DeFi ‘Degens’ and the Art of the Meme

After releasing the first liquidity mining token model back in June, Compound Finance has paved the way for parabolic growth in the DeFi space. Since the total value locked (TVL) in DeFi has ballooned from around $1B to over $9.5B or a +850% increase in three months. Liquidity mining, or incentivizing platform users with token airdrops for participating in the network, has caused several DeFi projects to garner mass adoption. Aave Lend, a non-custodial money market platform, has seen its total value locked (TVL) increase +4700% YTD, Curve Finance, a decentralized liquidity pool, has seen its TVL increase +1200% YTD and Synthetix Network, a tokenization platform, has seen its TVL increase +500% YTD. All three platforms now have nearly or more than $1B total locked on their platforms. Surprisingly, these are just several DeFi platforms of many that have exploded in popularity that are helping to build out the open finance space, while providing real world use cases.

Image for post
Image for post
Chart I: Total Value Locked (USD) in DeFi [DeFi Pulse, 2020]

However, in a space of innovation we also witness pockets of what many may refer to as absurdity. Accompanying the rise of DeFi platforms building out much needed infrastructure and use cases for Web 3.0, is the continuation of the breed of cryptocurrencies dubbed meme coins. All crypto enthusiasts know of the first meme coin, Dogecoin and its 10x gain it posted against bitcoin during the 2017 crypto bull run. Then, came along Monacoin, a cat based meme crypto, which became Japan’s official meme coin. However, this new breed of meme coins that have sprouted up in the DeFi space has put those coins to shame both in terms of brand and returns.

Image for post
Image for post
Chart II: Dogecoin/Bitcoin [TradingView, 2020]

The first meme coin that initially sparked the meme coin movement within DeFi is Yearn.finance token (YFI). YFI was created by Andre Cronje, who after developing the token, stated the token should be rendered “valueless”. However, the cryptocurrency market thought otherwise. The liquidity mining based token that rewards users who supply tokens to yEarn pools and allows users to vote on governance issues is up over a million percent on the year. The token now has a market cap of $827B. After crypto enthusiasts watched YFI’s extremely successful launch the floodgates opened for the DeFi meme coin world.

Image for post
Image for post
Chart III: yearn.finance [CoinGecko, 2020]

Tendies token (TEND) based off of chicken tender memes on 4chan, is a hyper deflationary autonomous meme coin. 51% of TEND tokens are “grilled” (Burned) everyday and 48% of TEND tokens are “served” (Distributed) to the top 50 holders every 3 days. TEND is up almost +1000% since its inception and has a market cap of $11M.

Image for post
Image for post
Chart IV: Tendies [CoinGecko]

Luckily for crypto enthusiasts who also have a penchant for food, Tendies is not the only widely traded food based meme token in the crypto world. There is also Spaghetti (PASTA), Yam (YAM), Sushiswap (SUSHI) and the most recent Kimichi.finance (KIMCHI). SUSHI is the most successful out of all the meme coins listed as it is up 76% from its release, but more impressive, has garnered a market cap of over $200M in the first three days of trading. Unfortunately, no meme coin has lived up to the success of YFI. In fact, YAM was hacked during its second day of trading rendering the +$40M market cap token to be worthless. YAM v2 was later released which now has a market cap of over $150M. Meanwhile, KIMCHI is down over 80% in its first day of trading, as the +$100M market cap coin has rumors of an apparent bug within its smart contract. Although YFI continues to be the top traded meme token by market cap, it does have new contender, DFI.money (YFII), a fork of YFI. DFI.money is up over 1600% since its launch on July 29th and boasts a market cap of $304M.

Chart V: DFI.money [CoinGecko, 2020]

As meme coins take center stage in the crypto world a new breed of high risk traders have been born in an attempt to capitalize on the memes. DeFi “Degens” are those who devote a significant amount of time in an attempt to capitalize on the next great DeFi token. Meanwhile, non-custodial solutions and a surplus of hacks make the space extremely risky causing institutions to remain mostly on the sidelines from the meme mania.

Nevertheless, the current meme mania makes us question the future of the crypto market. Rather than valuing crypto projects based on its “fundamentals” such as number of users on their platform, the robustness of their team, the value proposition of the project, etc. Will institutional crypto investors soon be valuing projects based on the quality of the meme? A “rational” investor will probably speculate with a high probability that the current meme mania will probably crash and burn like the ICO mania. However, in this meme fueled rally one thing is certain, to quote Elon Musk, “Who controls the memes, controls the [crypto] universe.”

Image for post
Image for post

-Edward Puccio, Digital Asset Analyst BKCoin Capital LP

BKCoin Capital LP is a New York-based digital asset quant hedge fund dedicated to delivering consistent uncorrelated absolute returns.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store