Is an experienced VC who has invested in three rounds of value investment facing this round of meme anxiety?

Author: YettaS Source: X, @YettaSing

"Yetta, are you anxious about this market now?" This was a question someone asked me seriously at a dinner party. I was stunned at first, not understanding why we should be anxious, "because many people think that meme is popular and VC coins are going to die, haha". The biggest discussion at Devcon this time is indeed all about meme. My peers joked that talking about the first level delayed the speculation of meme, and some people also asked whether we included meme in asset allocation.

To be honest, we are not very anxious, or we roughly expected this situation at the beginning of the year. Primitive is an evergreen fund without external funds, which allows us to look at this industry in a longer time dimension. We also have no pressure on capital layout, and we don’t need to explain the reasons for investing in any track to LPs who don’t understand our industry for the purpose of fundraising (LPs are often a huge pressure). Everything we do is to follow our curiosity to learn about the value of this industry and where the flow of talents is.

In the crypto market, which is divided into primary and secondary markets and secondary bubbles, the definition of VC is closer to its essence: bet on things with risk return. It is meaningless to follow any ideology or participate in any political struggle. Learning from the market is the key.

1. First, let me talk about our understanding of the structural changes in the industry

At the beginning of this year, we conducted a lot of reviews on the structural changes in the industry and wrote this internal report "Cycle of Front Running". TLDR: The polarization of our industry is getting more and more serious. On the one hand, the industry has become larger, and tradfi has integrated a large number of crypto assets into Wall Street through compliant means such as ETFs. This part of the liquidity has been robbed and it is difficult to convert it into our on-site funds; on the other hand, the strong expansion of populist capitalism has further compressed the attention economy, and the entire financialization process has become more simple and crude. The most crypto-native way has become to directly speculate on memes, which is also an area that tradfi cannot reach.

Under such macroeconomic and social background, the liquidity in the market is constantly shrinking. In the past, we said that barbell strategy is to hope that the two ends can be integrated, but the result is just the opposite. Our polarization is getting more and more intense. Therefore, the middle state of our industry is becoming more and more difficult.

Who are these middle states? Including all the institutions that have benefited from the dividends of the grassroots era. Offshore CEX, trading firm, crypto financial service providers, and VC, no one can avoid it.

This structural change will make offshore CEX anxious. CME's future OI has surpassed Binance. If mainstream coins are increasingly traded in compliant trading venues due to the entry of tradfi, and meme can also pump out projects of more than 1b on the chain, then is Binance's space being squeezed?

In addition to offshore CEX, those market makers who used to rely on crypto saw that Wall Street's high-frequency quantitative teams brought their own infra and funds into the market. How can they break through? With their decline, the presence of third-party financial institutions that serve them is getting weaker and weaker, not to mention VCs that cannot actively trade.

This polarization and liquidity squeeze are the fundamental changes in our industry. Whoever finds the breakthrough point will win.

Second, what is wrong with VC Token?

I understand the market sentiment towards VC tokens very well. The project opened with a very high FDV, and after it went online, it continued to unlock and smash the market for profit. Since they are all casinos, why not go to a more relatively fair casino to play meme pvp? If I lose, I can only blame myself for my slow hand speed, instead of helping billions of dollars of VC coins to take over.

What is the essence behind this problem?There is a problem with the liquidity supply chain in our industry.

Why can Solana continue to ATH? Because they have real products that can make Sol continue to make money, so the user community is transformed into a trading community, and the positive flywheel of the two has become a kind of self-fulfilling prophecy, which is the key to forming buy pressure.

The previous cycle of DeFi is actually the same. The product launch is fun with micro-innovations, and Dex creates liquidity for continuous value discovery. When the consensus between the product community and the coin community is formed, CEX listing further releases liquidity, and the project, community and CEX achieve a win-win situation.

A healthy ecosystem is that those who play on the chain are willing to buy coins and are even more willing to preach, and this liquidity supply chain has entered a positive cycle.

And now? The problem that VC token encounters is the separation of these two communities. The TGE was held right after the mainnet was launched, and the product was not implemented at all. The community was only here to get the airdrop, and all they brought were selling orders. In the last cycle, we still had Sam/Su to help us buy Alt with leverage, but the leverage of this cycle was basically cleared. At the same time, in the last bull market, many VCs raised a lot of funds and had the pressure of layout. In order to show LP a beautiful book return, they had to push up the valuation of the project round by round.

So this has led to the current situation of VC Token. It opened with a high valuation and there was no buying. What else can it do except fall?

