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

TL;DR

1. Memes went through a slow budding phase from 2013 to 2019, followed by a chaotic period of rapid changes from 2020 to 2022, and finally welcomed 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%, whereas DeFi is at 5%, Layer2 at 7%, and Layer1 has an average daily turnover rate of 4%. This ratio not only highlights the high liquidity of Meme but also indicates a strong interest and trading frequency among users.

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% now, 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 when the market conditions improve, there will be a price increase of about 5 to 10 times for 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 rapidly and then fall.

In 2024, the industry and market are undergoing a drastic reshuffling. Against the backdrop of many projects performing poorly upon launch, Meme has surged against the current, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought about by single-token critical hits, and the Solana's extreme friendliness towards Meme have all showcased unique brilliance this year. The new generation of Meme representative, Murad, has quickly become a popular figure in the Meme world through his speech on Supercycle. However, what changes has Meme really undergone behind this Meme craze? From the perspective of VC, how should we participate in this? These questions are worth our in-depth discussion.

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

Origin and Impact

Meme, as a cultural dissemination phenomenon, is closely linked to human history. Originating from early social languages, beliefs, and customs, it spreads within groups through imitation and learning. The advent of the internet has greatly accelerated the dissemination of Memes, which spread rapidly among users in the form of images, videos, text, and emoticons due to humor, satire, or resonance. Memes satisfy people's needs to express emotions, share opinions, and establish resonance in social interactions, reflecting social trends, group psychology, and cultural changes. Their spread and popularity are influenced by various factors such as content appeal, dissemination environment, community acceptance, and KOL influence.

In Web2, meme culture mainly originated and developed on two platforms: 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, where a large amount of Pepe memes and related derivative culture content is gathered. At the same time, 4chan is also a breeding ground for Boy's Club comics, providing us with an important perspective for understanding meme culture. Reddit, on the other hand, has nurtured classic memes such as Dogecoin and Success Kid. Thanks to the active community atmosphere and solid user base of these two platforms, they continue to be the birthplace of many new memes to this day. In addition to these two platforms, other popular social media platforms have also spawned some popular memes. For example, dogwifhat, the image of a dog wearing a pink knit hat, has formed a "hat" totem culture in the community since its early days with its unique image, and many fans and celebrities have shared related images 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 currencies as "Meme", without further differentiation. Looking back at the development history of Meme, we notice that it was not prominent in the early stages and did not receive enough attention. Referencing the cyclical changes of the industry’s bull and bear markets, 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 reviewing historical snapshot data statistics from CoinMarketCap, single currency data from Coingecko, historical news from search engines, and content from social media, 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 coin ranked 34th on the list of the top 100 cryptocurrencies by market capitalization. Looking back from 2013 to 2019, Meme coins did not occupy a significant position in the market. During this period, the industry was in a rapid infrastructure building phase, with everyone exploring various new concepts. The mainstream new coins were usually those with more efficient transaction processing capabilities and faster confirmation times for payment public chains, or new public chains equipped with powerful smart contract functionalities. For Meme coins, the challenges lie in the fact that they not only require high costs to establish their associated platforms but also face difficulties in building liquidity, which results in low trading volumes and makes it hard to gain widespread support from centralized exchanges. Therefore, in the nascent stage of Meme coins, apart from Dogecoin, which features the "Doge" meme and has a significant viral effect, there were not many other Meme coins in the market that could survive.

