Memecoin or VC Token, which one will you choose?

Before 2022, most people would have unhesitatingly chosen star projects backed by well-known VC firms with high valuations. However, in just two short years, the tide has turned. Particularly with the small trend sparked by Ordinals in 2023, it quickly grew into a powerful anti-VC wave in the crypto world.

Since the first half of this year, Memecoins have even outperformed VC Tokens in market performance, attracting significant attention and capital inflow in a short time. The underlying call for fairness from the general public is becoming a trend. Behind this, is it simply a case of capital voting with its feet, or is it a short-term illusion within the market?

01. The “Ice and Fire” of VC Tokens

The first half of 2024 was almost a concentrated period of realization for a series of former “superstar” projects. From Wormhole to Polyhedra Network, from Starknet to LayerZero, and from Zksync to Blast, these were all Airdrop projects long-awaited by community users and airdrop hunters.

However, the actual price performance after realization was not as expected. Especially after the industrialization of Airdrops, the massive number of community users/airdrop farms helped these star projects achieve impressive paper data, thereby pushing up project valuations. Coupled with the increasingly exaggerated Fully Diluted Valuation (FDV) caused by VC financing, this laid the groundwork for early liquidity sell-off risks.

For instance, the recent issuance of new VC-type Tokens such as W (Wormhole), ZK, ZRO, and STRK has been largely disappointing - with extremely high FDVs and continuously declining trends. Since their listing, they have closed with negative candles almost daily, deeply trapping users who entered the market.

According to statistics from late June (not even counting the recent major drops), PORTAL and SAGA had already fallen about 80% compared to their opening prices, while W, ZKJ, STRK, OMNI, and ALT had all dropped over 50% from their opening prices.

Source: @terryroom2014 /X

From a data perspective, for ordinary users, the era of “buy and easily reap high returns” from these glamorous VC Tokens has come to an end.

At least for recent new Tokens, buying on the secondary market is almost more cost-effective than later financing valuations, even showing signs of secondary market valuations falling below primary market valuations:

As of the latest data on July 10:

ZRO has raised a cumulative total of $3 billion historically, with a current total market cap of only $3.8 billion;

W has raised a cumulative total of $2.5 billion historically, with a current total market cap of $2.9 billion;

ZK has raised a cumulative total of $1.25 billion historically, with a current total market cap of $3.1 billion;

ZKJ has raised a cumulative total of $1 billion historically, with a current total market cap of $1.2 billion.

Interestingly, Dune statistics show that even in the face of continuous market declines, major VCs still have tens or even nearly a hundred times unrealized gains on their investments in these Tokens, with overall unrealized profits for VCs still as high as 7 times.

Source: dune.com

DYOR co-founder hitesh.eth also compiled statistics on the top 10 “VC Tokens” in terms of current overall VC returns in the market. These are mostly the main forces currently experiencing continuous declines in the market, which has greatly shaken market confidence.

However, at the same time, although tokens like ENA, DYM, and SAGA have caused heavy losses for secondary market investors, VCs can still lock in profits of over 10 times - with ENA having the highest return rate of about 100 times, and ALT, the lowest, still over 10 times. The experience of VCs versus secondary market investors can be described as “ice and fire.”

02. Memecoin “Devours” the Market

Compared to the declining trends of star VC Tokens listed on trading platforms, the secondary market price performance of on-chain assets like Memecoins has been outstanding, almost “devouring” the entire market and becoming the Web3 cultural symbol of this stage.

Whether it’s emerging Memecoin leaders like PEPE and FLOKI, or GME and other new Memecoins on public chains, they have continuously emerged as wealth codes with returns of several times or even tens of times, reminiscent of the market environment during the 2020 DeFi Summer.

Especially since April this year, as the volatility of newly listed star VC Tokens decreased, making it difficult for secondary market traders to profit, market FUD sentiment towards VC Tokens has become more severe. Meanwhile, Memecoins have shown unique charm, attracting large amounts of attention and capital inflow in a short time based on community consensus.

In comparison, although VC Tokens have strong backing, their performance has not fully met investor expectations in the rapidly changing market.

