If the user does not want VC coin or memes, then what does the user want?

1. Preface

Not only the phenomenon of VC coins and meme coins has prompted more thinking among people, but many well-known figures in the industry have also raised similar questions, all striving to find solutions. For example, during an online event about internet celebrity coins, a well-known figure in the industry mentioned whether the Tokens launched on a certain trading platform have mechanisms to address the issue of project teams selling coins and then going idle. Additionally, a recent article titled "A Crazy Token Issuance Idea" by the CEO of a certain trading platform is also trying to find ways to solve related problems.

I believe that all teams that are genuinely working hard on projects hope that the market rewards true contributors, rather than allowing Ponzi schemes, scammers, and speculators to take away the industry's dividends and disrupt its development.

Because VC coins and memes have very good case analysis effects, this article will analyze from these two phenomena.

2. The Past and Present of VC Coin

VC coin is not generated out of thin air; its emergence has historical reasons. Although VC coin may not seem perfect now, it played a relatively important role initially, and significant projects in the industry have all had VC involvement.

2.1. The Chaos of ICOs in 2017 - A Dance of Demons

2017 was a key year for the explosion of Initial Coin Offerings (ICOs) in the blockchain field, with statistics showing that the financing amount exceeded 5 billion USD that year. In addition to the classic ICO projects introduced below, I also participated in some small projects' ICOs, fully experiencing the madness of that time, which can be described as chaotic. At that time, as long as a project's Token was going to have an ICO, if someone supported it, the white paper was well-written, and it was thrown into some groups, it would immediately be snatched up crazily. People were irrationally crazy back then. To exaggerate, even if someone threw a pile of dung into a group, it would still be crazily snatched up. If you don't believe it, everyone can search for the Token situation of MLGB (马勒戈币). (This also reflects the powerful influence of ICOs.)

Regarding the causes of the outbreak, I have summarized the following through communication with the AI assistant and my own understanding:

(1) Mature token issuance technology: Especially with the launch of Ethereum, it has enabled developers to easily create smart contracts and decentralized applications (DApps), promoting the rise of ICOs.

(2) There are several other reasons: market demand, the concept of decentralization taking root in people's minds, providing a positive expectation for people, and factors such as low-threshold investment.

During this period, several classic cases were produced.

(1) Ethereum: Although Ethereum's ICO took place in 2014, in 2017, Ethereum's smart contract platform was widely used for numerous new projects' ICOs, and this project was also conducted through an ICO. Overall, this project is still quite good, and it has grown to become the second largest in the Crypto world.

(2) EOS: EOS raised nearly $4.3 billion through a year-long, phased ICO in 2017, becoming one of the largest ICOs of that year. This project has now almost disappeared, partly because the technical route was not correct, and partly due to insufficient control over market demand.

(3) Tron: The ICO conducted by Tron in 2017 also raised a large amount of funds, during which there was a lot of public opinion about coin swapping and plagiarism with other projects, but its subsequent development was rapid, attracting a lot of attention. From this perspective, compared with those projects that ran away, did a certain famous person do pretty well? His grasp of market demand is still very precise, for example, the income from Tron stablecoins. The technical implementation and market demand control of Tron form a strong contrast with EOS. The development results of Tron are still quite good. If the coin swapping HSR (nicknamed "braised pork") had retained its share of Tron during the coin swap, the returns would have been higher than his own project.

(4) Filecoin: Filecoin successfully raised over $250 million in 2017, and its concept of distributed storage has attracted widespread attention, with a relatively luxurious founding team. It cannot be said whether this project is a success or failure, but whether it can develop healthily is a question.

I personally feel that there are more non-classic cases, and their impact is greater, which is also a significant historical reason for the emergence of VC coin.

Exposed Issues

(1) Lack of Regulation: Due to the rapid development of the ICO market, many projects lack regulation or have no regulation at all, leading to high risks for investors. There are a lot of scams and Ponzi schemes, with almost 99% of the projects exhibiting exaggeration and fraudulent behavior.

(2) Market Bubble: A large number of projects raise huge amounts of funds in a short period of time (these funds are poorly managed), but many of these projects lack actual value or the described scenarios are completely unachievable, which causes even projects that do not intend to scam to liquidate and run away or fail.

(3) Insufficient investor education makes it difficult to judge: Many ordinary investors lack understanding of blockchain and cryptocurrencies, making them susceptible to misleading information, which leads to poor investment decisions. In other words, investors have no way to measure the projects or to supervise the progress of the projects afterwards.

2.2. The Entry of VC and Credibility Endorsement

From the description above, we see the chaos following the ICO. At this time, venture capital (VC) first stepped up to solve the problem. VC provided more reliable support for the project through its own credibility and resources, helping to mitigate many issues brought about by early ICOs. An additional effect was that it helped to filter for a large number of users.

The Role of VC

(1) The shortcomings of grassroots financing that replaces ICOs

Reduce fraud risk: VC filters out "air projects" through "strict due diligence" (team background, technical feasibility, economic model), avoiding the rampant falsification of white papers during the ICO era.

Standardized capital management: adopt phased funding (milestone-based disbursement) and token lock-up terms to prevent the team from cashing out and running away.

Long-term value binding: VC usually holds project equity or long-term locked tokens, deeply binding with project development, reducing short-term speculation.

(2) Empowering the project ecosystem

Resource Import: Key resources for the project to connect with exchanges, developer communities, compliance advisors, etc. (such as a well-known venture capital supporting the project to list the coin).

