A VC Perspective on the Memecoin Craze: A New Investment Battleground or a Liquidity Exit Trap?

Meme experienced a slow germination phase from 2013 to 2019, followed by a rapidly changing chaotic period from 2020 to 2022, and finally welcomed a period of rapid development from 2023 to 2024, officially gaining widespread recognition and a solid audience base as a single track.

The average daily turnover rate of Meme is about 11%. In comparison, DeFi is 5%, Layer 2 is 7%, and Layer 1's average daily turnover rate is 4%. This ratio not only highlights the high liquidity of Meme but also indicates that users have a higher interest and trading frequency in Meme.

By the end of the third quarter of 2024, Meme's market share in the entire crypto market has increased from 0.87% two years ago to 2.58% now, with a continuing growth trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

Meme is a leveraged Layer 1, which means that when the market conditions improve, there will be an increase of about 5 to 10 times in Layer 1.

Animal-themed Memes and Cult culture Memes are types that are suitable for long-term attention. In contrast, other categories of Memes are often related to short-term trends, and their attention and popularity may rise and then fall rapidly.

In 2024, the industry and market are undergoing a drastic reshuffle. Against the backdrop of many VC investments and supported projects performing poorly upon launch, Meme has surged against the tide, becoming a new force that cannot be ignored. The rise of the PvP model, the wealth effect brought about by single-coin strikes, and the Solana ecosystem that is extremely friendly to Meme have all showcased unique brilliance this year. The new generation Meme representative, Murad, has rapidly become a hot figure in the Meme world through his Supercycle speech. However, behind this Meme craze, what changes has Meme actually undergone? From the perspective of VCs, how should we participate in it? These questions are worth our in-depth exploration.

Meme Market Overview: Origins, Evolution, and Market Data Analysis

Origins and Impact

Meme, as a cultural dissemination phenomenon, is closely linked to human history. Originating from early social languages, beliefs, and customs, it spreads within groups through imitation and learning. The advent of the internet has greatly accelerated the spread of Memes, which circulate among users in the form of images, videos, text, and emoticons, quickly due to humor, satire, or resonance. Memes satisfy people's needs to express emotions, share opinions, and establish resonance in social interactions. They reflect social trends, group psychology, and cultural changes. Their dissemination and popularity are influenced by various factors such as content appeal, dissemination environment, community acceptance, and KOL influence.

In Web2, meme culture mainly originated and developed on the platforms of 4chan and Reddit. 4chan is the birthplace of the popular meme Pepe the Frog, gathering a large number of Pepe memes and related derivative culture. At the same time, 4chan is also a breeding ground for Boy's Club comics, providing us with an important perspective to understand meme culture. Reddit, on the other hand, has nurtured classic memes such as Dogecoin and Success Kid. Thanks to the active community atmosphere and solid user base of these two platforms, they remain the birthplace of many new memes to this day. In addition to these two platforms, other popular social media platforms (such as Twitter X and Telegram) have also nurtured some popular memes. For example, dogwifhat, an image of a dog wearing a pink knit cap, has formed a "hat" totem culture in the community early on due to its unique image, with many enthusiastic users and celebrities sharing related images of the hat dog.

evolution and development

Starting from Web2, obsessed with Web3. In this article, we refer to Memes and their related currencies collectively as "Meme", without making specific distinctions. Looking back at the development history of Meme, we notice that it was not prominent in the early days and did not receive enough attention. Referring to the cyclical changes of bull and bear markets in the industry, we can divide the development trajectory of Meme into three stages: the budding period (2013 to 2019), the chaotic period (2020 to 2022), and the rapid development period (2023 to 2024). By reviewing historical snapshot data from CoinMarketCap, single currency data from Coingecko, historical news from search engines, and content from social media, we can gain a more comprehensive understanding of the evolution of Meme.

As of December 31, 2019, during its nascent stage, Dogecoin was the only Meme coin ranked 34th in the top 100 cryptocurrencies by market capitalization. Looking back from 2013 to 2019, Meme coins did not occupy a significant position in the market. During this period, the industry was undergoing rapid infrastructure development, with everyone exploring various new concepts. Mainstream new coins were usually those with more efficient transaction processing capabilities and faster confirmation times, or new public chains equipped with powerful smart contract functions. For Meme coins, the challenges they faced were that they not only required high costs to establish their associated carriers, but also that the construction of liquidity was relatively difficult, leading to low trading volumes and making it hard to gain widespread support from centralized exchanges. Therefore, during the nascent stage of Meme coins, apart from Dogecoin, which featured the "Doge" meme and had a significant dissemination effect, there were not many other Meme coins that could survive in the market.

