A VC Perspective on the Memecoin Craze: A New Investment Battlefield or a Liquidity Exit Trap?

TL;DR

1. Meme experienced a slow budding phase from 2013 to 2019, followed by a chaotic period of rapid changes from 2020 to 2022, and finally ushered in a period of rapid development from 2023 to 2024, officially gaining widespread recognition and a solid audience base as a single track.

2. The average daily turnover rate of Meme is approximately 11%, in contrast, DeFi is 5%, Layer2 is 7%, and Layer1 has an average daily turnover rate of 4%. This ratio not only highlights the high liquidity of Meme but also indicates that users have a higher interest and trading frequency in Meme.

3. As of the end of the third quarter of 2024, the market capitalization share of Meme in the entire cryptocurrency market has increased from 0.87% two years ago to 2.58% today, and it continues to show a growing trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

4. Meme is a leveraged Layer 1, meaning that during favorable market conditions, there will be an increase of about 5 to 10 times in Layer 1.

5. Animal-themed Memes and Cult culture Memes are types that are suitable for long-term attention. In contrast, other categories of Memes are often related to short-term trends, and their attention and popularity may rise quickly and then fall.

In 2024, the industry and market are undergoing a drastic reshuffle. Against the backdrop of numerous VC investments and the poor performance of supported projects, Meme has surged against the tide, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought by single-token critical hits, and the Solana platform, which is extremely friendly to Meme, have all showcased their unique brilliance this year. The new generation Meme representative, Murad, has quickly become a popular figure in the Meme world through his Supercycle speech. However, behind this Meme craze, what changes has Meme actually undergone? From the VC's perspective, how should we participate? These questions are worth exploring in depth.

Meme Market Overview: Origins, Evolution, and Market Data Analysis

Origins and Impact

Memes, as a phenomenon of cultural dissemination, are closely linked to human history. Originating from the language, beliefs, and customs of early societies, they spread within groups through imitation and learning. The emergence of the internet has greatly accelerated the spread of memes, which circulate among users in forms such as images, videos, text, and emoticons, quickly gaining traction due to humor, satire, or resonance. Memes satisfy people's needs to express emotions, share opinions, and establish resonance in social interactions, representing a cultural phenomenon that reflects social trends, group psychology, and cultural changes. Their dissemination and popularity are influenced by various factors, including content appeal, dissemination environment, community acceptance, and KOL influence.

In Web2, meme culture primarily originated and developed on two platforms, 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, where a large number of Pepe memes and their derivative cultural content are gathered. At the same time, 4chan is also a breeding ground for Boy's Club comics, providing us with an important perspective to understand meme culture. Meanwhile, Reddit has given rise to classic memes such as Dogecoin and Success Kid. Thanks to the active community atmosphere and solid user base of these two platforms, they remain the birthplace of many new memes to this day. In addition to these two platforms, other social media platforms with a large number of users (such as X and Telegram) have also nurtured some popular memes. For example, the dogwifhat meme features a dog wearing a pink knit hat, and this meme has formed a "hat" totem culture within the community from early on with its unique image, leading many fans and celebrities to share related pictures of the hat dog.

Evolution and Development

Starting from Web2, obsessed with Web3. In this article, we will collectively refer to Meme and its related tokens as "Meme" without further distinction. Looking back at the development history of Meme, we notice that it was not prominent in its early days and did not receive enough attention. By referencing the cyclical changes of bull and bear markets in the industry, we can divide the development timeline of Meme into three stages: the budding period (2013 to 2019), the chaotic period (2020 to 2022), and the rapid development period (2023 to 2024). By consulting data statistics, individual token data, historical information from search engines, and social media content, we can gain a more comprehensive understanding of the evolution of Meme.

As of December 31, 2019, during its nascent stage, Dogecoin was the only Meme cryptocurrency ranked 34th in the top 100 by market capitalization. Looking back from 2013 to 2019, Meme cryptocurrencies did not occupy a significant position in the market. During this period, the industry was in a rapid infrastructure building phase, exploring various new concepts. Mainstream new cryptocurrencies were typically those with more efficient transaction processing capabilities and faster confirmation times, or new public chains equipped with powerful smart contract functionalities. For Meme cryptocurrencies, the challenge lies in the fact that they not only require high costs to establish their attached carriers but also face difficulties in constructing Liquidity, resulting in lower trading volumes and challenges in gaining widespread support from centralized exchanges. Therefore, during the nascent stage of Meme cryptocurrencies, aside from Dogecoin, which features the "Doge" meme and has significant viral effects, there were not many other Meme cryptocurrencies that could survive in the market.

