Original author: Honest Mai Zong (X: @Michael_Liu 93)
I haven’t written such a long article in a while; this is a piece that feels very 'investor-oriented' because the logic needs to be interconnected, which may not be very readable. However, if you read it carefully, it will definitely give you new insights into the crypto market and the meme track. Today, I will attempt to answer three questions from the perspective of an 'institutional investor'.
1. Has the crypto industry already welcomed mass adoption?
2. Will memes become the killer application that opens up mass penetration in the crypto market? What is the underlying logic of the meme track?
3. At which stage of the cycle is today's meme market approximately?
1. Has the crypto industry already welcomed mass adoption?
Before discussing memes, I want to ask everyone a controversial question: Do you think the crypto industry has already welcomed mass adoption? The most frequent extreme viewpoints I hear on this question are: One side says that crypto has already reached mass adoption, Wall Street has entered the market, and retail investors who should buy coins have already bought; where are the newcomers in this cycle? The other side believes it has not yet spread and often compares it to AI, as there hasn’t been a killer app like ChatGPT with over 200 million users in the crypto market.
I believe both sides' arguments are valid, but essentially, they are discussing two different things. One discusses mass adoption, while the other discusses mass penetration. What is the difference between these two points? I’ll attempt 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 around 40%; at that time, around 85 to 90 million Americans used computers. Meanwhile, the internet penetration rate in the US was only about 13%, with 25 million users in total. Therefore, in 1995, 1 in 3 computers in the US was connected to the internet. It might be hard for you to imagine today what the remaining two computers were doing. The remaining two were being used as calculators and typewriters (because computers started to be popular in work settings, gradually entering home settings 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 corresponds exactly to the current penetration rate of digital currencies in the US. Yes, in 2024, the proportion of digital currency holders in the US population will be 40%, with an estimated total of about 93 million holders. Next, if we compare 'on-chain' to 'going online', we can see that the largest wallet on Solana, Phantom, has around 7 million monthly active wallets, while the largest wallet on Ethereum, Metamask, has about 30 million monthly active wallets (both taking the highest values of the most recent available data). Assuming that Americans make up half of the on-chain users, and that each person might have 3 wallets, we roughly estimate that there are about 6 million on-chain users in the US. Of course, this estimate is not completely accurate, as there are still many other wallets, and the average number of wallets per person may exceed 3. The assumption that the US accounts for half of the world's on-chain players might not be accurate either, but since I’ve taken optimistic assumptions, no matter how you calculate it, the number of people 'on-chain' in the US is likely not to exceed 10 million, which is about 3% of the total US population.
Therefore, today's crypto industry finds itself in a more awkward position than the internet industry in 1995. A 40% penetration rate of digital currency is already significantly widespread, but a penetration rate of less than 3% on-chain is clearly still too low, even lower than the 13% internet penetration rate in 1995.
That’s why I say when everyone is discussing whether crypto has already been mass adopted, both sides are correct; they are merely discussing different dimensions. One side speaks of the penetration rate of 'computers = digital currency', while the other speaks of 'internet = on-chain applications'. (It’s worth noting that the internet penetration rate in the US was 3% in 1993, and from 1994 to 2000, it rapidly grew from 3% to 43%. So what happened in 1994? The Netscape browser appeared, the first killer application of the internet era; a killer application can really drive rapid growth in the overall penetration rate of the industry.)
As I write this article at my desk, I can imagine that the pioneers who first went online in 1995 must have discussed the same issues we are discussing today, thinking that computers have become so popular that there seems to be nothing that is 'impossible without a computer'. Going online feels somewhat bland and a pity to abandon, purely driven by love. Isn’t this the feeling of our today’s crypto industry?
So what happened between the emergence of the internet and its widespread adoption? The first batch of online users must have been the most geeky people, using the first batch of the most useless applications on the internet, such as online radio, online television, and online phone books—these were pseudo-needs already met offline; they went online purely out of love for new things.
As the first batch of computer users connected to the internet, the first batch of 'killer applications' began to appear, such as email and e-commerce (even though e-commerce at that time was still much more cumbersome than offline, it could also be referred to as a pseudo-need; for example, when Amazon was founded selling books, they realized this point, and their only way to compete with offline bookstores was to sell niche books that offline bookstores rarely sold). With the growth of the internet user base, user dividends created the possibility for new killer applications to emerge. For instance, when you have only one friend using WeChat, while you have 100 friends using it, your motivation to download WeChat is completely different (often whether an application is a killer app depends on the user base; telephones, emails, and social networks are the most typical examples).
So you can see that after the user base of the internet reaches a threshold for quantitative change, the speed of innovation begins to accelerate, and the frequency of killer applications appearing increases. Every couple of years brings a wave of innovation. Those first VC investors in China from 2000 to 2020 should feel the evolution of this process the most (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 in the crypto market? What is the underlying logic of the meme track?
If we take the internet era as a reference, the explosion of the internet was certainly based on the premise that computers were already sufficiently popular. Today, for the crypto industry, a 40% penetration rate indicates sufficient popularity; however, we are like the first batch of internet users in 1995, still searching 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 discussed this concept before 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 playing http://pump.fun, your time spent on TikTok has been decreasing? Or you may not even use it anymore? Both are essentially attention economies and products of the grand era; TikTok is a product of young people's increasingly fragmented time, providing brief and timely dopamine amid their busy work and life, while memes are a form of entertainment that young people urgently need to gamble on amidst solidified social classes; it is 'poor entertainment', one satisfying lust and laziness, while the other satisfies greed. Essentially, both are dopamine businesses that meet the most fundamental 'original sin' of human nature, which is why everyone tirelessly scrolls through TikTok or Pump fun for 24 hours; it’s genuinely 'addictive'.
