Want to play with meme coins? You must understand these underlying logic and investment methodologies

Original author: Sammi

The importance of memes in the crypto world

Since meme was popularized by shib and doge in 2021, it has played a decisive role in the encryption industry and has become one of the important components of the encryption investment landscape. 500,000 times that of shib and 400 times that of doge, creating many myths of wealth creation and new traffic in the currency circle.

According to CoinGecko data, as of April 14, 2023, the current total market value of global cryptocurrency is approximately 1.34 trillion, and the total market value of the meme sector is approximately 20.8 billion, accounting for The ratio is about 15%. After a bear market, memecoins like Shib and Doge have not only survived and are firmly in the top 20 by market capitalization, but have even performed better than some so-called value investment projects.

The blockchain space is filled with dense terminology and technical developments that can be difficult for newcomers to understand, and meme coins provide an entry into crypto for those who don’t know much about cryptocurrencies. The transition of the industry and, therefore, memes are the cornerstone of crypto culture.

2. Summarize the key elements of meme success from historical laws

Memes spread like viruses. They spread rapidly within the crypto world and communities, and are highly speculative. In a short period of time, A sharp rise and fall occurred. In the book "Go Viral: Let Your Products, Thoughts, and Behaviors Invade Like a Virus", the author integrates the 6 major characteristics of viral marketing into a STEPPS model:

Social Currency

Triggers

Emotions

Publicity

Practical Value

Story

Assuming we use the STEPPS model to review the success of meme projects, we can draw the following points:

Good narrative - social currency

Good narrative is inherently attractive. Breaking the rules and proposing information that goes against people's stereotypes can increase the inherent appeal of MEMEs. In addition to breaking the rules, being full of mystery and controversy can also increase the inner influence. For example, Cult Dao, which has increased hundreds of times in 5 days, has a core narrative of being a decentralized VC, subverting traditional investment institutions, and creating a new investment paradigm for Dao; for example, people crowdfunded to purchase the last public auction of the United States at Sotheby's. A copy of the Constitution. For an encryption group that promotes decentralized autonomy, it is possible to "jointly own" a copy of the supreme U.S. Constitution that represents human rights. Is there any behavior that is more symbolic of the spirit of "decentralization" than this? This is also the core reason why people can become the leader of DAO.

The enthusiasm with which people participate in memes reflects their resistance to traditional narratives. If the meme structure subverts some kind of authority, it will be sought after by people and become its own ideological spokesperson and disseminator.

Hotspot correlation - incentives

There is a concept in game theory called Schelling point (Schelling point). It is people's tendency to choose without communication, and it is a consensus based on public rationality, that is, "I predict that you will predict my prediction." In secondary market investments, wealth codes generated by Schelling points often appear. For example, in the 2022 Spring Festival Gala, Shen Teng compared himself to the "Dog King" in the metaverse in the sketch "Not Yet". After that, the project dokeking of the same name surged 2,000 times in two days. Another example is when Trump was elected president in 2016 , there is a stock in China called Sichuan University, and it once hit the limit because of its homophonic pronunciation.

Although these messages seem absurd, there is a game of human nature hidden behind them. Since user capital is scarce (users’ time, money, attention and other factors are scarce), there are more than 10,000 digital currencies in the encryption industry. Countless users rack their brains every day to think about which currency will rise, which is difficult to predict. But if everyone comes together to reach a consensus due to a certain event and buy the same coin at the same time, the price will naturally rise.

Whether it is an investor’s prediction of the project’s valuation, an entrepreneur’s thinking about the pain points of market demand, or someone who wants to seize the opportunity of a hundred times or a thousand times Meme coins, get rid of blind confidence in self-judgment, judge in advance the signal of public consensus on Schelling point, and think about where Schelling point is. is a very important step.

So the principle of incentives reminds us that we need to associate products and content with things that everyone cares about. Whoever can become the object of hot associations will be Become a funding darling.

Emotional resonance - emotions

Emotions are the primary productive force. For example, if you don’t change your mind, you are not Chinese. Clickbait parties are a stable and beautiful landscape on the Internet. Why are clickbait parties easier to spread? Because they can easily arouse people’s emotions. Once the emotions come up, don’t worry about spreading them.

And what kind of emotions are conducive to people spreading? We need to introduce another criterion called "arousal level". When something happens, people around you don't feel anything (low arousal emotion), and they basically won't share it with others; if something makes people feel angry or happy, Sometimes (high arousal emotion), he hopes to resonate emotionally with others and will share it with others.

If the emotions created by meme coins are reasonable, its ideas will be more likely to inspire emotional resonance among users, and the effect of word-of-mouth communication will be better.

For example, the sol chain meme currency bonk that exploded on New Year's Day this year, under the banner of revitalizing sol, mocked Alameda economics. The community even created a bonk meme game, a bonk meme game. The Shiba Inu hits SBF on the head with a baseball bat. You can start the game by spending BONK tokens, with the text "Felt angry, bonked Sam again, felt great." This kind of cathartic emotion has resonated with the community to a certain extent.

