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Introduction
At the very least, it can be said that recent events in the market have been quite surprising. Over the past few weeks, meme coins have seen significant surges, with one coin embodying the iconic meme character Pepe The Frog reaching an all-time high market capitalization of $1.8 billion. There is considerable public divergence in sentiment surrounding this phenomenon.
On one hand, some individuals have accumulated generational wealth through just a single trade, an unexpected windfall unprecedented in their entire trading history. On the other hand, genuine innovators and pioneers within the industry have expressed profound dissatisfaction as the industry's attention once again focuses on memes lacking substantive content, and suspicious enterprises driven purely by greed, rather than acknowledging the contributions of diligent builders.
Origins
The story of meme coins is fundamentally a speculative saga driven by societal factors. Speculative sagas can be traced back to the 17th century with the Tulip Mania in the Netherlands. Tulips were once a symbol of Dutch identity, their prices skyrocketed, followed by a market crash—all within a few months.
Fast forward to the digital age, Dogecoin was launched in 2013 (several years before Ethereum) and is perhaps the most famous meme asset. We all remember how, with support from Elon Musk and the Reddit community, its valuation soared to $50 billion in 2021. Currently, despite fundamental concerns, its market capitalization remains around $10 billion, with significant daily trading volume. The recent meme coin season began in April 2023, with Pepe leading the charge. Like its predecessors, Pepe revitalized investor enthusiasm using internet culture and humor. Interestingly, meme Pepe has been a part of internet culture for over a decade, yet only now is it playing a role in the narrative of meme coins. The cyclical popularity of such meme coins highlights the intricate interplay of various psychological and economic factors. We invite you to delve deeper into this fascinating phenomenon on this journey with us.
Notes on Memetics
First and foremost, it is important to establish why memes like Pepe, Doge, and Shiba are inherently powerful. The term "meme" itself comes from the field of memetics, the study of information and culture. Some branches of social sciences consider it a pseudoscience, while others deem it crucial for understanding everything from family narratives to malicious propaganda, about how society and subcultures create and disseminate. From a memetic perspective, it is easy to see why these meme tokens spread so rapidly compared to projects or applications with more value. Memes like Pepe and Doge share certain common characteristics:
They are easy to understand and do not involve abstract concepts (at least on the surface level).
Memes themselves evoke a certain degree of emotional resonance or interaction; the audience can relate to the characters associated with the memes.
They have a high potential for appropriation, adapting to any narrative or information, whether good or bad.
They typically have high cultural permeability and can identify individuals as being part of an "inside" group; this group can be as simple as those who understand the joke or as complex as the entire token ecosystem.
Ultimately, this cultural blend creates a foundational layer that is even more powerful than the most cutting-edge, profitable, and well-designed protocol tokens.
Game Theory of Memetics
As emphasized in the preface of our 2023 paper, this year's market can be summarized in one phrase: "in the bear belly." With market activity relatively calm, retail investors are increasingly focusing on the social aspects of the market, especially memes, giving rise to localized bull markets. Although lacking underlying financial fundamentals, meme cryptocurrencies can still be explained through the lens of various economic theories. Firstly, the concept of "irrational exuberance," popularized by economist Robert Shiller, may apply to the rise of meme coins. This refers to investors' enthusiasm driving asset prices rather than their fundamental analysis, often leading to price bubbles, with asset prices soaring far above their intrinsic value levels. This negates the concept of market efficiency, where prices reflect available rational information. Instead, meme coins seem to be an exemplification of irrational exuberance, with price increases being driven more by internet hype (primarily Twitter) and FOMO than any intrinsic value.
The intrinsic value of meme coins is not the subject of debate, but this concept is evidently fueled by many users seeking the next hundredfold or even thousandfold meme coin on Twitter, missing out on _____(insert target meme coin here). The high engagement rates of such posts validate this claim, as only industry giants like Vitalik Buterin can compete with such views.
Another interesting game-theoretical concept worth exploring is network effects, which drive the value of meme coins. This principle suggests that the value of a product or service increases with its usage. This principle is often associated with the rise of social media sites, indicating that as more people use our product or meme coin, they will discuss it, triggering a cascade of purchases, thus increasing its value. Theodore Vail's theory of network effects proposes that reaching critical mass—where the product becomes self-sustaining—is crucial for widespread adoption. Applying this to our actual example—it is difficult to pinpoint a point where meme narratives can sustain themselves.
Meme coins are often assessed based on their market capitalization. The ignition point is often considered to be above $100 million, and below $100 million is termed as "ngmi." From this metric, the only meme coins that have existed long-term are $PEPE and $TURBO—the meme coins effectively integrating the two most hyped technologies of recent months, artificial intelligence and blockchain. This meme coin was actually created with the support of Chat GPT (it's really quite an engaging story).
However, from the current market capitalization, it appears that only $PEPE is "gmi." Its current market capitalization is around $700 million, ranking 64th on the list as of May 15th. It is interesting to see if it will stay there in the coming months. Our prediction is that $PEPE will continue to exist, just like $DOGE and $SHIBA, tokens whose values are questionable, but have significant market capitalization and daily trading volume.
The classic prisoner's dilemma and information asymmetry often lead to the sudden end of what is colloquially known as meme season. The prisoner's dilemma is a concept in game theory that illustrates a situation where two individuals might not cooperate, even though cooperation would be in their best interest. This concept can be extrapolated to the behavior of meme coin investors. Consider two investors, Investor A and Investor B, both investing in a meme coin. Their choices are binary—hold or sell. If both hold, they may increase the token's value due to scarcity, benefiting both parties. However, if one sells while the other holds, the seller may profit at the expense of the holder. If both sell, the coin's value may plummet, causing losses for both investors. The dilemma is that while holding the token is in the best interest of both investors, the fear of the other party selling may prompt both to sell, resulting in a suboptimal outcome. Furthermore, since all transactions are on-chain, users can easily track each other's transactions.
As a simple example, a wallet ending in 609f48e33c received 2340B of Pepe on April 22nd, just days after its release. This wallet has been tagged by other Pepe investors as a "whale wallet." Users |
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Post time 19-3-2024 09:32:17