Strategic Guidance: Assist in designing the token economic model (such as token release mechanisms) and governance structure to avoid the collapse of the economic system.

Credibility endorsement: The brand effect of well-known VCs can enhance market trust in the project.

(3) Promote industry compliance

VC promotes projects to actively comply with securities laws (such as the US Howey Test) by adopting compliance financing frameworks like SAFT (Simple Agreement for Future Tokens) to reduce legal risks.

The involvement of VC is the most direct solution to the problems of the early ICO model. Overall, VC plays a crucial role in the success of Web3 projects by helping them overcome many challenges faced during the early ICO with funding, resources, credibility, and strategic guidance, and also indirectly assisting the public in the initial screening.

2.3. The issue with VC coin

The emergence of new things is always aimed at solving some old problems, but when this new thing develops to a certain stage, it also begins to present a series of problems. VC coin is such a case, as it later reveals many limitations.

Mainly reflected in:

(1) Conflict of Interest

VC is an investment institution that profits through investments. It may promote excessive tokenization of projects (such as high unlocking sell pressure) or prioritize its own investment portfolio (such as exchange VC supporting "child" projects).

(2) Unable to solve subsequent project development issues.

(3) Colluding with project parties to deceive retail investors (this is how some project parties and VCs operate, while larger brand VCs are relatively better).

VC institutions only complete the early stages of investment and profit exit, and they are neither obligated nor capable of supporting the later development of projects, nor do they have the willingness to do so. (Would it be better if the super long unlocking period for VCs is restricted?)

The main issue with VC coins is that the project team loses the motivation for ongoing development after the coin is listed. Both the VC and the project team tend to cash out and run away after the coin is listed. This phenomenon causes retail investors to despise VC coins, but the fundamental reason lies in the lack of effective supervision and management of the projects, especially concerning the matching of funds and results.

3. The Fairlaunch of Inscription and the Memecoin Phenomenon

The outbreak of inscriptions and Fairlaunch in 2023, and the pumpfun model of memecoin that emerged in 2024, reveal some phenomena and expose some problems.

3.1. The Outbreak of Inscriptions and Fairlaunch

In 2023, two significant trends emerged in the blockchain space: the explosion of Inscriptions technology and the popularity of the Fair Launch model. Both phenomena stem from a reflection on early funding models (such as ICOs and VC monopolies). In the field of Inscriptions, most VCs generally reflect that they have no opportunity to participate in the primary market, and even in the secondary market, they are cautious about making large investments. This reflects the pursuit of decentralization and fairness by users and the community.

Inscriptions first erupted on the Bitcoin blockchain, represented by BRC20, producing important inscriptions such as ORDI and SATS. The explosion of inscriptions has several reasons: the need for innovation driven by the Bitcoin ecosystem; users' demand for censorship resistance and decentralization; low entry barriers and wealth effects; resistance to VC coins; and the appeal of fair launches.

Inscriptions have also caused some problems:

Pseudo-fairness, in fact, many participating addresses may also be disguised by a few institutions or large holders;

Liquidity dilemma, there are significant transaction costs and time costs associated with using inscriptions on the Bitcoin mainnet;

Value loss, the huge transaction fees generated by the inscriptions are taken away by miners (anchored assets lost), which does not empower the closed loop of this Token's ecosystem;

Application Scenario Problem, inscriptions have not solved the ongoing development problem of a Token, as these inscriptions do not have "useful" application scenarios.

3.2. The outbreak of Pumpfun and the memecoin phenomenon

The origin of memes dates back quite early, and it was initially a cultural phenomenon. The concept of NFTs, proposed by Hal Finney in 1993, is regarded as one of the earliest origins in the real world. The emergence of NFTs was driven by Counterparty, established in 2014, which created Rare Pepes to make the popular meme Sad Frog into an NFT application. Meme is translated as "meme," equivalent to an emoticon, a phrase, or even a video or GIF.

As memes have risen in the NFT space, and with the maturation of certain technologies, memecoins have started to take shape. In 2024, the Pump.fun platform based on a certain public chain rapidly emerged as the core hub for memecoin issuance. The platform has created a significant impact in 2024 through a simple and complete token service process (ICO + LP + DEX) and speculative trading mechanisms. The author believes that Pump.fun's important contribution is that the platform combines three separate services into a complete closed loop: Token issuance, building liquidity pools, and decentralized exchange Dex.

The proportion of Tokens on dex in the early days of pumpfun (commonly referred to as the graduation rate in the industry) was very low, only 2%-3%. This also indicates that the entertainment function was higher than the trading function in the early stages, which aligns with the characteristics of memes. However, during the later peak periods, the Token graduation rate often exceeded 20%, turning into a pure speculation machine.

An analysis data on social media also illustrates the problems with the memecoin model well. (The author has not verified the reliability of this data.)

Pumpfun's total revenue is approaching 600 million USD, to the extent that former US presidents and their families have issued their own tokens, indicating the explosion and peak period of memecoins. According to the analysis from data analysis platforms, memecoins are also experiencing a cycle from emergence, to growth, to explosion.

The main issues of memecoin

(1) Systemic fraud and trust collapse: According to data from the data analysis platform, about 85% of the tokens on Pump.fun are scams, with the average cash-out time for founders being only 2 hours.

(2) Widespread false advertising: Project teams forge KOL endorsements and fake trading volumes (through order-filling bots), for example, the token MOON.