If I compare various 'terms' from TikTok with memes, you will understand more clearly:
1. Content creators = dev/project parties (producing content = producing meme projects)
2. TikTok’s recommendation algorithm = meme KOL (the recommendation algorithm determines what content you see, while meme KOL determines which meme coins you follow; both are core positions in traffic distribution).
3. Traffic monetization = market makers (by pulling and dumping the market to attract more attention to their memes and assisting project parties in monetization during the process).
4. Advertising investment = dexscreener, CMC, TikTok ads (activities that attract retail attention and traffic).
5. Professionally produced content (PGC) = strong controlled projects.
6. User-generated content (UGC) = purely CTO-driven projects.
7. Junk advertisement videos = Rug projects.
If you can understand the above logic, then we can use the development path of TikTok as a guiding stone for the meme industry. The meme industry is likely to have the following trends in the future:
1. The division of labor in the industrial chain will become increasingly detailed and specialized; anyone who is not professional in each link will gradually be eliminated, including devs, project parties, KOLs, and market makers. This is an extremely competitive market where the strong get stronger.
2. Initially, there was UGC content (purely community-driven), but over time, traffic will become increasingly concentrated at the top, with newly emerging content becoming more PGC (strongly controlled market), and UGC content gradually fading from view (but you can still see content disguised as UGC, which is actually PGC created by professional teams, because some audiences prefer UGC styles, and these projects are also catering to this group). The logic is simple; in Solana, any project that can take off must have strong backing behind it, with high control attracting everyone's attention; only a professional marketing team can tell the story well. Then, during the rise, the backing will gradually disperse its chips, and as time goes on, a strong community will form, so it must be a strong backing first, followed by establishing a strong community. Therefore, I have emphasized countless times in spaces that good meme coins are definitely a mutual achievement between the backing and retail investors. You need to look for 'good backing', check the quality of content produced, examine the trading methods of market makers, and assess the dedication of the team in operating the community.
3. KOLs ultimately compete on the ability to match quality 'content'; whoever does the best project research can find the most quality 'content' to push to fans, helping fans earn money, their traffic will grow, allowing them to match even better 'content', forming a positive cycle. Those who study Murad will understand how he operates. If TikTok's recommendation algorithm keeps pushing junk videos to you, as a girl, you are getting endless videos of scantily clad girls dancing, and as a boy, you're getting makeup selection tips; you will likely keep clicking 'not interested' to adjust your recommendation algorithm. This is also why I believe that in the future, rug devs are likely to become fewer and fewer (as long as you don’t try to mine gold from the crap in the domestic market), because KOLs are slowly becoming more professional, and KOLs wouldn’t want to call out junk projects; each time they do, it strikes at their most precious resource, 'traffic'. Therefore, these rug devs will find it increasingly difficult to have KOLs push traffic (of course, matrix accounts and scamming KOLs will always exist, but with each scam, their 'traffic' capability will decline a notch until no one pays attention to them anymore).
4. Leading content creators will attract more and more traffic, and the meme track is no exception. The leading projects will voraciously absorb the long tail projects. In the future, figures like Xinba, Xiao Yang Ge, Li Jiaqi, and Wei Ya will emerge as leading 'Meme projects'. Consider those who speculate on memes in the secondary market; the memes they want to 'stock up on' are likely PEPE, WIF, POPCAT, SPX, and these meme coins that have already demonstrated strength and have very large communities? (But this does not mean that new 'content creators' will not emerge; there will definitely be new memes that will arise.)
I present the underlying logic so starkly, which may discomfort some, but it’s the truth, and such trends have already occurred. You must first understand the truth of the game rules to win in this game; don’t you agree?
3. At which stage of the cycle is today's meme market?
Let's first take a look at the current user data of Pump fun, which can be found on Dune. Currently, the daily active wallets on Pump fun are around 150,000. During the peak of Solana meme activity 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 users to estimate a rough penetration rate, currently Pump fun's daily active users account for 2.9% of Phantom's user base, so even considering just the users of the Phantom wallet, Pump fun still does not qualify as mass penetration.
In addition to looking at the number of participants in pump fun, a type of domestic market play, we can also examine 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 results will be fewer; my personal judgment is that the number of addresses/people is at least 2-3 times), currently, the number of wallets holding WIF is 190,000, Popcat is 110,000, Bonk is 11,000, PEPE is 270,000, and SPX is 25,000 (this slightly exposes whether the SPX that Murad has been constantly promoting is really that impressive in the community).
Therefore, whether looking at the user data of Pump fun or the wallet holding data of the top blue-chip memes, you will roughly get a number within 200,000 to 300,000. Thus, the penetration rate of memes among current users with wallets on-chain is also between 3-5%. Just this group of users that has already gone on-chain still has several million who have not been penetrated by memes, meaning the current scale of meme users is 20-30 times.
If we assume that memes will penetrate a portion of users who originally traded on exchanges into on-chain, we need to reference the total number of global crypto users, which is around 500-600 million. This means that a 1% penetration rate could bring in 20-30 times more users, while 10% could lead to 200-300 times.
If we believe that memes are the true killer application of Web3 and will become the TikTok of the new era, we can look at TikTok's data for November 2024, which shows 700 million daily active users, about 2000-3000 times the total number of meme players globally.
This is indeed the best era for crypto entrepreneurs and investors.
