The Memecoin market continues to expand, and how can we better understand Memecoin using a framework? This article is based on an article by Paul Veradittakit, a partner at Pantera Capital.
Table of Contents:
1. Memecoin Relies on Attention
2. The Importance of Distribution
3. Memecoin Trading Creates Huge New Market Opportunities
4. Super Distribution of Memecoin
5. Memecoin Enhances Blockchain and Application Activity
6. Final Thoughts: Trojan Horses Disguised as Toys
A meme is defined as a unit that transmits cultural ideas between people. Over the past 10 years, memes have been deeply intertwined with crypto culture. The first Memecoin, Dogecoin, was launched in 2014 as a playful derivative of Bitcoin, and it reached a peak market value of $75 billion in the bull market of 2021.
Recently, the Memecoin market has experienced explosive growth. In less than a year, the market value of the ERC-20 token PEPE, centered around Pepe The Frog, has soared 400% to $2 billion. Another Memecoin, DEGEN, depicting a purple top hat, launched on the decentralized social network Farcaster, has a market value surpassing $1 billion, exceeding the valuation of Farcaster itself.
Lastly, there’s a dog meme wearing a knitted hat, WIF, which has gained popularity on crypto Twitter through viral spread. Since the beginning of this year, its price has skyrocketed more than 20 times, with a current market value of around $4 billion.
Memecoin will continue to exist, and this article will explore the reasons why. We will provide a framework to better understand Memecoin, study the infrastructure that supports their ongoing development, and discuss how they significantly enhance network participation.
A key understanding is that Memecoin relies on attention to thrive. In the world of Memecoin, attention is everything. Attention drives community behavior, hype, and the price movement of Memecoin.
You often find the comments section on Twitter filled with people promoting Memecoin. This behavior stems from a simple fact: the price of Memecoin ultimately depends on the attention it receives. The more attention Memecoin receives, the more potential buyers there are. If the related meme is interesting, these potential buyers are more likely to make a purchase.
In addition to sharing memes on social media, Memecoin enthusiasts come up with various creative ways to attract attention to their tokens. For example, the WIF community raised $700,000 for an event aimed at showcasing their meme on the iconic Las Vegas sphere.
As a result, the value of the token soared by 25% due to the anticipated buzz generated by this publicity stunt.
Sometimes, Memecoin leverages existing attention rather than generating its own. For example, while prediction markets like PredictIt and Polymarket allow users to bet on the outcome of presidential elections, the attention-based “Politifi” Memecoin developed around presidential candidates is designed to speculate on public interest in the candidates. With the approaching 2024 elections, speculation and prices of these “Politifi” Memecoins have skyrocketed.
So, which Memecoins perform well? The answer is those that people believe will attract the most attention.
When evaluating Memecoin, token distribution is a key factor for many potential buyers.
Some Memecoin projects decide to reserve tokens for the team and other initiatives. In addition to airdropping to community members and developers, many projects also choose to set aside a portion of tokens for marketing campaigns, teams, and DAOs.
Setting aside a portion of the supply can create stronger incentive mechanisms and increase the chances of long-term success. By allocating vested tokens to themselves, teams have the motivation to be more involved in the project and ensure the token’s success in the long run. Secondly, DAOs can be used to fund large-scale initiatives.
Other Memecoins, like WIF, may be considered “more organic.” While this strategy may make it more challenging to fund projects and market them, fair distribution remains a key factor in the popularity of many Memecoins.
The Memecoin market is becoming huge. Currently, the top 10 Memecoins have a total market value of over $50 billion. Memecoins have a significant on-chain trading volume, with over $1 billion in daily trading volume on Solana, mainly driven by Memecoins.
Therefore, there are valuable market opportunities for developers. Tools and applications that cater to the process of creating and trading Memecoins have gained significant attention. For example, Bonkbot is a simple Telegram trading bot that makes it easy to trade Memecoins on Solana. In just 5 months, its revenue has exceeded $23 million.
