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

Meme experienced a slow budding stage from 2013 to 2019, followed by a rapidly changing chaotic period from 2020 to 2022, and finally welcomed a period of rapid development from 2023 to 2024, officially gaining widespread recognition and audience base as a single track.

The average daily turnover rate of Meme is about 11%, while DeFi is at 5%, Layer 2 is at 7%, and Layer 1 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.

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 an upward trend. A simple linear regression simulation suggests that this share will reach 3.54% by 2025 and 7.81% by 2030.

Meme is a leveraged Layer 1, which means that when the market improves, there will be an increase of about 5 to 10 times in Layer 1.

Animal-related 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 reshuffle. Against the backdrop of many VC-supported projects performing poorly upon launch, Meme has surged against the tide, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought about by single-token hits, and the Solana network that is extremely friendly to Meme have all showcased their unique brilliance this year. The new generation representative of Meme, Murad, has quickly become a popular figure in the Meme world through his speech on Supercycle. However, behind this Meme craze, what changes has Meme actually undergone? From the VC perspective, how should we participate in this? These questions are worth our in-depth exploration.

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

Origin and Impact

Meme, as a phenomenon of cultural transmission, is closely linked to human history. Originating from early societal 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 are rapidly shared among users in the form of images, videos, text, and emoticons due to their humor, satire, or resonance. Memes satisfy people's needs to express emotions, share viewpoints, and establish resonance in social interactions; they are a cultural phenomenon that reflects social trends, group psychology, and cultural changes. Their spread and popularity are influenced by various factors such as content appeal, transmission environment, community acceptance, and KOL influence.

In Web2, meme culture mainly originated and developed on the 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 to deeply understand 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 remain the birthplace of many new memes to this day. In addition to these two platforms, other widely used social media platforms have also spawned some popular memes. For example, dogwifhat, an image of a dog wearing a pink knit hat, has formed a kind of 'hat' totem culture in the community since its early days with its unique image, and many fans and celebrities have shared related dog hat images.

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 making specific distinctions. Looking back at the development history of Meme, we notice that it was not prominent in the early days and did not receive enough attention. Referring to the cyclical changes of the industry's bull and bear markets, we can divide the development line of Meme into three stages: budding period (2013 to 2019), chaotic period (2020 to 2022), and rapid development period (2023 to 2024). By consulting historical snapshot data from CoinMarketCap, single currency data from Coingecko, historical information 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 embryonic stage, Dogecoin was the only Meme coin ranked 34th in 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 undergoing rapid infrastructure development, with everyone exploring various new concepts. The mainstream new coins were typically those payment-oriented public chains with more efficient transaction processing capabilities and faster confirmation times, or new public chains equipped with powerful smart contract functionalities. For Meme coins, the challenge lies in their need for high costs to establish their attached carriers, and due to the difficulty in building liquidity, this has led to lower trading volumes, making it hard to gain widespread support from centralized exchanges. Therefore, in the embryonic stage of Meme coins, aside from Dogecoin, which is characterized by the "Doge" meme and has significant viral effects, there were not many other Meme coins that could survive in the market.

The chaotic period that started in 2020, more specifically beginning in August 2020, was sparked 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 establish trading scenarios. This allowed for the issuance of tokens at a low cost and facilitated direct circulation in the secondary market without going through exchanges, giving rise to many on-chain memes. The meme coins that survived during this period include SHIB, FLOKI, and PEOPLE. However, these early meme coins did not receive much attention from the market, and their popularity was mainly based on speculative concepts. Additionally, the popularity of memes during the chaotic period often arose against a backdrop of industry liquidity surplus, typically emerging as the last leg of a relay after multiple sectors had surged alternately. It is worth mentioning that memes during this period also gained widespread attention due to their association with celebrities, especially Elon Musk's continued support 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, with the community witnessing significant expansion.

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, Cult-related coins, WIF, and MOG. During this period, the types of Meme coins began to become more refined, and other public chains like Solana also started to emerge. By 2024, the development of Meme coins entered an accelerated phase, with new coins like BOME, lowercase NEIRO, and GOAT constantly emerging, each with its unique characteristics. Meme coins have officially gained widespread recognition and a solid audience base as a distinct category.

By analyzing the market capitalization share and market performance of the top 600 Meme cryptocurrencies from 2013 to 2024, we can clearly see the growth of Meme's market capitalization as well as the expansion of categories and quantities. During this period, Meme's market capitalization not only achieved significant growth but also saw an increase in its varieties and quantities. As of the end of the third quarter of 2024, Meme's market capitalization share in the entire cryptocurrency market has increased from 0.87% two years ago to 2.58% today, and it continues to show an upward trend. 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, quickly fading into silence after the craze. However, with the research and understanding of Memes, I believe our perspective has changed. Memes will not only not disappear, but they will also continue to innovate, and new leading Memes may emerge 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 their development trends. Therefore, studying the current market landscape can provide us with an intuitive perspective to observe the 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 average 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 level. 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 leading far ahead in terms of total market cap and new additions 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 significantly exceeds the trading activity of other sectors. On average, Meme tokens have a daily turnover rate of about 11%, while DeFi has a daily turnover rate of around 5%, Layer 2 has approximately 7%, and Layer 1 has a turnover rate of 4%. This ratio not only highlights the high liquidity of Meme but also indicates a strong interest and trading frequency from users. For Meme tokens that rank above the sector level, especially those with higher trading volumes, they often become the targets of market capital pursuits.

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

Large trading volume and new users: Meme can bring substantial trading volume and has a relatively loyal user base. Therefore, for CEX, listing Meme tokens can become an important strategy to attract traffic and users. Taking Binance's spot market as an example, among the top 30 trading pairs by trading volume, 20% are Meme.

Blue Chip Memes Scarcity: Blue chip-level Memes appear to be relatively scarce. Among the hundreds and thousands of Meme tokens, those that can truly be called blue chips account for less than 1%. Taking the Memes recorded on Coinmarketcap as an example, although new Memes emerge endlessly 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 Pareto principle: the entire sector's market cap is mainly driven by less than 10% of the top Memes. This highly concentrated market cap distribution undoubtedly increases the competition in the Meme field.