The demise of friend.tech and the rise of Pump.fun: What we can learn from them

By: Decentralised.Co

Short Game

Earlier this week, friend.tech withdrew the ability to change fees or features of the product. In layman’s terms – the product is unlikely to change in the future. If the network of token holders were able to make changes to the product, there might still be hope. But as of now, that is no longer the case.

One ​​of the attractions of friend.tech is that it benefits its users. A wise man once said that the best way to quickly grow a crypto community is to make your token holders rich. friend.tech’s model enables everyone to “be” a token and receive a portion of the revenue. To date, the platform has generated nearly $98 million in fees, half of which has gone to users. Sounds promising, right?

Not really, the problems in friend.tech’s model were already there. Before the token launch, data from DanielW_Kiwi at DuneAnalytics provided some clues as to why.

When friend.tech hit the mainstream in October 2023, the product had an 18:1 buy-to-sell ratio. When there are 18 people buying and only 1 seller, the laws of economics dictate that the price will go up. By the time the token launched in May, that ratio had dropped to 0.32, or 3 sellers for every buyer. By last week, that ratio had dropped to 0.14.

Friend.tech can be categorized as an ephemeral game that lacks permanence. For those hearing the term for the first time — ephemeral games are short-term games with financial incentives. Some products have formed an entire category. Without a doubt, hashed_official is the example that comes to mind.

Think of pumpdotfun as the Costco of token issuance, offering cheap, fast access, and convenience. According to hashed_official, the product, which launched in May this year, accounts for 65% of all decentralized exchange (DEX) transactions on Solana. In addition, the product has generated revenue of nearly $100 million. To date, nearly 2 million tokens have been issued through pumpdotfun.

Pump democratizes token issuance. Previously, users had to go through the listing process of centralized exchanges, but now Pump has determined that the same can be achieved using DeFi infrastructure and on-chain liquidity.

Obviously, this comes with risks. Token launches are often plagued by “rug pulls,” a situation where developers simply withdraw liquidity and sell the tokens held by users. Ethervista takes a different approach by allowing token issuers to receive a portion of ETH from trading fees, while liquidity providers (LPs) receive ETH.

In 2023, LooksRare adopted this approach for its platform fees, with stakers of the token receiving LOOKS tokens. However, the story did not end well, as wash trading on the platform suddenly stopped. Ethervista also requires token issuers to lock up their tokens for at least five days.

As of now, the platform has seen a decline in activity. According to Dune data provided by 0xToolman, transaction volume has dropped from 3,300 per hour to just over 160. The total ETH on the platform dropped from 540 to 160, a change that occurred in a week.

All of this makes one wonder, what are the rules of the short-lived game? Are they just short-lived and highly financialized Ponzi schemes that are quickly born and die? Is a sustainable approach really possible?

Basically, these platforms have three characteristics:

The frequency of transactions is high, which is particularly evident in Pump.

The "reason" for trading is often based on emotion. For example, you can't quantify why someone would buy a meme coin on Pump. Volatility is its product.

They have a short half-life. By the time the token was released, the community on friend.tech had shrunk significantly.

All of this reminds me of the glory days of NFTs. According to hildobby_'s Dune dashboard, the average fees generated by NFTs (on the EVM network) fell from over $3.2 million per day to $200,000 per day, a drop of nearly 95%.

This model is interesting because it provides creators with a way to continue to earn royalties from their work and build meaningful communities. In contrast, the memecoin season of Q2 2024 was driven by celebrities who talked up their tokens, which then plummeted 90% in a matter of weeks.

Products like Pump and Ethervista simply remove the veneer of a traditional community and build hyper-transactional products. In return, they pay creators.

Can models like this scale? We’re still unsure about their sustainability. But if Pump and Ethervista point to something, it’s that the market has a need for volatility. As long as the market is willing to pay for these tokens and accept the associated risks, we’ll continue to see them. Or, as with ICOs and NFTs in previous cycles, they may fade as the market realizes the associated risks. Only time will reveal how short-lived these games really are.