This article discusses the underlying logic and investment methodology of Meme Coin's success
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1. The importance of meme in the encrypted world
Since meme was popularized by shib and doge in 2021, it has played a pivotal role in the encryption industry and has become one of the important components of the encryption investment landscape. Shib is 500,000 times, and doge is 400 times, which has created a lot of wealth creation myths and new traffic for the currency circle.
According to CoinGecko data, as of April 14, 2023, the current total market value of global cryptocurrencies is about 1.34 trillion, and the total market value of the meme sector is about 20.8 billion, accounting for about 15%. After a bear market, memecoins like Shib and Doge not only survived to sit firmly in the top 20 by market capitalization, but performed even better than some so-called value investing projects.
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2. Summarize the key elements of meme success from historical laws
Memes spread like viruses. They spread rapidly within the encrypted world and in the community. They are highly speculative and have skyrocketed and plummeted in a short period of time. In the book "Crazy Spread: Let Your Products, Thoughts, and Behaviors Invade Like Viruses", the author integrates 6 characteristics of viral marketing into a STEPPS model:
Social Currency
Triggers
Emotions
Publicity
Practical Value
Story
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Good Narrative - Social Currency
Good narratives are inherently attractive. Breaking the mold and presenting information that goes against people's stereotypes can add to the intrinsic appeal of MEME. In addition to breaking the rules, being full of mystery and controversy can also increase inner influence. For example, Cult Dao, which has increased by a hundred times in 5 days, the core narrative is to be a decentralized VC, subverting traditional investment institutions, and creating a new paradigm for investing in Dao; for example, people, crowdfunding bought the last public auction in Sotheby’s public auction in the United States. A copy of the constitution. For an encryption group that promotes decentralized autonomy, it can "jointly own" a supreme U.S. Constitution that represents human rights. Is there any behavior that symbolizes the spirit of "decentralization" more than this? This is also the core for people to become the leader of DAO.
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Hotspot correlation - incentives
There is a concept in game theory called Schelling point. It is the tendency of people to choose without communication, and it is the consensus under the premise of public rationality, that is, "I predict you predict my prediction." In the secondary market investment, 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 skit "Not Returning". , There is a stock in China called Sichuan University Zhisheng, and because of the homophonic stem, it once had a daily limit.
Although these news may seem absurd, there is a game of human nature hidden behind it. Since user capital is scarce (users' time, money, attention and other elements are scarce), there are more than 10,000 digital currencies in the encryption industry, and countless users rack their brains every day to think which currency will rise, which is difficult to predict. But if everyone gathers to reach a consensus because of a certain event and buys the same coin at the same time, the price will naturally rise.
Whether it is investors' valuation predictions for projects, entrepreneurs' thinking about market demand pain points, or wanting to seize hundreds of times and thousands of meme coins, jump out of blind confidence in self-judgment, and judge the public consensus in advance. Point signal, thinking about where the Schelling point is. is a very important step.
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Emotional Vibes - Emotions
Emotion is the primary productive force. For example, if you don’t turn around, you are not Chinese. The headline party is a stable and beautiful landscape on the Internet. Why is the headline party easier to spread, because it is easy to mobilize people’s emotions.
And what kind of emotions are conducive to people's communication? We need to introduce another standard called "arousal degree". When an event happens, people around you don't feel much (low arousal emotion), and they will basically not share it with others; if an event makes people feel angry or happy Sometimes (high arousal), he hopes to resonate emotionally with others, and he will share it with others.
If the emotions created by meme coins are reasonable, its ideas will be easier to arouse the emotional resonance of users, and the better the effect of word-of-mouth communication will be.
For example, the sol chain meme coin bonk, which exploded on New Year’s Day this year, under the banner of revitalizing sol, ridiculed Alameda economics. The community even made a bonk meme game. coins to start the game, with the text "Felt angry, bonked Sam again, felt great." This kind of catharsis resonated with the community to a certain extent,
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Celebrity Effect - Publicity
Celebrity is crucial to the development of MEME, and can even be the key to the successful launch of the project. For meme coins. Investment targets such as NFT lack a reasonable and effective valuation mechanism, but are full of myths about wealth creation. People's hearts are eager to be guided by certainty. In the eyes of the public, celebrities represent wisdom, information, and wealth, so projects that celebrities participate in or endorse will be more attractive.
When BAYC was first released, no one cared about it. They posted messages on KOL Twitter to promote it, and made customized honorary avatars for KOL. In the absence of KOLs to bring goods, BAYC did not finish Mint for a week. This situation did not change until NFT big V @j 1 mmyeth and @Pranksy called for orders and bought BAYC in batches.
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Image credit: @crypto_TomTom
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Utility——practical value
In the early days, meme used cultural narratives and speculation 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 to develop the second growth curve.
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Communication carrier - story
Stories are often the door for people to gain trust and resonate with the group. Compared with advertisements, people seldom reject stories. Stories not only make people want to listen, but also like to listen to them. On the Internet, stories are a magic weapon for the rapid spread of all things. Without stories, there is no temperature. The story is a master, the story must use all the previous things, and then weave an effective story, this is the basic rhythm of the entire marketing.
