This cycle has been dubbed by some as the “memecoin cycle” or even the “memecoin supercycle.” We have seen new memecoins like WIF surge from zero market cap to billions of dollars within months.
Various products built around the memecoin phenomenon have also emerged, such as the launch of pump.fun. Whether you like it or not, memecoins cannot be ignored.
Many active cryptocurrency participants have keenly observed the exceptional performance of memecoins this cycle, as a sector far outperforming all others. When we hear stories of traders making multiples of gains through memecoins, the question always arises:
“How did they identify that particular memecoin?”
While there is certainly an element of survivor bias, are there other factors at play?
Memecoin TVL Pump Theory
Like NFTs, the investment logic behind memecoins is often more obscure, relying heavily on “vibes” and memes themselves, making fundamental analysis more challenging. At least, that was our thinking until we discovered what we call the “Memecoin TVL Pump Theory.”
The Memecoin TVL Pump Theory posits that major memecoins or a basket of major memecoins will act as leveraged bets on the on-chain TVL. Before we list various historical examples, let’s first understand why this makes sense.
We know that as on-chain TVL increases, a certain proportion of funds will flow into various applications or “destinations” on that chain. For example, X% will go into money markets, Y% into major decentralized exchanges (DEXs), etc.
Therefore, it is reasonable to assume that a small portion of funds will seek to find the highest beta way to bet on that chain.
How do they do this? By buying major memecoins or a basket of major memecoins.
For some, this might seem obvious, but we believe it provides a valuable and potentially lower-risk way to participate in memecoins because it offers some “fundamental” methods to assess the future performance of memecoins (whether up or down).
Let’s look at a few historical examples of this phenomenon:
Base
TON
These examples clearly show that:
TVL inflows = major memecoin performance.
If one can predict TVL increases, they can take positions in major memecoins on that chain as a leveraged bet on TVL predictions.
Critics of this strategy might argue that it lowers returns since it requires knowing which is the most important memecoin to determine TVL flow.
This criticism is valid; this strategy doesn’t allow sniping a memecoin at a $100k market cap and seeing it soar 1000x to $100 million, but it can be highly effective in identifying slightly larger, more mature memecoins and riding them up from there.
For instance, during late February to early April, Base experienced a parabolic run in TVL, and Toshi’s market cap soared from $40 million to over $300 million in less than two months.
Predicting TVL growth can be divided into two categories: long-term and short-term. Long-term prediction involves forecasting TVL trends over several months.
For example, we might point out that Base uses Coinbase as an onboarding funnel for retail users, which is why TVL growth will remain stable. We could look at the close relationship between TON and Telegram to understand the impact of 900 million Telegram monthly active users on TVL. We might mention Solana and its superior on-chain user experience and mobile wallet as reasons to believe TVL will flow there too.
You get the idea: long-term prediction requires studying the deeper distribution base on-chain. Then, you look at the major memecoins or memecoin on that chain and place your bets accordingly.
The short-term approach views short-term catalysts, such as rewards programs or airdrops, as reasons for TVL growth.
For example, as the leading memecoin on Linea, $FOXY performed exceptionally well amid the TVL inflows following the announcement of its surge rewards program:
The short-term approach requires more active market monitoring and assessing where capital might flow based on incentives. This is similar to a game some of us played in the last cycle; entering the top DEX’s pool on a new chain as the number 2 bet to leverage TVL growth driven by incentive programs.
A more specific example is Scroll. After introducing its latest rewards program, we’ve seen its TVL explode. Will Scroll become the next ideal target for the short-term strategy?
This method offers a more systematic and lower-risk way to participate in the memecoin sector.
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