Meme is a kind of ideological virus. Its infection mechanism is similar to the path of virus infection. Wrapped in layers of stories and emotional elements, it is simply what we often call emotional resonance.

Celebrity Effect - Publicity

Celebrity Effect It is crucial to the development of MEME and may even be the key to the successful launch of the project. For meme coins. Investment targets such as nft lack reasonable and effective valuation mechanisms but are full of wealth-making myths. People's hearts are eager to be guided by certainty. In the eyes of the public, celebrities represent wisdom, information, and wealth, so projects involving or endorsed by celebrities will be more attractive.

No one took notice of BAYC when it was first released. They left messages on KOL’s Twitter to promote it and made customizations for KOL. Honorary avatar. Without KOL to bring the goods, BAYC did not mint for a week. This situation did not change until NFT big V @j1mmyeth and @Pranksy placed orders and purchased BAYC in bulk.

In the meme craze in 2021, Elon Musk can be said to be the number one contributor. He once called for help on Twitter to lead DOGE. , SHIB, FLOKI and other MEME coins, every time they are mentioned, the currency price will rise to varying degrees, creating the myth of wealth creation of DOGE 400 times, SHIB 100,000 times, and Floki tens of thousands times.

Image source: @crypto_TomTom

March 2022 Mavericks Quotes. The decentralized VC project Cult DAO, which has skyrocketed more than 300 times in a few days, also contacted influencers on Twitter through the founding team’s proactive emails to serve as CULT guardians to complete the cold start of the project.

Utility——Practical Value

meme used cultural narratives and speculation in the early days to detonate the market and build consensus. When the consensus demand for meme narrative reaches saturation, it is necessary to pursue substantive functional exploration to expand users and support market value. The first stage is to run the financial (Ponzi) flywheel, and the second stage is to implement the narrative and develop the second growth curve.

For example, after achieving great success, doge began to enter circulation as a payment reward to realize functional value; shib announced the launch of an ecosystem after its market value reached US$100 million. , such as shibaswap, nft.

Communication carrier - story

Often Stories are the gateway for people to gain trust and resonate with groups. Compared with advertisements, people rarely reject stories. Stories not only make people willing to listen to them, but also like to spin them to others. On the Internet, stories are a magic weapon for the rapid spread of everything. Without stories, there is no warmth. The story is a synthesis. The story must use all the previous things and then weave it into an effective story. This is the basic rhythm of the entire marketing.

A well-known story in Bitcoin is the legendary transaction event of "exchanging 10,000 Bitcoins for 2 pizzas". At the time, 10,000 Bitcoins were worth less than $40; today they are worth $300 million.

Meme coins are equally popular with a recurring story about people who have turned thousands of dollars worth of cryptocurrency into due to their HODL'ing, price appreciation. A multi-million or billion-dollar story.

Getting rich overnight without hard work is the common human foundation of all crazy events, and it is also the best advertisement for the rapid spread of the project.

3. Valuation and life cycle of meme

Meme valuation formula

In Graham and Under the influence of Buffett and others, people regard "value investing" as the norm and are keen to use the discounted cash flow valuation method to find undervalued assets with a margin of safety. This methodology is obviously not applicable in the encryption field. Philosophical thinking about the market, demand, and value does not only define value in "cash income." For memes, only by combining narrative and numbers can they become a complete valuation structure:

MEME valuation = narrative + numbers

For memes, narrative is the product and culture is the product. The community is the product. The narrative in the formula is the meme product itself, and the number is a deviation factor that is difficult to accurately calculate and contains multiple factors. If extended, the valuation = the size of the narrative (the scope of the impact on the market) + the frequency of emotional arousal. + Celebrity effect (KOL recognition and ability to bring goods) + SOV (Share of Voice: media share) and other multiple factors combined.

For these deviation factors, we can only pursue fuzzy accuracy for the time being. It is difficult to use mathematical models to accurately calculate their chemical reactions, but when we cannot measure With any data, the space for imagination opens up.

The relationship between meme market value and market popularity

Meme relies on consensus to accumulate value, so the speed and breadth of information transmission naturally become key factors.

The market value of meme coins usually has several stages: 1 million US dollars, 5 million US dollars, 10 million US dollars, 100 million US dollars, 300 million US dollars, 1 billion US dollars above.

1 million US dollars: There are only a few Twitter discussions other than those from the project team, and people are starting to pay attention

5 million US dollars: individual Alpha community discussions, two or three gamer influencers with fans called for orders on Twitter

10 million US dollars : The project has increased several times or even dozens of times. Early players have expressed profit-making remarks. Project articles (threads) and YouTube video explanations have begun to appear online. Some active communities understand and discuss the project. Some have their own economic models and high-profit profits. Projects with slippage usually peak at this stage.

