Original Author:
CHARLES
Original Translation: Deep Tide TechFlow
Some people refer to this period as the “memecoin cycle,” while others even call it the “memecoin super cycle.” We have seen new memecoins like WIF skyrocket from zero to tens of billions of dollars in market value in just a few months. We also see various products built around the memecoin phenomenon, such as the launch of pump.fun. Love it or hate it, memecoins cannot be ignored.
Most active cryptocurrency participants can deeply feel the outstanding performance of memecoins in this cycle, as a sector, its performance far exceeds all other sectors. When we hear stories of traders making multiple returns through memecoins, the question is always, “How did they identify that particular memecoin?” Of course, there is a survivorship bias at play, but are there other factors at work?
In general, at HFAResearch, we focus on fundamental ideas from the perspective of investment, trading, and mining. This makes it difficult for us to cover the memecoin sector – similar to NFT, the investment logic of memecoins is often more vague and relies more on the “atmosphere” and memes themselves, making fundamental analysis more challenging. At least, that was our thinking before we discovered what we call the “Memecoin TVL Upsurge Theory”.
The Memecoin TVL Upsurge Theory suggests that major memecoins or a basket of major memecoins will serve as leveraged bets on on-chain TVL. Before we list various examples from the past, let’s first understand why this makes sense.
We know that with the increase in on-chain TVL, a certain proportion of funds will flow into certain applications or “destinations” on that chain… for example, X% will enter the currency market, and Y% will flow into major decentralized exchanges (DEX) and so on. Therefore, it is reasonable to assume that a small portion of the funds would want to find the highest beta way to bet on that chain. How do they do it? By buying major memecoins or a basket of major memecoins. Perhaps this is obvious to some of you, but we believe it provides a valuable and potentially risk-reducing way to participate in memecoins, as it provides some “fundamental” methods to evaluate the future performance of memecoins (whether they rise or fall).
Let’s look at a few historical examples of this situation:
Base
Base TVL
TOSHI’s performance began to synchronize with the growth of Base TVL in March
BRETT’s two parabolic price increases occurred during the uptrend of Base TVL
TON
TON TVL
REDO is the main memecoin on the TON network
The above examples clearly indicate; TVL inflows = major memecoin performance. If the increase in TVL can be predicted, then holding positions in major memecoins on that chain is a leveraged bet on TVL predictions.
Critics of this strategy may say that it lowers returns because it requires knowing which is the most important memecoin in order to determine the flow of TVL. This criticism is valid, of course, this strategy does not allow for sniping a memecoin at a market value of $100,000 and making it rise 1000 times to $100 million, but it can be very effective in finding some slightly larger, slightly more mature memecoins and making them rise from there. For example, from late February to early April, Base experienced a parabolic run of TVL, and Toshi surged from a market value of $40 million to over $300 million in less than two months with almost no downside.
Predicting TVL growth can be divided into two categories: long-term and short-term. Long-term predictions actually involve predicting the flow of TVL over several months. We might point out that Base will serve as a funnel for retail users entering Coinbase, which is why TVL growth will remain steady. We can look at the almost incestuous relationship between TON and Telegram to understand the impact of all 900 million active monthly Telegram users on TVL. We might mention Solana and its outstanding chain user experience and mobile wallet, and use this as a reason to believe that TVL will also join in. You get my point; to predict TVL growth over a longer time span, you have to study the deeper distribution foundation on the chain. Then, you’ll study the major memecoins or memecoins on that chain and bet accordingly.
The short-term method views incentives such as point systems or airdrops as reasons for TVL growth. For example, as the leading memecoin on Linea, $FOXY performed extremely well in the subsequent TVL influx after announcing its surge point system:
Linea TVL, Surge released in mid-May
$FOXY Market Cap
Short-term methods require a more active focus on the market, as well as where capital might flow based on incentive plans. This is similar to a game some of us played in the last cycle; entering the 2nd pool of top DEXs on a new chain to bet on TVL growth brought by incentive plans.
A more specific example is Scroll. We have already seen its TVL show explosive growth after introducing its latest surge point system. Will Scroll become the next ideal target for short-term strategies?
We believe this approach offers a more systematic and lower-risk way to participate in the memecoin sector, but we are still relatively new to this field, so we hope to hear your feedback!
How to Choose Potential Meme Coins by Utilizing TVL Changes