Friv.

A question I’ve been asked a lot lately: Are memecoins here to stay as the dominant mindshare of the market? I've put together some thoughts on the topic and history on how we got here. To start, I believe the following are the primary factors driving memecoin dominance: 1. Low amount of new innovation in the space despite consistent demand for new tokens (has crypto reached the limits of what it can do without introducing elements of centralization?) 2. Intentional removal of token utility means no limit to calculated valuations 3. Retail desire to put power back in their own hands 4. High user signup conversion on memecoin listings incentivizes exchanges to list many low quality tokens To understand how long these factors are likely to last, let's dive into each of them with a bit of historical context. Starting with some history on innovation in the space, we see an interesting progression of technical refinement which to some extent can be simplified to: 2016: Basic smart contract functionality; Eg., The DAO, Etherdelta 2017: Crypto For Everything. Eg., Tokens for dentists, tokens for taxis, etc. 2021: Crypto For Finance + NFTs. Eg., Lending, AMMs, DeFi, collectibles 2023: Infra. Eg., L1s, cheaper / faster txns, etc. 2024: Memes At first this might all seem uncorrelated, but there’s actually a very clear progression of reduction in scope here. Over these years, the tech starts as a wild west where the possibilities are seen as endless, and with each cycle hones in on more and more specific utility, until it reaches a perceived limit of what can be done purely within the scope of a decentralized network without using non-decentralized elements. After this limit is somewhat reached in the 2021 cycle, we see a significant slowdown in interesting new dApps produced, and the market then begins focusing on improving the infrastructure instead. While infrastructure improvement can continue across many cycles, retail mindshare has a shorter attention span, and with no other innovation to be found it eventually defaults to memes. It's worth noting of course, that memes have always had significant attention; Doge for example, peaked at $80B market cap in 2021. The distinction though is of memes being the foremost trend focus. This brings us to the second factor behind memecoin mindshare: theoretical valuations. It’s been a long running joke that the most valuable projects should never ship a real product, because then their valuation becomes immediately quantifiable. Except unfortunately, this isn’t even really a joke. DeFi in 2024 is a prime example of this: in an efficient market, investors will take less than 5 minutes to look at a project’s baseline, slap a 20x P/E on it, and decide it shouldn’t be worth a penny more. This is by far the largest reason that DeFi struggles to have a bull market again in the current cycle. In 2021 we saw some projects cleverly design their tokenomics to be so complicated that few could tell what the real revenue actually was or whether the project was sustainable. This arguably led to some of the best ponzis of the cycle, but ultimately crashed hard enough that market appetite for opaque tokenomics hasn’t returned. So of course, for meme coins the solution is simple- throw utility out the window altogether, and the project is no longer quantifiable. Brilliant! Amusingly, memecoins this cycle that have attempted to add utility have often hurt their valuations by doing so. The most straight-forward reason for memecoins dominating this cycle is of course the desire of retail investors to bring power back from VCs and institutions to the hands of the little guys. The reality of course, is that it’s only a slight shift in where the bulk of the profits end up going, and unfortunately it’s still not to retail. Instead, it’s a shift from VCs to “sharks” in the space. In essence, lean teams of incredibly efficient participants that understand how to corner the supply of a token, market it as organic, and repeat over and over. There are so many examples of this that I’m not even going to call out specific names. A key component that makes this playbook so viable is that the market has unfortunately decided that market cap is a signal of legitimacy, which incentivizes cornering the supply of tokens to artificially prop valuations. Of course, the market goes back and forth in fighting this battle; solutions like Pump Fun were created to mitigate the ability to opaquely corner supply, which has led in turn to more sophisticated sniping and accumulation techniques being created, and the battle carries on. But ultimately, memecoins do end up putting a vast majority of profits in the hands of organized groups, while teasing the rare organic lottery wins to the average retail to keep the game appealing. And finally, a discussion on exchange listings. I’m surprised I don’t see this talked about more, but exchanges are massively propelling the current memecoin craze due to the incentive structure they have in listing. In particular, listing teams want to list coins that will drive maximum user onboarding- ie., how many users will sign up and make their first deposit to the exchange as a result of a particular listing. Coins with wide distribution in new ecosystems do particularly well with this; for example, clicker games on TON were quoted to be bringing in several million new users per listing (a shockingly high number) in an in interview with Bybit’s CEO: Popular memecoins tend to get wide distribution in small quantities since they’re easy to understand by casual retail; this results in high user signup /deposit conversion. But the incentives here are misaligned. For the listing teams it looks good- the numbers are high and it hits their OKR for a satisfactory performance review. But the reality is that many of these are low quality signups, and it often incentivizes listing low quality tokens to hit these numbers. Ultimately, it is very likely leading to a longterm degradation of listing quality and innovation in the space. I have some other thoughts on listing processes in general, but I’ll leave that for another post. So with a better understanding of what brought us to this point, do I think the memecoin mindshare lasts? For at least the medium term, yes. For memes to lose mindshare, we need to see an innovative new narrative that is truly crypto native (ie., not a centralized hybrid tech) with decent ponzinomics. And the unfortunate reality is that this is much harder to achieve now than it used to be. AI is the closest thing to this right now, but in most cases runs into the question of “why do we even need crypto for this?”. As mentioned in a previous post, I see there being a couple interesting bluechip exceptions to this. There are also a few DeFi projects in the pipeline that I consider to be interesting + innovative, and I have hopes could be the beginnings of a newer narrative down the line. Cheers