Source: dune.com

More interestingly, Dune statistics also show that during this super Meme cycle, the number of actual on-chain holders for the top 46 Memecoins has been growing significantly over the past 90 days:

Among the 46 Memecoins, except for 4 showing declining growth (with FLOKI only slightly decreasing), the remaining 42 Memecoins have seen general double-digit or even over 100% growth in the number of on-chain holders. This data undoubtedly reflects that market attention and participation enthusiasm for these Memecoins is indeed rapidly rising.

Moreover, the ratio of buyers to sellers over the past 30 days is generally above 1, indicating that investors hold a relatively optimistic attitude towards the future trends of Memecoins and are willing to invest more capital to gain potential returns.

In short, unlike many previous crypto projects with large financing and VC-dominated narratives that had high barriers to entry and were more oriented towards crypto OGs and on-chain whales (wealthy elites), Memes give more ordinary people beyond OGs and whales an opportunity, especially allowing the general public to participate fairly and share in the dividends.

Therefore, in comparison, discussions and doubts about Memecoins and VCs have inevitably become mainstream in the community again. Memes can at least bring continuous incremental funds and attention through user flow, while recent new projects with tens of billions of dollars in valuation are all old concepts disguised as grand narratives or old gameplay, naturally being disliked by the community.

03. Community Resistance Behind the Meme Wave

In fact, if we carefully examine the current market environment, we’ll find that beyond short-term speculation, the call for fairness from the general public represented by Memes has gradually become a trend, with capital voting with its feet.

Simply put, the rise of the Meme wave actually represents, to some extent, a correction by community users and the market to the traditional “financing-realization” model of the past two years: The previous model where star projects relied on top VCs to orchestrate, combined with high-tech narratives for high-value, large-scale financing, and finally attracting communities to build a series of beautiful on-chain data through so-called “Airdrops” has basically come to an end.

Especially since the beginning of this year, when long-awaited projects like ZKsync and LayerZero successively sparked major Airdrop-related controversies such as “Sybil attacks” and “front-running” in the community, it basically meant that the Web3 world is gradually entering the “post-Airdrop era” - when star project teams start treating Airdrops as an arrogant power of resource allocation, Airdrops are no longer a mutual benefit between community users and project teams.

It is precisely for this reason that the rise of Memecoins is because they are often not bound by this set of traditional primary and secondary market succession rules. Although this also means higher risks and more volatile prices, it at least gives ordinary users another choice.

If we delve deeper into the reasons behind the rise of Memecoins and the decline of VC Tokens, the objective market conditions are almost visible to the naked eye:

First is the selling pressure brought by high valuations and low circulation. After all, almost all star projects now follow the pattern of high FDV and low actual circulation as their issuance rule. This creates a potential instability factor, with an extremely long selling cycle, putting enormous pressure on the market.

Second, users are gradually becoming immune to technical narratives. Especially from L2 to Restaking, after experiencing the hype of technological innovation by many projects, particularly star projects, users have become more rational and cautious. They are no longer easily moved by those seemingly profound but actually lacking substantial breakthroughs technical narratives.

Furthermore, the high-frequency capital drainage effect cannot be ignored. Similar to the large-scale IPO blood-letting phenomenon in the stock market, the community has also been debating whether the concentrated listing of star projects recently has led to a large amount of capital being drained from the market, seriously affecting market liquidity.

After all, real capital voting with its feet doesn’t lie.

To some extent, the alliances and solidified interests between the crypto world, the Web3 industry, and VCs have reached a stage where they clearly need to break the deadlock (extended reading: “Who is ‘Controlling’ Uniswap? Where is DeFi Heading with its Revolving ‘House of Cards’?”), and users’ spontaneous pursuit of real money-making effects and hot spots is also understandable.

After all, in this market full of temptations and opportunities, users instinctively lean towards opportunities and popular trends that can bring tangible benefits. Once existing projects fail to meet this need, they will express their dissatisfaction and resistance through various means to seek better investment returns and market environment.

This also serves as a wake-up call for VCs and project teams who are accustomed to path dependence.

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