How to Identify Promising Meme Coins?
Some refer to this period as the “memecoin cycle,” with others going as far as calling it the “memecoin supercycle.” We’ve witnessed new memecoins like WIF skyrocketing from zero to billions in market value within a few months. The emergence of various products centered around memecoins, such as the launch of pump.fun, further highlights the undeniable influence of memecoins in the market.
Most active participants in the cryptocurrency space have noted the exceptional performance of memecoins during this cycle. As a sector, memecoins have outperformed all others by a significant margin. When we hear stories of traders making multiple times their investment through memecoins, the inevitable question arises: “How did they identify that particular memecoin?” While survivorship bias plays a role, are there other factors at play as well?
At HFAResearch, we typically focus on fundamental drivers from investment, trading, and mining perspectives. This focus makes it challenging for us to delve into the memecoin sector—similar to NFTs, the investment logic behind memecoins often appears murky, relying heavily on the “vibe” and the meme itself, making fundamental analysis more complex. At least, this was our perception before uncovering what we now term the “Memecoin TVL Boost Theory.”
The Memecoin TVL Boost Theory posits that major memecoins or a basket of them act as leveraged bets on on-chain Total Value Locked (TVL). But before we delve into various examples from the past, let’s first understand why this theory holds weight.
With the increase in on-chain TVL, a proportion of funds flow into specific applications or “destinations” on that chain—such as X% into the money markets, Y% into major decentralized exchanges (DEX), and so forth. Therefore, it’s reasonable to assume that some capital looking for the highest beta exposure on that chain will seek major memecoins or a basket of them. While this might seem obvious to some, we believe this offers a valuable and potentially risk-mitigating way to participate in memecoins, as it provides a fundamental method to evaluate the future performance of memecoins, be it in an upward or downward trajectory.
Let’s examine a few historical examples of this scenario:
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The examples above clearly illustrate: TVL inflow = Performance of major memecoins. If one can predict an increase in TVL, holding major memecoins on that chain serves as a leveraged bet on TVL predictions.
Critics of this strategy argue that it may dampen returns as it requires knowledge of which memecoin is crucial to determine the flow of TVL. While this critique holds merit, the strategy does not allow for targeting a memecoin at a $100,000 market value and pushing it to $100 million. However, it can effectively identify slightly larger, more mature memecoins and propel them upward. For instance, during the late February to early April period, Base underwent parabolic TVL growth, and Toshi saw its market value surge from $40 million to over $300 million within less than two months, showcasing notable returns.
Predicting the growth of TVL can be