The chaotic period that began in 2020, more specifically starting in August 2020, was triggered by the wave of IDOs initiated by DeFi Summer. The IDOs led by DeFi Summer enabled people to build liquidity on-chain at a low cost, provide trading, and quickly create trading scenarios. This allowed for the low-cost issuance of tokens that could circulate directly in the secondary market without being listed on exchanges, giving rise to many on-chain Memes. During this period, surviving Meme coins included SHIB, FLOKI, and PEOPLE. However, these early Meme coins did not receive significant attention from the market, as their popularity was primarily based on speculative concepts. Furthermore, the popularity of Memes during the chaotic period often emerged against a backdrop of excess liquidity in the industry, usually appearing as the final relay after multiple sectors had taken turns to rise. It is worth mentioning that Memes gained widespread attention during this period due to their association with celebrities, particularly Elon Musk's continuous endorsements of Dogecoin in 2021, which not only led to significant fluctuations in Dogecoin's price but also propelled Dogecoin to a new level in terms of market capitalization, resulting in 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 coin types, such as BONK, PEPE, CHEEMS, Bitcoin related to Cult culture, and SPX, WIF, MOG, etc. During this period, the types of Meme coins began to become more refined, with other public chains like Solana also coming to the forefront. By 2024, the development of Meme coins has directly entered an accelerated phase, with new coins like BOME, lowercase NEIRO, and GOAT continuously emerging, each with its own characteristics. Meme has officially gained widespread recognition and a user base as a single track.

By analyzing the market capitalization share and performance indicators of Meme in the top 600 of the cryptocurrency market from 2013 to 2024, we can clearly see the growth of Meme's market capitalization as well as the expansion in categories and numbers. During this period, Meme's market capitalization has not only experienced significant growth but also an increase in its types and numbers. As of the end of the third quarter of 2024, Meme's market capitalization share in the entire crypto market has risen from 0.87% two years ago to 2.58% today, with a trend of continued growth. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% by 2025 and 7.81% by 2030.

Perhaps we once doubted whether Memes were just a fleeting phenomenon that would quickly fade into obscurity after the hype. However, with the research and understanding of Memes, we believe our perspective has changed. Memes not only won’t disappear but will continue to innovate, with new leading Memes potentially emerging in every era. However, behind these dazzling leading Memes lies a harsh reality that reminds us to always maintain a calm and clear mind.

Market Data Analysis

By analyzing the development and historical data of Memes, we can roughly understand their development trends. Therefore, studying the current market structure can provide us with an intuitive perspective to observe the changes in market hotspots and the flow of funds. Below, we further explore the macro indicators of the Meme sector, including market capitalization, trading activity, and daily average trading volume as core indicators. 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 of it. Although some Meme tokens may have a low 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, Meme has been far ahead in terms of total market cap and new quantity 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 from CoinMarketCap, the overall market capitalization of Meme tokens is approximately $50 billion, with a daily trading volume of about $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%, Layer2 is about 7%, and Layer1 is 4%. This ratio not only highlights the high Liquidity of Meme but also indicates a higher 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 for market capital.

The rise and low success rate of new Meme coins: New coins are constantly emerging in the Meme market, and their gains sometimes even exceed those of mainstream cryptocurrencies like BTC. This indicates that the Meme token space has high volatility and speculative opportunities. However, among the many new Memes, taking Pump fun data as an example, less than 2% of the launched Memes are successful, and only 0.23% maintain a market value above 1M, which means the probability of surviving the test of time is extremely small.

Large trading volumes and new users: Memes can generate massive trading volumes and have a relatively loyal user base. As a result, for centralized exchanges, listing Meme coins can become an important strategy for attracting traffic and users. Taking Binance's spot market as an example, 20% of the trading pairs in the top 30 by trading volume are Memes.

Blue Chip Memes Scarcity: Blue chip level Memes are relatively scarce. Among the hundreds and thousands of Meme tokens, less than 1% can truly be called blue chip. Taking the Memes recorded on the Coinmarketcap website as an example, despite the constant emergence of new Memes in the market, very few can withstand the test of time and eventually stand out. Moreover, the market capitalization distribution of the Meme sector also shows a significant 80/20 rule: the market capitalization of the entire sector is primarily driven by less than 10% of the 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 investment from a 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 compensate for the losses of other Meme investments.

Summary

Combining the recent highly regarded Murad speech in the Meme world, he predicts that the market value of Memes will reach $1T in the future, which means there is a potential for a 25-fold increase. It is expected that more than 25 Memes will enter the industry Top 100, as well as