The period of chaos that began in 2020, more precisely starting in August 2020, was triggered by the wave of IDOs brought on by DeFi Summer. The IDOs led by DeFi Summer allowed people to build liquidity on-chain at low costs, provide trading, and quickly establish trading scenarios. This enabled the low-cost issuance of tokens that could circulate directly in the secondary market without being listed on exchanges, giving rise to a number of on-chain memes. During this period, the meme coins that survived included SHIB, FLOKI, and PEOPLE. However, these early meme coins did not receive much attention from the market; their popularity was mainly based on speculative concepts. Additionally, the popularity of memes during the chaotic period often emerged against a backdrop of excess liquidity in the industry, typically appearing as the final relay after multiple sectors took turns rising. It is worth mentioning that memes during this period also gained widespread attention due to their association with celebrities, particularly Elon Musk's continued advocacy for Dogecoin in 2021, which not only caused significant fluctuations in Dogecoin's price but also overall propelled Dogecoin to a new level in terms of market capitalization, leading to a significant expansion of its community.

With the arrival of 2023, the craze for Meme coins continues to heat up, giving rise to a variety of Meme coins, such as BONK, PEPE, CHEEMS, and CULT-related BITCOIN (HarryPotterObamaSonic10Inc) and SPX (SPX6900), WIF, and MOG. During this period, the types of Meme coins began to diversify, with other public chains like Solana also emerging. By 2024, the development of Meme coins has directly entered an accelerated phase, with new coins such as BOME, lowercase NEIRO, and GOAT continuously emerging, each with its own characteristics. Meme coins have officially gained widespread recognition and a solid audience base as a distinct category.

By analyzing the market capitalization share and performance indicators of Memes among the top 600 in the cryptocurrency market from 2013 to 2024, we can clearly see the growth of Meme market capitalization as well as the expansion in variety and quantity. During this period, the market capitalization of Memes not only achieved significant growth but also increased in types and quantity. By the end of the third quarter of 2024, the market capitalization share of Memes in the entire cryptocurrency market has risen from 0.87% two years ago to 2.58% now, and there is still a trend of continuous growth. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

Perhaps we once doubted whether Memes were just a fleeting phenomenon, quickly fading into silence after the hype. However, with increased research and understanding of Memes, I believe our perspective has changed. Memes not only will not disappear, but they will also continue to innovate, with new leading Memes possibly emerging in every era. However, behind these dazzling leading Memes lies a harsh reality, reminding us that we must always maintain a calm and clear mind.

Market Data Analysis

By analyzing the development and historical data of Memes, we can roughly understand its development trends. Therefore, studying the current market pattern provides us with an intuitive perspective to observe changes in market hotspots and the flow of funds. Below, we further delve into the macro indicators of the Meme sector, including core indicators such as market capitalization, trading activity, and daily trading volume. These analyses not only reveal the latest dynamics of the Meme sector but also showcase its future development trajectory.

Market Cap and Quantity Changes: The changes in the market cap and circulating quantity of Meme can reflect the market's demand and acceptance for it. Although some Meme tokens may not have a high market cap, the increase in the number of new Memes indicates that the community's interest in the entire sector is growing. Compared to other sectors (Layer1/Layer2/DeFi), Meme has been far ahead in terms of total market cap and new quantities in the past two years.

Trading Activity: The trading activity and turnover rate of Meme are usually higher than those of other sectors. According to data, the overall market capitalization of Meme tokens is approximately $50 billion, with a daily trading volume of around $5 billion, which is significantly higher than that of other sectors. On average, the daily turnover rate of Meme tokens is about 11%, while the daily turnover rate for DeFi is around 5%, Layer 2 is approximately 7%, and Layer 1 is 4%. This ratio not only highlights the high liquidity of Meme but also indicates a higher level of user interest and trading frequency in Meme. For Meme tokens that are above the sector level, especially those with larger trading volumes, they often become targets of market capital pursuit.

The rise and low success rate of new Meme coins: New coins are constantly emerging in the Meme market, and their increases sometimes even exceed those of mainstream cryptocurrencies like BTC. This indicates that the Meme token space has a high level of volatility and speculative opportunity. However, among the numerous new Memes, for example, only less than 2% have successfully launched, and currently, only 0.23% maintain a market value above 1M, which means the probability of surviving the test of time is extremely small.

Large trading volume and new users: Memes can bring substantial trading volume and have a relatively loyal user base. Therefore, for CEX, listing meme coins can be an important strategy to attract traffic and users. For example, in the spot market of a certain exchange, 20% of the trading pairs in the top 30 by trading volume are memes.

Blue Chip Memes Scarcity: Blue chip-level Memes appear to be quite scarce. Among the vast number of hundreds or thousands of Meme tokens, those that can truly be considered blue chip are less than 1%. Taking the Memes recorded on a certain website as an example, despite the continuous emergence of new Memes in the market, very few can withstand the test of time and ultimately stand out. Additionally, the market capitalization distribution of the Meme sector also shows a significant 80/20 rule: the entire sector's market capitalization is mainly driven by less than 10% of top Memes. This highly concentrated market capitalization distribution undoubtedly increases the difficulty of finding true value investments in the Meme field. If participating in Meme investments from the VC perspective, this aligns with the rule of thumb in venture capital known as the "2-8 rule": about 10% of successful Meme investments can make up for the losses.