Memecoin vs Elitecoin: A cultural revolution in the crypto world
Original author: KERMAN KOHLI
Original translation: TechFlow
I didn’t expect to be writing this post. Last cycle (2021), I didn’t know much about NFTs, didn’t buy things without “utility”, and loved my DeFi coins.
This cycle, my perspective has changed significantly. So what happened?
Broken promises and seeing through 8 years of crypto bullshit.
I got into crypto in 2017, and in my opinion, that is still one of the most exciting cycles in crypto (2020 is a close second). Why? Because for the first time ever, you could raise money from anywhere in the world in less than 10 minutes. Sure, it was rife with scams, but the overall innovation was impossible to ignore. Ethereum was an ICO coin, along with Aave, Gnosis, and countless others. As someone from New Zealand/Australia, I would never be geographically close to the big money, and ICOs gave me hope that talent and the best of the best have a chance to shine no matter where they are (assuming they can build and market). The feeling of people huddling around a laptop, transferring $5 million, and getting a deal done in crypto is crazy anywhere else.
Unfortunately, all good times must come to an end. In the years that followed in 2018/2019, we had to pick up the pieces, including a large number of injured retail investors and the countless lawsuits that followed. Despite crypto being an extremely risky industry, the founders and investors wanted something “safer.” So, they chose a new model:
Raising funds privately for early rounds
Raising funds privately for later-stage rounds
Airdrops at high valuations
How to participate in these "deals"? Become part of the crypto elite that has access to these deals, and then wait for your assets to appreciate. I am a net beneficiary of this model. I have been lucky enough to be an angel investor in certain tokens that have grown significantly in value when they went public. Most of my investment performance has come from the public markets. I do know many friends and investors who have made incredible amounts in this new model. You just need to be popular on Twitter now.
Now, I’m not saying that people with social capital shouldn’t be able to convert it into financial capital. That’s just the way the world works. The problem is the incentives in this system. I’ve written about this in various ways, but I’ll take a moment to review it.
The “new” model
The problem with this new model is that it is more corrupt than the existing financial system. It usually goes something like this:
The first round of investors will get a $10-50 million valuation for any token/project. Given that most tokens have the potential to be worth $1 billion, you are looking at a 20x-100x upside. This round is easy to sell, usually to insiders. This is fine because this is how regular VC investing works as well.
Now with enough funding, the project can start building and shipping. Once you release something, you put the expectation of an "airdrop" in front of users. The deal is simple, use our product and we will eventually reward you with our tokens. Oh, and if you use multiple wallets, you'll get more because you improve our metrics.
With these new metrics, projects can sell bigger dreams. Growth-stage capital can come in and write bigger checks to these companies. If your dream is ambitious enough, you can raise $50 million at a $500 million valuation. This is where you start to get suspicious, if they invest at a $500 million valuation, then investors need to see at least a $5 billion valuation. To achieve this, you need investors with the best marketing and social impact (or cash flow, which usually doesn't exist at this stage). Keep them on call because in the next stage, you need to work together.
As you get closer to launching your token, increase your marketing and social presence. More and more people discover the project and token and will enthusiastically use it in hopes of getting an airdrop. This cycle is as powerful as a 20-year-old man going to the gym on steroids.
Once the marketing campaign reaches its peak, launch the token and ensure liquidity for your investors and team members. You can also sell early on the secondary market if you want. What happens after this is not in your control as people will dump their tokens to get liquidity and move on to the next project.
Note: Some teams are not as committed to this aspect and will ensure proper 4-year token vesting for team members and investors, execute airdrops carefully, and work hard to get accurate data. These are the exceptions and I hope these projects will stand out.
The result of this cycle is basically a bunch of products and stuff that people don't really want but will continue to repeat: Why? Because it's the only way to make money in this market. Opportunities for early and growth rounds are limited. Your only chance is to throw money into untested smart contracts and hope for a bad product on multiple wallets and then get $1,000-$10,000 a few months later. So what is the utility of these tokens?
Most tokens promise "governance". Well, most tokens are held by insiders, so your voice is irrelevant. How do you know? Well, you just have to invest a lot of time understanding the makeup of wallets and how governance votes have worked in the past.
