How to Value Mememcoins
Can the Meme be Trendy?
Whether a memecoin can become trendy is an extremely crucial factor in determining our profitability in trading.
We need to evaluate the meme carried by the memecoin to see if it has the potential for viral spread and if it encapsulates the cultural essence of the crypto market. These aspects are vital to determine if there will be sufficient market enthusiasm to support the growth of memecoin. Of course, this is complex, involving market conditions, cultural alignment, and even trader psychology. However, we can still preliminarily filter the vast array of Memecoins on the market from some observable dimensions.
Does the memecoin have a unique value proposition or mechanism design? Is it catchy enough?
The birth of a memecoin can be purely for fun or, as we mentioned, to create a new community belief or native crypto culture, achieving a shared goal.
Novelty is essential. If multiple memecoins emerge from a single meme, it's best to focus on the first. Why? Memecoin trends also adhere to their own laws of diminishing returns: repetitively exploiting the same joke loses its appeal. For example, most dogs apart from Dogecoin, and most frogs aside from Pepe. The Memecoin trend gained momentum initially due to its disruptive and innovative nature. Here, mechanical imitation is pointless.
Creating a compelling community culture is also a path to popularity.
Apart from the Cult DAO we mentioned in the first section, take OlympusDAO as another example. OlympusDAO introduced the community belief of (3,3): as long as you buy, we're all "Ohmies", and the project has boundless potential, ensuring everyone profits. Sounds overly simplistic? But it's feasible at a mechanical level and innovative in evoking emotion. As a result, not only did it succeed, but it also sparked a meme trend in the crypto market around "(X,X)".
Does the meme possess the cultural attributes of the crypto market?
What's funny or trending in the Web 2.0 context might not necessarily resonate in the crypto sphere.
For instance, compared to the native crypto memecoin HarryPotterObamaSonic10Inu, "科太币", a coin derived from a current film, might not be as appealing to the crypto community, attracting a limited audience. Why is that?
The reason is straightforward. The meme behind "科太币" isn't natively crypto but rather originates from a commercial Chinese movie. Hence, only those who speak Chinese—specifically those who've watched or heard about the film—would understand the joke. In other words, the vast majority of crypto users outside this context wouldn't resonate with the meme.
On the other hand, what about HarryPotterObamaSonic10Inu? Just naming the token BITCOIN is abstract enough. Its lengthy name, stylized website presentation, and other designs all exude a wild sense of humor. This effortless and universally understood humor, which doesn't require a high barrier to laugh, is a key component of the crypto cultural DNA.
To recall: The pioneer of memecoins, Dogecoin, was initially established to be a "more accessible, more functional, and more fun cryptocurrency." This ethos has sustained the memecoin domain's development and popularity over the years.
Is the audience for the meme broad enough? Does it have the potential for viral spread?
A memecoin you appreciate might not necessarily resonate with others.
Taking the previously mentioned "科太币" as a comparison, consider Squid Game (SQUID) – another Memecoin derived from entertainment. Due to the global popularity of the Netflix series "Squid Game," it gained wider market recognition and a broader audience within the crypto community. Although the SQUID project later infamously turned out to be a rug pull scam, it's undeniable that its trade data performed well before the scandal, with its price even surpassing $2,000 at one point.
For individual users, gauging the potential size of an audience can be challenging. Perhaps a rudimentary way to discern this might be to share the memecoin with friends (or drop a link in a crypto community/user group you're part of) and see if they find it amusing and are inclined to share it further.
Is the Community Active?
The growth of memecoins heavily depends on the strength of their communities. A potent community force stems from both the quality of the meme, as previously discussed, and the operational status of the project's community. Here are some ways to gauge this.
Which platforms does the community cover? What's the size?
Typically, memecoin projects will have a dedicated Twitter account focused on community operation. More frequent content posts across a broader range of social platforms suggest more effort from the development team in community building, indicating that more potential users can be reached.
The size of social accounts can also be a reference point: think about it, would you be more inclined to learn about a project with a Twitter account of 9 followers or one with 9,999 followers? Between an account where each tweet has zero likes and shares and one where every post gets at least ten replies from different IDs, which do you think signifies a more active community?