Platforms like Bonkbot not only make trading Memecoins increasingly accessible but also build infrastructure to streamline the process of launching Memecoins. To launch a Memecoin, it usually requires creating a token, establishing liquidity pools on decentralized exchanges like Uniswap or Raydium using their funds, and promoting the project.
Pump.fun is a platform that allows users to launch Memecoins with one click, and thousands of users have used their platform to launch and find the latest Memecoins. Currently, it earns hundreds of thousands of dollars in daily revenue through transaction fees.
Memecoins combine the fun of sharing memes with the economic incentives to purchase, turning ordinary memes into “super” memes. The community behind the first Memecoin was incentivized by token ownership and elevated the Doge meme into a movement, attracting the attention of figures like Elon Musk. Understanding and applying the incentivizing mass distribution features of Memecoins can enhance not only memes but also other areas of cryptocurrency.
One of the areas that can leverage the attributes of Memecoins is NFTs. Currently, most NFTs have performed poorly during bull markets. Why? Because they have a “distribution” problem.
While the scarcity of NFT collectibles makes them excellent luxury assets, only a limited number of participants have the incentive to increase the visibility of the collectibles. For example, avatar collectibles like Cryptopunks have a supply cap of 10,000, serving as symbols of high status. However, the same cap limits the fan base to a maximum of 10,000 people, restricting the broader participation and visibility that Memecoins enjoy.
The introduction of ERC-404 offers a creative solution to the distribution problem of NFTs. ERC-404 is a new standard that facilitates partial ownership of NFTs. Projects like Pandora, DN-404, and Asterix are pioneering this space, allowing NFTs to be divided into multiple shares (or Memecoins, if you will). This means that a single NFT traditionally owned by one person can choose to be divided into multiple parts. This division expands access to a wider audience, incentivizing them to create more visibility for the collectibles while maintaining the exclusivity of owning the entire NFT.
In November 2022, after the collapse of FTX, the ecosystem activity of Solana plummeted. Many teams had just lost funds in FTX, and FTX itself was closely tied to Solana, reducing community confidence and activity. However, on December 25, 2022, a Memecoin depicting a mischievous orange Shiba Inu was airdropped to existing developers and users on the Solana network as a reward and a way to revitalize the Solana community.
This strategy was successful. The Memecoin became a gathering point for the Solana community, quickly integrating into hundreds of DeFi protocols and applications on the platform. Users discovered they could earn profits through the Memecoin, use it as collateral, and even spend it in Solana-based games. With the increased activity and price surge surrounding the Memecoin, community enthusiasm skyrocketed, enhancing developer activity and allowing Solana to sustain itself during a bear market.
These stories are not isolated incidents, as Memecoins play a crucial role in stimulating online activity. For example, DEGEN, with a market value of $1 billion, originated from Farcaster as a way for users to tip posts. Its introduction provided additional incentives for people to post, greatly boosting activity on Farcaster. Memecoins have the ability to enhance community vitality and drive interaction within platforms.
People are increasingly recognizing Memecoins as tools to stimulate online activity. For example, the blockchain Avalanche has established a $100 million “Culture” fund, and Blast rewards users who use Memecoins with Blast Gold. Social platforms like Drakula, a short-term video platform, have integrated Farcaster DEGEN to drive user activity. I believe more online platforms should consider how to leverage Memecoins to enhance activity.
In summary, my main views on Memecoins are as follows:
Firstly, I am certain that Memecoins will not disappear. I see the next generation viewing Memecoins as a very fun social activity. Our current Z-Generation Pantera interns have a great time playing with friends, using newly launched Memecoins for simple and fun social connections and experiences, and weighing the pros and cons.
Secondly, Memecoins greatly enhance platforms and applications. While they are an incentive mechanism to spread memes, Memecoins can significantly enhance NFT projects, social protocols, and the entire blockchain industry.
Ethereum founder Vitalik Buterin proposed interesting ideas about the uses of Memecoins, focusing on their use in charity and Robin Hood-style games.
I believe the role of Memecoins goes beyond this. Ultimately, although Memecoins may appear like toys, they are Trojan Horses for cryptocurrencies. They are the simplest way to introduce the next generation to experience the latest DeFi applications and bring them into Web3.
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