX created liquidity for continuous value discovery. When consensus was reached between the product community and the cryptocurrency community, CEX listing further released liquidity, achieving a win-win situation for the project, community, and CEX.
A healthy ecosystem is one in which everyone who plays on the chain is willing to buy coins and is even more willing to preach, and this liquidity supply chain will have a positive cycle.
What about now? The problem VC Token encountered is the separation of these two communities. TGE was held right after the mainnet was launched, and the product was not implemented at all. The community was only here to get the airdrop, and all they brought were selling orders. In the last cycle, we still had Sam/Su to help us buy Alt with leverage, but the leverage in this cycle was basically cleared. At the same time, in the last bull market, many VCs raised a lot of funds and were under pressure to make arrangements. In order to give LPs a good book return, they had to push up the valuation of the project round by round.
This has led to the current situation of VC Token, where the stock opened with a high valuation but no buying, so what else can it do but fall?
This naturally explains the logic behind the creation of Meme. Since the projects invested by VCs cannot be implemented, they are all just speculation. Why not speculate on projects with lower valuations to be more fair?
Meme has become the most important track-level opportunity that our industry cannot ignore or miss
Under the polarization analyzed at the beginning of the article, Meme has become one of the most important tracks in our industry that cannot be ignored.
I always thought that Meme was pure speculation, but I didn’t know I was wrong until this time. It is a carrier of cultural trends. Its value lies not in specific functions and technologies, but in its unique ability to carry collective consciousness, emotions and identity, which is exactly the same as the logic of religion. Under the absurd surface, it expresses profound social psychological needs and values. What it does is to tokenize thoughts and emotions into products and capitalize them.
In other words, the core of a product is the thoughts and narratives it carries, and the size of these thoughts and narratives determines the ceiling of a meme. Pioneering technology, idol worship, IP emotions, subculture thoughts, we analyze the potential behind it, just like VCs analyze the prospects and position of a product on the track.
For Meme, Token is its product, so what it needs to do around the product is to promote the price and the community. Price, in a sense, is the iterative development of the product. A solid community foundation is built amid the ups and downs of the price, turning Paper Hands into Diamond Hands, letting them spread the word, and finally completing the self-fulfilling prophecy.
In this regard, Meme Token actually has a huge advantage that VC Token does not have. Because the Token is the product itself, the product community and the cryptocurrency community are combined into one, and the two form a synergy.
Meme's investment signal-to-noise ratio is very low because of its low issuance capital, and it is impossible to analyze it from a tangible product form. It requires an excellent taste for understanding trends and market sentiment. I am still trying to learn whether there is a structured methodology to study this track, so as to select targets in an extremely low signal-to-noise ratio. If so, what kind of targets are suitable for us to intervene and when should we intervene.
But I firmly believe that Meme will become a cross-cycle opportunity because it is essentially a cultural phenomenon in the digital age, and it will never run out as long as the thoughts and emotions are immortal and iterative.
More importantly, I have always felt that giving marginalized people the opportunity to get rich is the source of our industry’s vitality. Before this wave of memes, it was said that this cycle required entrepreneurs to be more than ten times more than in the past, and that all the investments seemed to be taken up by VCs, and the emotions of the community and retail investors were greatly suppressed. But through memes, young people can realize the opportunity of 10 0x through early ambush. Anti-authority is one of the core spirits of Crypto, and I believe it will always be there.
How long can this cycle of meme last?
When everyone is enthusiastic and feels that they can sacrifice their lives for the community and that they can make money forever, don’t forget that the profit-taking will be harvested. This is the unchanging nature of the financial industry. Think about whether the NFT Community was like this back then: everyone was proud to use the monkey’s head, helping them contact brands, organizing events and joint ventures everywhere, and holding NFT parties all over the world. Then what?
When all kinds of inflated confidence and unrealistic expectations appear, when people feel that holding Major is not as good as holding Meme, and when all kinds of hackers and Rugs appear, we should start to be vigilant. Once our industry has no greater liquidity opportunities, BTC begins to encounter resistance, and all enhanced versions of Alpha will fall faster.
By the way, is DeSci exactly the same as the logic of PeopleDAO and saving Assange in the previous cycle? Are we able to distinguish between faith and speculation under the name of "justice"?
In fact, a huge turning point in Meme occurred when Binance launched Little Neiro. At that time, VC Token was in trouble, and the opportunity to break the deadlock was the discovery of Little Neiro. Embracing Community Meme allowed the project, community and CEX users to make money, and thus ACT was born.
But now the blind liquidity of Meme on the chain is similar to the TVL competition after Binance listed high TVL projects, or the competition after Binance listed Ton ecological currency with huge User Base.
CEX will change its coin listing strategy based on market expectations to guide market trends. However, our industry will inevitably fall into the chaos of homogeneous competition due to the excessively low asset issuance costs and liquidity premium. Everyone will definitely become numb and tired of this chaos.
This is the power of cycles.
In the short term, don’t just do whatever Bet CEX supports. Projects that are truly built for the industry will definitely emerge.
In the long term, when a bear market comes, the OverSupply that has done nothing will definitely be cleared out by the market, and the market will then return to normal.
The market always swings between long-term construction and short-term sentiment. It is a spectrum. Main Character and Meme will become the two ends of the barbell, rising and falling with market sentiment.
Don't worry, just find your own rhythm.
Investing is such a game. We make judgments and bets based on our cognition. If we are right, we make money; if we are wrong, we review the situation. We are always curious and in awe.