A well-known story of 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.
The meme coin is also popular for a recurring story about people turning thousands of dollars worth of cryptocurrency into millions or billions of dollars as a result of their HODL'ing, price appreciation.
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3. Valuation and life cycle of meme
meme valuation formula
Under the influence of Graham, Buffett and others, people regard "value investing" as a standard, and are keen to find undervalued assets with a margin of safety through the valuation method of discounted cash flow. Obviously not applicable. Philosophical thinking about the market, demand, and value does not only define value in "cash income". For memes, a complete valuation structure can only be achieved by combining the narrative and the numbers:
MEME Valuation = Narrative + Numbers
For memes, the narrative is the product, the culture is the product, and 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 calculate accurately and includes multiple factors. If it is extended, valuation = narrative size (the scope that affects the market) + emotional arousal frequency + A combination of multiple factors such as celebrity effect (KOL recognition and delivery ability) + SOV (Share of Voice: media share).
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The relationship between meme market value and market popularity
Memes rely on consensus to accumulate value, so the speed and breadth of information transmission naturally become key factors.
The market value of meme currency usually has several stages: 1 million US dollars, 5 million US dollars, 10 million US dollars, 100 million US dollars, 300 million US dollars, and more than 1 billion US dollars.
$1 million: There are only a few Twitter discussions other than the project party on Twitter, and people are starting to pay attention
5 million US dollars: individual Alpha community discussion, two or three big V players with fans shouting orders on Twitter
10 million US dollars: The project has increased several times or even dozens of times, early players have made profitable remarks, project articles (threads) and YouTube video explanations have begun to appear online, and some active communities understand and discuss the project. Some have their own profiteering economy Models and projects with high slippage usually peak at this stage.
100 million US dollars: Twitter in the Chinese circle, especially Weibo, has at least five KOLs mentioning the project, basically active players in the currency circle are aware of the project, and began to launch second-tier exchanges such as Matcha, Sesame, and Bitget. Most projects peak at this stage (such as Cult).
300 million US dollars: OKX, Huobi and other exchanges announced their launch. Generally, the larger meme projects basically reached the highest market value within a few days after the exchange was launched (such as bonk)
More than 1 billion US dollars: Binance announced the launch (such as people) or non-native players in the currency circle brought positive externalities to the industry, such as Robinhood launched shib, and Elon Musk tweeted to drive Floki
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Memes have their own unique life cycle, they usually come and go quickly, and the process of viral marketing is usually an S-shaped curve, that is, it is slow at the beginning and speeds up when it expands to half of the audience , and slowed down rapidly when approaching the maximum saturation point of the market.
Memes have their own unique life cycle, they usually come and go quickly, and the process of viral marketing is usually an S-shaped curve, that is, it is slow at the beginning and speeds up when it expands to half of the audience , and slowed down rapidly when approaching the maximum saturation point of the market.
1. After Cult DAO went online for two months, due to the launch of Bitcoin Mavericks and a few Twitter kols shouting orders, it began to rise rapidly, and it skyrocketed 380 times in 8 days.
2. After bonk was launched last Christmas and airdropped to deeply active users on the SO chain, it rose 60 times in 3 days in January this year with the rise of btc and fueled by a number of SOL ecological projects.
A good meme currency will go through the first round of life cycle from the start to the real outbreak, as short as two or three days, and as long as one or two weeks. Due to the excessive short-term increase and the lack of a continuous reward mechanism, more people cannot invest more time and capital, so the fall is also extremely fast.
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timing of meme
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Meme frenzy often appears in the middle and late stages of a bull market. Most people in a bull market make money, and the market sentiment is prone to fomo, which will also bring many new players and new funds into the market. Therefore, if you want to deploy a meme project with excess returns, you can look for Alpha in the early stage of the bull market and when the independent rise of BTC starts.
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Look for projects with low market value and low unit price
In the middle and late stages of the bull market, all mainstream currencies skyrocketed, and the unit price of BTC/ETH was too high, which discouraged investors outside the circle. However, meme currency was also favored by newcomers for its cheap unit price, fun, fun, and easy communication and understanding.
Millions or even hundreds of millions of meme tokens can be bought for 1 dollar, and the investment cost is low, which will make new users feel more fulfilled. Therefore, most successful meme coins have extremely low prices, usually less than $1, and the total amount is huge.
Play meme must-have tool website
Whether the contract is open source: http://tokensniffer.com
Is it Pixiu: http://honeypot.is
K-line market observation: http://dexscreener.com
http://avedex.cc
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How to judge the size of the bubble
When there are only two or three KOLs talking about the project on Twitter, and it is in the early stage, you can observe and consider buying. At this time, the risk is high and the return is high, but at the same time, the possibility of the project not being implemented is also relatively high;
When at least 5 KOLs talk about the project on Twitter, and one or two Alpha communities start to discuss, it means that the project is on the rise, so hold on patiently;
When there are media reports, thread articles, and announcement lists issued by second-tier exchanges, consider selling the part;
When the project spreads in at least four or five communities, and at the same time no less than 10 kols discuss the project, and the second-tier exchange has launched the project, it can consider selling all tokens.
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