What about cash flow? Yes, some may have cash flow, but as a token holder, will you receive it? Of course not. This may change with the UNI fee switch, but until then we are at an impasse.
What about innovation? Key team members have become multimillionaires and from this point on, they may only care about whatever product they produce. How do you know? Only when you have inside information through discussions with industry insiders.
What about growth? Well, the airdrops and the metrics are fake, so none of it is real. Most users and funds will flow to the next "hot" project, leaving you forgotten all about as a relic of the previous cycle. There will always be a new project with hotter investors and more users taking advantage of the airdrops, and they will attract more attention.
What about future price appreciation? Well, you need to understand the entire supply schedule and when more tokens will be unlocked so that insiders don’t dump on you and get exit liquidity.
The system works by perpetuating short-term, profit-driven behavior through false data. People are not stupid, and frankly, they have had enough. Why choose another project that will enrich a large number of insiders when there is a new alternative: Meme Coin?
A revolution within a revolution
Cryptocurrency is supposed to be a place where the playing field is leveled for everyone and we have transparent, fair distribution.
Bitcoin is a perfect example of this:
No pre-mining
Fair distribution through proof of work
No practical functions are promised except for the advertisement
I’m not saying that every coin needs or has to do this, but this does represent the qualities of a cryptocurrency that make it revolutionary compared to the current financial system:
New dollars are printed for those closest to the printing press
Information is opaque and difficult to verify
Value rarely belongs to the people who create it (citizens)
In many ways, the current crypto system is starting to look like the old way of doing things (tokens are distributed to insiders, data is hard to verify, and investors capture most of the value). In contrast, memes respond to the promise of original crypto in a unique way.
I want to start with a phrase that people often say.
“When the hype dies down, memecoins will eventually go to zero”
I’ve said this a lot before. But let’s look at the data, shall we? Here’s a chart of Dogecoin’s market cap since 2014 (on a logarithmic scale because the price increase is too large to properly chart). It’s a coin with no utility other than the logo being a widely recognized dog called a Shiba Inu.
You will make more money investing in Dogecoin than investing in NVIDIA.
So should this coin go to zero? In fact, the opposite. It continued to climb significantly, actually surpassing Bitcoin. Giving investors a return of about 8,000 times is hard to ignore.
You might say “well, Dogecoin is special, it’s an outlier”. I think this is a weak answer and requires deeper digging. Let’s look at some of Dogecoin’s characteristics:
No pre-mining
It runs on a proof-of-work algorithm and has no “pre-sale”
Provides no practical use other than being a cute internet joke
Dogecoin doesn’t lie. It doesn’t favor those with social capital. No insiders get special access. If you believe in internet culture and crypto, you can get some for yourself.
But I want to use this example to further illustrate my argument, in a different but similar way.
$DEGEN
I've written about Farcaster here before, but there's a new play emerging that we're going to see become very popular in the coming months and years. To illustrate this, I want to use something different as an example: Reddit. Recently, Reddit IPO'd at a $6 billion valuation. Much of this value was created by the platform's users. However, the best Reddit could do is offer their users a chance to participate in an IPO at a multi-billion dollar valuation. They might get a nice return, but it's not going to change the trajectory of their lives in any meaningful way.
When Farcaster launched and I was writing about it, there was a little experiment going on there called $degen. The idea was pretty simple, you get a certain amount of $degen and can then distribute it to people who have good posts on Farcaster by commenting “50 $degen”. The more tips you give, the more you earn. In many ways, it was simple, but also brilliant at distributing value. As usual, I was skeptical and ignored this as “yet another Ponzi scheme that will go to zero because it has no utility”. However, $degen succeeded in capturing the minds of the people of Farcaster. As Farcaster grew, so did the price of $degen.
$degen is still young (only 3 months old) and will face many challenges in its journey ahead. While it represents something new and novel, I think it will stand the test of time, even in the face of a bear market. However, looking at a chart like this, it's easy to think "what if I invested when it was $x".
What I want to illustrate with this post is what you can achieve by actually participating. One of the largest $degen holders I know of is Cooper Turley. He has been very involved with Farcaster and $degen. His public wallet holds close to $250,000 in $degen, purely through participation.
