Is an old VC who has gone through three cycles of value investment facing this round of meme anxiety?

Author: YettaS, Source: Twitter @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 was indeed on Meme. My colleagues joked that talking about the first level delayed the speculation of meme, and some people also asked whether we included meme in our 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 funding, which allows us to look at the industry over a longer time frame. We are also not under pressure to deploy funds, and we do not need to explain to LPs who do not understand our industry why we invest in any track for the purpose of fundraising (LPs are often a huge pressure). All we do is follow our curiosity to learn about the value of this industry and where the flow of talent is.

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

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 amount of crypto assets into Wall Street through compliant means such as ETFs. This part of liquidity has been taken away 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 a macroeconomic and social background, the liquidity of the on-site market has been shrinking. In the past, we said that barbell strategy was to hope that the two ends could be integrated, but the result was just the opposite. Our polarization became more and more intense. As a result, the intermediate state of our industry is becoming more and more difficult.

Who are these intermediate states? Including all the institutions that have benefited from 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 exceeded 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 in their own infra and funds. 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 can win.

Secondly, what is wrong with VC Token?

I understand the market's 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, and the products 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 last cycle of DeFi is actually like this. The product launch is fun with micro-innovation, and dex creates liquidity for continuous value discovery. When the consensus between the product community and the coin community is formed, CEX listing will further release liquidity, and the project, community and CEX will achieve a win-win situation.

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

And now? The problem VC token encounters is the separation of the two communities. TGE was held right after the mainnet was launched, and the product was not launched at all. The community came to take advantage of 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 were under pressure to make arrangements. In order to give LPs a good book return, they had to push up the valuation of the project round by round.

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

This naturally explains the logic of the emergence of meme. Since the projects invested by VC cannot be implemented, they are all speculation in the air. Why not speculate on a lower valuation that is more fair?

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 that cannot be ignored.

I always thought that Meme was pure speculation, but it was not until this time that I realized that I was wrong. It is a carrier of cultural trends. Its value lies not in specific functions and technologies, but in its 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 psychological needs and values. What it does is to tokenize and capitalize trends and emotions.

In other words, the core of its product is the trends and narratives it carries, and the size of these trends and narratives determines the ceiling of a meme. Pioneering technology, idol worship, IP emotions, subcultural trends, 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. It builds a solid community foundation in the ups and downs of the price, turning paper hands into diamond hands, letting them do the dissemination, and finally completing the self-fulfilling prophecy.

At this point, Meme token 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.

Because the issuance capital is too low, the investment signal-to-noise ratio of Meme is very low, and it is impossible to analyze it from the tangible product form. It requires an excellent taste for understanding thoughts and market sentiment. I am still trying 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 very much 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 the thoughts are immortal and the 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 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.

How long can Meme last in this cycle?

When everyone is enthusiastic and feels that they can sacrifice their lives 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 the NFT community was like this back then: everyone was proud to use the monkey’s head, helping them to 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 is felt that holding Major is not as good as holding Meme, when various hackers and Rugs 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 PeopleDAO and saving Assange 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 listed Neiro. At that time, VC token was in trouble. The opportunity to break the situation was to find that Neiro was listed. Embracing community meme made the project, community and CEX users all make money, so ACT was born.

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

CEX will change its listing strategy based on market expectations to guide the market direction, and 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 what CEX supports. Projects that are really building for the industry will definitely come out.

In the big cycle, when the bear market comes, the market will definitely clear out the oversupply that does nothing, and then the market will get back on track.

The market is always swinging between long-termism and short-termism. It is a spectrum. Main Character and Meme will become the two ends of the barbell, 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 bets based on cognition. If we are right, we make money, and if we are wrong, we review the situation. We are always curious and always in awe.