This naturally explains the logic of meme generation. Since the projects invested by VC cannot be implemented, they are all speculation. Why not speculate on a lower valuation and fairer one?

Third, Meme has become the track-level opportunity that cannot be ignored and absent in our industry

Under the polarization analyzed at the beginning of the article, Meme has become one of the most important tracks in our industry.

I always thought that Meme was a pure speculation, but it was not until this time that I knew I was wrong. It is a carrier of cultural thoughts. Its value does not lie in specific functions and technologies, but in the unique ability to carry collective consciousness, emotions and identity, which is exactly the same as the logic of religion. Under the absurd surface, it expresses profound social and psychological needs and values.What it does is to tokenize thoughts and emotions into products and capitalize.

In other words, the core of its product is the thoughts and narratives it carries, and the size of these thoughts and narratives determines the ceiling of a meme. Pioneering technology, idol worship, IP emotions, subculture thoughts, we analyze the potential behind it, just like VC analyzes the prospects and position of a product in the track.

For Meme, token is its product, so what it needs to do around the product is to promote the price and community. In a sense, the price is the iterative development of the product. A solid community foundation is built in the ups and downs of the price, so that paperhands become diamondhands, let them do the dissemination, and finally complete the self-fulfilling prophecy.

At this point, Memetoken actually has a huge advantage that VC token does not have. Because the token is the product itself, the product community and the coin community are combined into one, and the two form a synergy.

Meme has a very low investment signal-to-noise ratio because of its low issuance capital, and it cannot be analyzed from the tangible product form. It requires an excellent taste for understanding thoughts and market sentiment. I am still working hard to learn whether there is a structured methodology to study this track, so as to select the target in the extremely low signal-to-noise ratio. If so, what kind of target is suitable for us to intervene and when to intervene.

But I strongly believe that Meme will become a cross-cycle opportunity, because it is essentially a cultural phenomenon in the digital age. It will never run out if thoughts are immortal and emotions are iterated.

More importantly, I have always felt that giving marginal people the opportunity to get rich is the vitality of our industry. Before this wave of memes, it was said that this cycle required entrepreneurs to be more than ten times more than in the past, and the investment seemed to have been eaten up by VCs, and the emotions of the community and retail investors were greatly suppressed. But through meme, young people can realize the opportunity of 100x through early ambush. Anti-authority is one of the core spirits of crypto, and I believe it will always be there.

Fourth, how long can Meme last in this cycle

When everyone is enthusiastic and feels that they can shed blood for the community and feel that they can make money forever, don't forget that the profit plate will definitely be harvested. This is the unchanging constant of the financial industry. Think about whether NFTcommunity was like this back then: everyone was proud to use the monkey's head, helping them contact the brand, organizing activities and joint names everywhere, and NFT Party was held all over the world, and then what?

When all kinds of inflated confidence and unrealistic expectations appear, when it feels that holding Maior is not as good as holding Meme, when various hackers and Rug appear, we should start to be vigilant. Once our industry has no greater liquidity opportunities, BTC begins to encounter resistance, and all enhanced versions of Alpha will fall faster.

By the way, is DeSci exactly the same as the PeopleDAO and Assange rescue logic in the previous cycle? Under the name of "justice", are we able to distinguish between faith and speculation?

In fact, the huge turning point of meme happened when Binance launched Little Neiro. At that time, VC token was in trouble. The opportunity to break the situation was to find that Little Neiro was launched. Embracing community meme made the project, community and CEX users all make money, so there was ACT.

But now the blind liquidity of meme on the chain is similar to the TVL competition after Binance launched high TVL projects, and is it similar to the competition after Binance launched the Ton ecological coin with a huge user base.

CEX will change its listing strategy based on market expectations, thereby guiding the market direction. However, our industry will definitely fall into the chaos of homogeneous competition due to the low cost of asset issuance and liquidity premium. Everyone will be numb and tired of this chaos.

This is the power of the cycle.

In the small cycle, don’t do whatever you want to bet on CEX support. Projects that are really building for the industry will definitely come out.

In the big cycle, when the bear market comes, those oversupplies that do nothing will definitely be cleared by the market, and then the market will return to the right track.

The market is always swinging between long-term construction and short-term sentiment. It is a spectrum. Main Character and Meme will become the two ends of Barbel, and they will rise and fall with the market sentiment.

No need to worry, just find your own rhythm.

Investment is such a game, we make judgments and bet based on cognition, make money if it is right and review it if it is wrong, always be curious and always be in awe.