Meme Shell Contracts: Is alt.fun True Innovation or a False Need?

Original: Odaily Planet Daily（@OdailyChina）

Author: Golem（@web3_golem）

Last week, a new Meme launch platform called alt.fun within the Hyperliquid ecosystem caught the attention of many Meme enthusiasts. Within just one week of launch, its leading token, ALT, reached a market cap of up to $8.8 million. Although the price has since pulled back, the market cap remains around $6.7 million.

The novelty of alt.fun can be understood as a combination of Pump.fun and Hyperliquid, allowing users to experience the dual thrill of playing with Memes and trading contracts simultaneously.

Introduction to the alt.fun Platform Mechanism

Specifically, each Meme token launched on alt.fun is backed by a corresponding contract position on Hyperliquid.

Similar to Pump.fun, any user can launch a Meme coin on HyperEVM via the alt.fun platform with a single click. The token price is still influenced by a bonding curve. The total supply of each created Meme coin is 1 billion. Once 75% of the tokens are sold, the token successfully "graduates" and is migrated to the HyperSwap V2 liquidity pool.

The difference from Pump.fun lies in the fact that when creating a token on alt.fun, users must also select an underlying asset and choose a direction (short/long) with a specific leverage multiple (2x/3x/5x). At the moment of token creation, the platform mints a corresponding amount of Leveraged Tokens (LTs) on BounceTech (Odaily Note: a permissionless leveraged token platform on Hyperliquid) and sends them to the user. This leveraged token corresponds to a perpetual contract position established on Hyperliquid. For example, if a user creates a token based on going long HYPE with 3x leverage, what they receive is essentially a leveraged token tracking 3x long HYPE returns.

As shown below, when creating a token on alt.fun, users can currently choose from 14 underlying assets. Similarly, when a player buys this platform's Meme coin, the platform mints the corresponding leveraged token on BounceTech. If a player sells, this process is reversed – the leveraged token is redeemed, and the user receives the corresponding USDC.

This model of packaging leveraged tokens as underlying assets before selling them is similar to how traditional finance securitizes specific risk exposures from derivatives like futures and options. Examples include 3x short Nasdaq ETFs or 5x short crude oil products. The alt.fun platform acts as an asset management company in this process, managing the long-term positions behind the leveraged tokens for users.

The price of such financial products primarily tracks the net asset value (NAV). However, because the price of tokens issued on the alt.fun platform is also simultaneously influenced by the Meme coin's bonding curve mechanism, the graduation model and price drivers for Meme coins on this platform are not singular.

Dual Graduation Model and Price Drivers

This also means that the token price on the alt.fun platform is influenced by two factors: first, market sentiment from buying and selling; second, the performance of the underlying asset. So now you might understand the meaning behind alt.fun's slogan: "Your token pumps even when nobody's buying."

For instance, if a user creates a token based on going long HYPE with 3x leverage and invests an initial $20 (the minimum buy-in set by the platform), and HYPE subsequently rises by 10%, then even if no one buys the token, the user's position value would still increase by 30% to $26.

Based on this dual price driver, the token graduation model on alt.fun is not limited to just one type. Specifically, the graduation condition for a token is reaching a market cap of $9,000. This essentially calculates the value of the leveraged token. Beyond achieving graduation through token purchases, a token can also successfully graduate if its value driven by the underlying asset's price increase reaches $9,000. Therefore, whether a token meets the graduation threshold is often a combined result of both price mechanisms.

Of course, ideally, a rise in the underlying asset would drive up the leveraged token, which, combined with the catalytic effect of Meme market sentiment, could cause the token's value to spiral upwards. However, once the underlying asset falls, causing the value of the leveraged token to continuously shrink, the market might panic sell, potentially leading to an instantaneous crash in the token's price.

Therefore, while alt.fun's mechanism can effectively amplify returns through leverage, it only works effectively in a trending market and requires users to accurately predict the market direction. If the underlying asset experiences choppy or ranging market conditions, users also have to bear leverage decay losses. This is because when the price of the underlying asset is volatile, the platform needs to perform "rebalancing" to manage positions and avoid liquidation. This means that even if the underlying asset falls and then recovers, the leveraged token will suffer a loss from being forced to reduce positions during the downtrend, gradually depreciating.

Furthermore, in the event of extreme price wick movements (flash crashes or spikes), the platform might be unable to react in time, potentially causing the value of the leveraged token to go to zero.

Meme or Not Meme

Currently, alt.fun has a total of 41 graduated tokens. Only two tokens have a market cap exceeding $1 million: ALT, based on 5x long HYPE, and STONKS, based on 5x long S&P 500. The total number of users is approximately over 1,000. Although alt.fun is still in its early stages, we can already identify its current development bottlenecks.

First, the platform has too few underlying assets. Based on the current 14 underlying assets, leveraged tokens can have at most 84 different combinations. alt.fun already features leveraged tokens that short/long the same underlying asset by the same multiple. For example, the current top token by market cap, ALT, is based on 5x long HYPE, while another token that was ATH (all-time high) was also based on 5x long HYPE. The only differences between them are the token name and creation time. Given this, why would an investor buy the lower market cap ATH instead?

While alt.fun may support more underlying assets in the future, its core pain point is its inability to foster a Meme coin community consensus.

The reason investors choose to buy leveraged tokens on the alt.fun platform instead of using leverage themselves directly on Hyperliquid is fundamentally to gain greater price leverage. Additionally, because the platform handles rebalancing for users' positions on the backend, individual users can be "absentee owners" without worrying about individual liquidation risks.

But this is the core problem. An investor buying an alt.fun token is essentially making a bet based on the future price expectation of its underlying asset, not on narrative, market dynamics, attention, or other aspects. These "seemingly meaningless things" are precisely the core value that supports a Meme. For a Meme to rise or gain market recognition, it often relies not on tangible value support or financial engineering, but more importantly on its community propagation attributes.

As a Meme player myself, I find it difficult to develop a fondness for a leveraged token similar to the love for a specific Meme community culture. If one truly has conviction in the underlying asset of a particular leveraged token, it might be better to create one's own leveraged token rather than buying an existing one and bearing unnecessary premiums.

Therefore, while the mechanism of the alt.fun platform appears novel, in my view, it represents a form of mechanical innovation. If alt.fun shifts its focus towards developing as a DeFi platform in the future, it might have a chance. However, if it insists on breaking into the Meme launch platform赛道, it is destined to be a flash in the pan.