The Truth Behind Memecoin Craze: Power Play for Retail Investors or Elites' Harvesting Frenzy?

First and foremost, I believe that there are several key factors that have propelled the dominance of memecoins:1. Despite a robust market demand for new tokens, there is a lack of new innovation with...

First and foremost, I believe that there are several key factors that have propelled the dominance of memecoins:

1. Despite a robust market demand for new tokens, there is a lack of new innovation within the industry. (Has cryptocurrency development reached its limit without introducing centralized elements?)

2. The intentional elimination of the token's practical use, thereby allowing its valuation to be unrestricted.

3. Retail investors desire to regain control.

4. When memecoins are listed on exchanges, the conversion rate of user registrations is extremely high, stimulating exchanges to list a large number of low-quality tokens.

Looking back at the history of innovation, we can observe the technological refinement path in the cryptocurrency field:

2016: Basic smart contract functionalities, such as DAO and Etherdelta.

2017: Cryptocurrency ubiquity. For example, various tokens introduced for dentists, taxi services, etc.

2021: The combination of finance and NFTs. For example, lending, automated market makers (AMM), DeFi, and collectibles.

2023: Infrastructure development, such as Layer 1 networks (L1), cheaper/faster transactions.2024 Year: Memes

These may seem unrelated on the surface, but in reality, there is a very clear process of narrowing down the scope. Initially, the technology was like the 'Wild West,' where everyone felt its possibilities were limitless. However, with each cycle, the scope of technology applications became more focused until 2021, when the market felt that the things that could be done in a fully decentralized network had reached their limit.

Since then, the number of innovative dApps has significantly decreased, and the market has begun to focus on improving infrastructure. Although infrastructure improvements can last for multiple cycles, retail investors' attention is short-term, and when the market can no longer provide other innovations, memes have become mainstream. However, it should be noted that memes have always had significant attention. For example, Doge's market value once reached 80 billion US dollars in 2021. The difference is that now memes have become the most focused trend.

The second factor in memecoin dominating 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 they do, the market can immediately quantify their valuation. DeFi in 2024 is a good example: in an efficient market, investors can review 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 precisely the biggest reason why DeFi cannot usher in a new bull market in the current cycle.

In 2021, we saw some projects with complex token economic designs that made it difficult for few people to see their real returns or whether the project was sustainable. This created some of the most sophisticated Ponzi schemes at the time, but eventually, due to the collapse of these projects, the market's interest in opaque token economies also disappeared.

Therefore, for memecoin, the solution is simple: just throw practicality aside and make the project unquantifiable. Interestingly, in this cycle, those projects that tried to add practicality to memecoin have actually damaged their valuation by doing so.

The most direct reason for memecoin dominating this cycle, of course, is that retail investors hope to take power away from venture capital institutions and large institutions and transfer it to ordinary investors. However, the reality is that this is just a minor change in profit distribution, and unfortunately, retail investors still do not get the main benefits.

Instead, the benefits have shifted from venture capital institutions to sharks within the industry (some small, agile teams), who are very good at monopolizing token supply, packaging it as 'organic' market behavior, and then continuously repeating this routine. This phenomenon is common in the market and does not even need to name a specific project.

The key factor that makes this strategy so effective is that the market mistakenly treats market value as a signal of legitimacy, which motivates those who artificially inflate valuations by monopolizing token supply. Of course, the market is also constantly playing games, such as creating solutions like Pump Fun to limit this opaque supply monopoly behavior. However, this has led to the birth of more complex 'sniping' and accumulation techniques, and this war is still ongoing. But in the end, the vast majority of memecoin profits still fall into the hands of these organized groups, attracting ordinary retail investors to continue participating in this game through occasional 'organic wins.'

Finally, let's talk about the exchange's token listing mechanism, which is rarely discussed, but in fact, exchanges have greatly promoted the current memecoin craze, which is closely related to their incentive mechanisms. In particular, the exchange's token listing team wants to choose tokens that can maximize user registration. That is, how many users a token listing can attract to register and make their first deposit on that exchange, and widely distributed tokens in the new ecosystem perform particularly well in this regard. For example, according to the CEO of Bybit in an interview, the clicker games on TON brought in millions of new users each time they were listed (this number is very shocking).Popular memecoins are typically widely distributed in small amounts because they are very easy to understand for the average retail investor, which also leads to a higher conversion rate for user registration and deposits. However, the incentive mechanism behind this is actually misaligned. For the listing teams, it looks good—user numbers are surging, meeting their performance objectives (OKRs).

But the reality is that the quality of many of these newly registered users is not high, and this phenomenon often encourages exchanges to list some low-quality tokens in order to achieve 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 field.

Understanding this context, I believe that the market attention for memecoins can continue? At least in the medium term, I think it will. To make memes lose market attention, we need to see a truly innovative narrative with crypto-native characteristics (i.e., decentralized mixing technology) and good ponzinomics.

However, the regrettable reality is that this is much more difficult than before. The closest to this at present is AI, but in most cases, people will ask why this needs to use encryption technology?