The chaotic period that began in 2020, more specifically starting in August 2020, was triggered by the wave of IDOs brought about by DeFi Summer. The IDOs led by DeFi Summer allowed people to build liquidity on-chain at a low cost, provide trading, and quickly create trading scenarios. This enabled low-cost token issuance and allowed tokens to circulate directly in the secondary market without being listed on exchanges, giving rise to many on-chain Memes. During this period, the surviving Meme coins included SHIB, FLOKI, and PEOPLE. However, these early Meme coins did not receive significant market attention, as their popularity was mainly based on speculative concepts. Additionally, the popularity of Memes during the chaotic period often emerged against a backdrop of excess liquidity in the industry; they typically appeared as the final leg of a relay race after multiple sectors had taken turns to rise. It is worth mentioning that Memes gained widespread attention during this period due to their association with celebrities, particularly Elon Musk's continued advocacy for Dogecoin in 2021, which not only caused significant volatility in Dogecoin's price but also overall propelled Dogecoin to a new level in terms of market capitalization, with the community significantly expanding.

With the arrival of 2023, the craze for Meme coins continues to heat up, giving rise to a variety of Meme coin types, such as BONK, PEPE, CHEEMS, Cult culture-related BITCOIN (HarryPotterObamaSonic10Inc) and SPX (SPX6900), WIF, and MOG. During this period, the types of Meme coins began to become more refined, with other public chains like Solana also making their mark. By 2024, the development of Meme coins has directly entered an accelerated phase, with new coins like BOME, lowercase NEIRO, and GOAT constantly emerging, each with its own characteristics. Meme has officially gained widespread recognition and a substantial audience as a standalone track.

By analyzing the market capitalization share and performance indicators of Meme in the top 600 cryptocurrency markets from 2013 to 2024, we can clearly see the growth of Meme's market capitalization as well as the expansion of its categories and numbers. During this period, Meme's market capitalization not only achieved significant growth but also increased in variety and quantity. As of the end of the third quarter of 2024, the market capitalization share of Meme in the entire cryptocurrency market has risen from 0.87% two years ago to 2.58% now, with a continued upward trend. If we conduct a simple linear regression simulation, this share is expected to reach 3.54% in 2025 and 7.81% in 2030.

Perhaps we once doubted whether Memes were just a fleeting phenomenon that would quickly fade into silence after the hype. However, with research and understanding of Memes, we believe our perspective has changed. Memes will not only not disappear, but they will continue to innovate, and new leading Memes may emerge in every era. However, behind these dazzling leading Memes lies a harsh reality, reminding us that we must always remain calm and clear-headed.

Market Data Analysis

By analyzing the development and historical data of Memes, we can roughly understand their development trends. Therefore, studying the current market landscape can provide us with an intuitive perspective to observe changes in market hotspots and the flow of funds. Below, we further delve into the macro indicators of the Meme sector, including core indicators such as market capitalization, trading activity, and average daily trading volume. These analyses not only reveal the latest dynamics of the Meme sector but also showcase its future development trajectory.

Market Cap and Quantity Changes: The changes in the market cap and circulating quantity of Meme can reflect the market's demand and acceptance of it. Although some Meme tokens have a low market cap, the increase in the number of new Memes indicates that the community's interest in the entire sector is growing. Compared to other sectors (Layer 1/Layer 2/DeFi), Meme has been far ahead in terms of total market cap and new quantities in the past two years.

Trading Activity: The trading activity and turnover rate of Meme are usually higher than those of other sectors. According to CoinMarketCap data, the overall market capitalization of Meme tokens is approximately $50 billion, with a daily trading volume of about $5 billion, which is significantly higher than that of other sectors in terms of trading activity. On average, the daily turnover rate of Meme tokens is around 11%, while the daily turnover rate of DeFi is about 5%, Layer 2 is about 7%, and Layer 1 is 4%. This ratio not only highlights the high Liquidity of Meme but also indicates that users have a higher interest and trading frequency in Meme. For Meme tokens that are above the sector level, especially those with larger trading volumes, they often become targets pursued by market funds.

New Meme Coins' Price Surge and Low Success Rate: New coins continue to emerge in the Meme market, with some surges even exceeding mainstream cryptocurrencies like BTC. This indicates a high level of volatility and speculative opportunity in the realm of Meme tokens. However, among the numerous new Memes, taking Pump fun data as an example, less than 2% of the Memes successfully launched, and only 0.23% maintain a current market value above 1M, meaning the probability of surviving the test of time is extremely slim.

Large trading volume and new users: Memes can bring substantial trading volume and have a relatively loyal user base. Therefore, for CEX, listing Meme tokens can become an important strategy to attract traffic and users. Taking Binance's spot market as an example, among the top 30 trading pairs by trading volume, 20% are Memes.

Blue Chip Memes Scarcity: Blue chip level Memes are quite scarce. In the face of a vast number of hundreds or thousands of Meme tokens, those that can truly be called blue chip are less than 1%. Taking the Memes recorded on the Coinmarketcap website as an example, despite the market's