Is the community interaction sufficiently vibrant? Are there high-quality engagements that continually create and play with memes to maintain community vitality?
Apart from observing the number of active users, when browsing the memecoin community, look for continuous, original, high-quality interactive content. If present, it suggests enthusiastic participants (though sometimes it could be shills hired by the project, so discernment is crucial) willing to invest time and energy in the project. This content mainly includes secondary creations targeting the meme by the project.
If a community repeatedly showcases stale content over an extended period, like continuous hard sells urging people to rush in, it might not be that appealing for investment.
Are community management and feedback swift and professional?
The value of a good memecoin community isn't just in its size and activity level. How the project team addresses and responds to questions, criticisms, and suggestions from the community is equally crucial. If you observe the management team responding positively and promptly to user feedback, it indicates they do value the community and are likely committed to the long-term, healthy development of the project.
Are there debates about the project's progress within the community?
This may seem counterintuitive at first. However, occasional discussions and debates about the project's future direction within the community can actually be a very positive sign. It implies that there are genuine community members who care about the project's trajectory and give it deep thought. Of course, such discussions should be constructive, not malicious, negative, or frivolous.
Is the Development Team Dedicated?
Consider team strength, anonymity, and preparation of Information
A seasoned development team implies that the project is more likely to adhere to its roadmap and vision, rather than merely aiming for quick gains.
If the development team isn't anonymous and discloses member information, it not only allows us to better understand the team's capability but also serves as a credibility endorsement to some extent.
For anonymous teams, we can judge the sincerity behind their endeavor by perusing the information they provide. Indicators can include the official website, whitepaper (if available), roadmap (if available), token economic design (if applicable), community accounts, etc. Thoroughly prepared materials suggest the team is relatively dedicated. After all, time investment is a cost too; even if it's a scam, it's a more "dedicated" one.
Is the team proactively marketing?
We can assess the team's marketing efforts by observing external collaborations. Partnerships with leading projects and KOLs (Key Opinion Leaders) can help boost the project's popularity. However, such collaborations can also be red flags.
For instance, while not a Memecoin, a classic example is Celestial (CELT). Earlier this year, using the catchy slogan "OKX's treasure", it garnered significant attention from the market with the help of a slew of KOLs. However, when it was later exposed that these KOLs were actually paid for their promotions (reportedly 400U each), the coin's value plummeted. The market's trust in these KOLs, the project, and even OKX haven't recovered since.
Indeed, when observing an active marketing campaign by a memecoin team, it's essential to approach it with caution. It's crucial to identify who is promoting or "pumping" the coin. Check if these individuals or entities have a history of dubious actions or rug pulls, and discern if they share vested interests with the project team.
Is the Market Performance Up to Par?
Market data is indeed another dimension we can use to filter and evaluate memecoins.
Decentralized Exchanges (DEXs) are popular platforms for trading newly emerged memecoins. Websites like DEXTools provide valuable insights into the trading dynamics of these tokens, which can significantly inform your investment decisions.
One of the main parameters to look at before trading a memecoin on platforms like Uniswap is its liquidity condition. Liquidity in the pool affects the stability and price movement of a token. If there's a significant addition or removal of liquidity from the pool, token prices might experience substantial fluctuations. This is crucial for token holders anticipating price actions, and for traders who might face higher slippage.
What is slippage? How is it generated? Please refer to the content: What is Slippage
Moreover, Market Cap is a useful metric to consider.
From our extensive observations of numerous memecoins, if a token has a very high market cap, it might not be very meaningful for retail investors to get involved, as the potential profit margins could be limited. Conversely, tokens with a very low market cap can be very risky. Hasty retail investors might find themselves vulnerable to market manipulations.
In relative terms, projects with a market cap ranging from $1M to $5M appear to be safer investment targets. For some early-stage memecoins that have substantial trading activity, if their market cap remains relatively modest (say, only a few hundred thousand dollars), they could present a particularly enticing investment opportunity.
What else do you want to learn?