100 million US dollars: At least five KOLs mentioned the project on Twitter in the Chinese circle, especially Weibo, and basically all active players in the currency circle are aware of the project. , began to list on second-tier exchanges such as Matcha, Open Sesame, and Bitget. Most projects reach their peak at this stage (like Cult).

300 million US dollars: OKX, Huobi and other exchanges announced their launch. Generally, larger meme projects basically reach their peak market value within a few days after the exchange goes online. (such as bonk)

More than US$1 billion: Binance announces its launch (such as people) or non-native players in the currency circle bring positive externalities to the industry, such as Robinhood Online shib, Elon Musk tweeted to promote Floki

Note: Soldiers have no constant momentum, and water has no constant shape. Meme project valuations often adjust with changes in the overall market capitalization of cryptocurrencies. Therefore, this valuation path is only briefly summarized based on the historical market value trends of successful meme coins in the past few years. The amount of funds in each bull market is different and cannot be completely copied for the next bull market.

The life cycle of Meme

Meme has its own unique life cycle, which usually comes from The spread process of viral marketing usually follows an S-shaped curve, that is, it is slow at the beginning, accelerates when it expands to half of the audience, and slows down extremely quickly when it approaches the maximum saturation point of the market. .

1. After being dormant for two months after its launch, Cult DAO began to rise rapidly due to the launch of Bitcoin Mavericks and several Twitter influencers calling orders. , soaring 380 times in 8 days.

After 2.bonk was launched last Christmas and airdropped to deeply active users on the SO chain, it rose 60 times in three days in January this year as btc rose and fueled by a number of SOL ecological projects.

A good meme coin , from the beginning to the actual outbreak, it can take as short as two or three days, as long as one or two weeks to complete the first round of life cycle. Due to the excessive short-term increase and the lack of a continuous reward mechanism, more people could not invest more time and capital, so it fell very quickly.

Meme coins are easily affected by the outside world. When we invest in meme coins, we need to continue to track community discussions and media topics to measure market sentiment and speculate. Price movements and life cycles.

4. Meme investment ideas

Meme timing

A complete bull market, funds are The pattern of sector rotation is usually BTC - ETH and public chain/L2 - popular sectors nowadays - Web 3 infrastructure - GameFi/Metaverse - NFT - MEME currency/animal currency - the end of the bull market.

The craze for Meme often appears in the middle and late stages of the bull market. In bull markets, most people make money, and the market sentiment is prone to FOMO, which also brings many new players and new funds into the market. . Therefore, if you want to plan a meme project with excess returns, you can look for Alpha in the early stages of the bull market and when BTC’s independent rise begins.

Speculation direction

Looking for projects with low market value and low unit price

In the middle and late stages of the bull market, all mainstream currencies have skyrocketed. The unit prices of BTC/ETH and others are too high, which discourages outside investors. Meme coins are also popular among new players because of their cheap unit price, fun and fun, and easy spread and understanding. favor.

One dollar can buy millions or even hundreds of millions of meme tokens. The investment cost is low, which will give new users a greater sense of accomplishment. Therefore, most of the successful meme coins have very low prices, usually less than $1, and the total volume is huge.

A must-have tool website for playing meme

Whether the contract is open source: http://tokensniffer. com

Whether it is Pixiu: http://honeypot.is

K line market observation: http://dexscreener.com

http://avedex .cc

Project pre-sale: http://uncx.network (the birthplace of babydoge, cult)

How to judge the size of the bubble

When there are only two or three KOLs talking about the project on Twitter, it is in the early stage and you can observe and consider buying. At this time, the risk is high and the reward is high, but at the same time It is also more likely that the project will not be completed;

When at least 5 KOLs on Twitter talk about the project, one or two Alpha communities start to discuss and explain the project It starts to rise, hold it patiently;

When there are media reports, thread articles, and second-tier exchanges issue announcement lists, consider selling the part;

When the project spreads in at least four or five communities, and no less than 10 KOLs discuss the project, and the second-tier exchange has listed the project, you can consider selling all tokens.

(Note: Not all projects will go through the four stages of information dissemination, and most projects on the market die in the first or second stage.)

Embrace and be wary of bubbles. Bubbles are the sparks that ignite the market. You can gain profits in bubbles, but you must also question bubbles.

I finished writing this MEME article last year, and the market came out within two days$Aidoge , $pepe Two golden dogs. Times have changed, and looking back, this article is still too theoretical. In the past six months, I have gained a new "simple and crude" understanding.

I think there are three core elements of the Earth Dog:

1. When the time comes, the heaven and the earth are all working together, and luck will Going to Golden Dog is not free. Only in a good market environment can golden dogs be born, antiques in prosperous times, gold in troubled times; memes in prosperous times, and BTC in troubled times.

2. Science and technology are the primary productive forces. Knowing scientists or making good use of native dog bots will help you get twice the result with half the effort.

3. Say the most important thing three times: know Zhuang, know Zhuang, know Zhuang!

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia