The most direct reason why memecoin dominates this cycle is, of course, that retail investors want to take power back from venture capital firms and large institutions.
Written by @DefiSquared
Compiled by: zhouzhou, BlockBeats
Editor's note: Retail investors want to take back power, complex token economics designs are abandoned, and exchanges continue to list low-quality tokens in order to increase user registration rates, resulting in a decline in listing quality and less innovation. The above reasons explain why memecoin currently dominates the market. The market is currently very enthusiastic about memecoin. If you want to change this trend, you need a truly innovative crypto narrative to replace it. Although AI has potential, its combination with encryption is still vague. DeFi may have some breakthroughs in the future, but it still takes time to verify.
The following is the original text (for easier reading and understanding, the original content has been deleted and reorganized):
I’ve been asked a question a lot lately: Will memecoins continue to dominate the market? I’ve put together some thoughts on the topic and reviewed some historical context.
First, I think the main factors driving memecoin’s dominance are:
Despite the strong demand for new tokens, there is a lack of new innovation in the industry. (Has cryptocurrency reached its limit without introducing a centralized element?)
The actual use of the token is intentionally removed so that its valuation is unrestricted.
Retail investors want to take back power.
When memecoin was listed on the exchange, the user registration conversion rate was extremely high, which stimulated the exchange to list a large number of low-quality tokens.
Looking back at the innovation process, we can see the path of technological advancement in the encryption field:
2016: Basic smart contract functionality, such as The DAO and Etherdelta.
2017: Crypto is everywhere. Tokens for dentists, taxis, etc.
2021: Finance and NFTs are combined. For example, lending, automated market makers (AMMs), DeFi, and collectibles.
2023: Infrastructure buildout, e.g. Layer 1 (L1), cheaper/faster transactions.
2024: Memes
These may seem unrelated on the surface, but there is actually a very clear progression of narrowing scope. Initially, the technology was like the "Wild West" and people felt that its possibilities were endless. However, with each cycle, the scope of application of the technology became more and more focused, until 2021, the market felt that it had reached the limit of what could be done in a fully decentralized network.
Since then, the number of innovative dApps has decreased significantly, and the market has begun to focus on improving infrastructure. Although infrastructure improvements can last for multiple cycles, retail investors are short-term focused, and when the market can no longer provide other innovations, memes become mainstream, but it should be noted that memes have always had a huge amount of attention. For example, Doge's market value reached 80 billion US dollars in 2021. The difference is that now memes have become the most popular trend focus.
The second factor that memecoin dominates the market is theoretical valuation. For a long time, there has been a joke in the industry that the most valuable projects should never launch real products, because once launched, the market can immediately quantify their valuation. DeFi in 2024 is a good example: in an efficient market, investors can look at the fundamentals of a project in less than five minutes, give it a valuation of 20 times the price-to-earnings ratio, and conclude that the project should not be worth more. This is the biggest reason why DeFi cannot usher in a bull market in the current cycle.
In 2021, we saw some projects use complex token economics design so that few people could see the true benefits or whether the project was sustainable. This created some of the most sophisticated Ponzi schemes at the time, but ultimately, as these projects collapsed, the market's interest in opaque token economies also disappeared.
Therefore, the solution for memecoin is simple, just throw utility aside and the project becomes unquantifiable. Interestingly, the projects in this cycle that tried to add utility to memecoin have hurt their own valuations by doing so.
The most direct reason why memecoin dominates this cycle is, of course, that retail investors want to take power back from venture capital institutions and large institutions and transfer it to ordinary investors. But the reality is that this is just a minor change in profit distribution. Unfortunately, retail investors still do not get the main benefits.
Instead, the profits have shifted from venture capital firms to the sharks in the industry (some small and capable teams), who know how to monopolize the supply of tokens, package them as "organic" market behavior, and then repeat this routine over and over again. This phenomenon is so common in the market that it doesn't even need to be named by specific projects.
The key factor that makes this strategy so effective is that the market mistakenly uses market capitalization as a signal of legitimacy, which incentivizes those who monopolize the supply of tokens to artificially inflate valuations. Of course, the market continues to game this, and solutions such as Pump Fun are created to limit this opaque supply monopoly. However, this has led to the creation of more sophisticated "sniping" and accumulation techniques, and the war is still going on. But in the end, the vast majority of profits in memecoins fall into the hands of these organized groups, and ordinary retail investors are attracted to continue to participate in this game through occasional "organic winnings".
Finally, let’s talk about exchange listings, which are rarely discussed, but exchanges have been a big driver of the current memecoin craze, and this is closely tied to their incentives. In particular, exchange listing teams want to select tokens that drive the most user registrations. That is, how many users will register and deposit their first deposits to the exchange after a token is listed, and widely distributed tokens in new ecosystems are particularly good at this. For example, according to an interview with Bybit’s CEO, clicker games on TON have brought in millions of new users per listing (a very shocking number).
Popular memecoins are often widely distributed in small amounts because they are very easy for ordinary retail investors to understand, which leads to high user registration and recharge conversion rates. However, the incentive mechanism behind this is actually misaligned. For the listing team, this looks good - the number of users has surged, meeting their performance targets (OKRs).
But the reality is that many of these new sign-ups are not of high quality, and this phenomenon often prompts exchanges to list low-quality tokens in order to hit these numerical targets. In the long run, this is likely to lead to a decline in listing quality, which in turn affects innovation in the entire space.
With all this background, do I think memecoin’s market attention will be sustainable? At least in the medium term, I think it will be. For memes to lose market attention, we need to see a truly crypto-native innovation narrative (i.e., decentralized hybrid technology) and good ponzinomics.
However, the sad reality is that this is much harder than it used to be. The closest thing to this right now is AI, but in most cases people ask why this requires encryption?