These stories are what I came to crypto for, not re-enacting the same corrupt system with new projects.
During the rise of $degen, it is now being used as a marketing strategy for startups. Alex Masmej is building the intersection of TikTok and crypto, and he uses $degen as the main currency for their product Dracula. This creates a symbiotic relationship between Dracula and $degen. Memes as marketing channels are becoming a more prominent theme in the future. I will expand on this further in the next section.
Although $degen has a small pre-allocation and has sold tokens to "Farcaster" insiders, the amount is much smaller, which I personally think is reasonable. Despite seeing the rapid rise of $degen, I hold very little $degen due to my mid-curving strategy.
$WIF
Dogwifhat. The most hated meme on crypto twitter right now. When I first heard about it, I was disgusted. I remember thinking, "those filthy people are making shit again". However, after learning about the dog's story, I found it fascinating enough to change my mind. I own a small portion of $wif and I got involved fairly late (market cap is now in the billions).
You see, the dogwifhat photo started long before it was a token. It was a popular internet meme that had a life of its own. It was a photo that made you look at it and say, “That’s a pretty cute dog in a hat.”
In late 2023, a Solana developer launched $wif. However, after the token surged in the first two days, he sold his share for $32,000, leaving a "clean" allocation. There is no remaining supply. If he had not sold, his share would now be worth over $1 billion. Considering that the distribution of tokens is essentially first come, first served, wif has grown to unprecedented scale.
$wif is pretty easy to understand: it’s just a cute puppy in a hat. No investors to worry about selling you, no promises, no cash flow. It just is what it is.
It's simultaneously hilarious and deceptively simple. But most people will probably miss it.
Zoom in
“But, author, are you really suggesting that we should all buy tokens that don’t actually do anything but have cute dogs or communities and no other value”?
First, your decision to invest or not is your own problem and is not the scope of this article. My second point is, what are the alternatives? When you look at the top 100 tokens on CoinGecko, you will see that there are a ton of tokens:
There is no real utility behind the surface and most of it is lies
There is a possibility of facing a huge dumping of investors
Does not generate any cash flow
So relatively speaking, meme coins and “utility” tokens are the same. I prefer tokens that are honest about where they stand and don’t require me to analyze 100 different variables while I’m working on other things.
“But when the bear market comes, will they all go to zero”?
Well, guess what, everything crashes 50% to 99% in a bear market. What you describe is no different than any other coin. At least for memecoins, there are no lies or false promises, like most coins will eventually reveal. AI/L2/ZK coins are currently the biggest perpetrators of this trend. They falsely misrepresent their technology, have an oversupply of tokens, and are listed at ridiculously high valuations. I hate these coins.
Cryptocurrency is plagued by lies. It is an industry rife with corruption. Meme coins, in an unusual turn of events, have become the answer to the fight. It is a revolution within a revolution.
Now they’re easy to buy (Solana), easy to understand (cute dogs), and honest (no complicated technical or financial jargon to confuse you).
They are here to stay whether you like it or not.
They will drop in value in 2-3 years like everything else on the market, but I bet the best memes will live on in our minds and make huge returns in the 2028 bull run, just like Dogecoin.
The question is: are you a good meme connoisseur, or a foolish person buying a scam altcoin where the developer is trying to make a quick buck and run away? This question is left to you.
The Future of Cryptocurrency
Meme coins may also represent a financially nihilistic future where people gamble their way out of poverty. There should be an alternative to being able to invest in technology that makes humans happier or more productive at rock-bottom prices. Don't just sell dreams like this.
While I could choose to spend my time on Meme, I believe that through better identity, reputation, and data primitives we can create a better society on-chain. This is where I choose to spend my time and build accordingly. Based on my recent article on airdrops, I learned a lot behind the scenes that I am excited to share with you.
I hope these new products will help solve the problems we currently have with cryptocurrencies.
However, for now, Meme Coin may be the best honest alternative.
Disclosure, despite my bullishness on Meme, I still keep under 5% of my portfolio in Meme. I expect this percentage to grow significantly and appreciate substantially as Meme coin shows continued staying power and is ignored by the elite.
