Memecoin exploded on Solana, how to "scientifically hunt for treasure"?

Author: HYPHIN, THOR

Compiled by: Luffy, Foresight News

Due to the convenience and low barriers to entry, trading and creating custom tokens are easier than ever before. Coupled with social media and a growing retail investor base, the proliferation of tokens that offer no utility has greatly accelerated, relying solely on loyal communities and aggressive marketing to sustain their growth.

introduce

Internet culture and memes have long been a major part of the cryptocurrency space. This is evidenced by the huge market cap of Memecoin, which is valued at approximately $66.65 billion at the time of writing. Dogecoin accounts for approximately 43.81% of the entire category, with a valuation higher than some well-known companies such as Vodafone, Pinterest, and Logitech.

For a long time, the central hub for Memecoin has been Ethereum, until recently when a few competitors emerged. The activity associated with these tokens has changed, with Solana becoming an active location for projects and speculators entering the market.

A big contributor to Solana's expansion and surge in transaction volume has been its vibrant on-chain Memecoin ecosystem, which has attracted a lot of attention this year, with names like "dog wif hat" and "Bonk" trending and prices soaring .

While we don’t endorse Memecoin’s trading, it’s still beneficial to understand what’s going on in this market that is finding its footing and making a name for itself.

At first glance, you might have trouble discerning the reasons behind seemingly ridiculous price action, but if you look closely, you might find some clues. Therefore, in this article, we will take a broad overview of the entire Memecoin space, looking at every corner to try to figure out what is going on.

Overview

Before we proceed to the analysis, it is best to set the scene and familiarize ourselves with the environment and its characteristics, as there is little rationality behind the whole thing and it needs to be viewed with an open mind.

Every space develops its own unique culture, and Solana is no exception. Since the start of the Solana season, stories of missing out on life-changing fortunes and overnight success have been repeated on Twitter. Realizing that a potentially huge opportunity is coming, many people from all backgrounds have entered this space in search of good fortune.

One of the main features of Memecoin on Solana is the sheer number of tokens being created every day.

Since the cost of launching a Memecoin is extremely low, a large number of new trading pairs are listed on decentralized exchanges every day. This makes it a fast-paced field. Most new trading pairs have low liquidity, resulting in high price fluctuations. The average lifespan of a project is often 24 hours or even less, mainly because bad actors try to take advantage of the craze and deceive ambitious and unsuspecting investors through elaborate scams and marketing.

If you spend enough time in Telegram groups, and review and sift through hashtags on Twitter, you can map most of the participants to specific roles that are critical to the field.

Developers: Developers are hailed as gods, and they are seen as shepherds who can lead the community to financial freedom. Their decisions often influence early price trends and determine the life of the project, because as creators, they have full control over Memecoin fundamentals and they usually hold a considerable amount of token supply.

Influencers: Influencers use their influence on social media to share their personal investments to raise awareness about projects with different motivations. Some of them hope to strengthen the community by increasing social recognition, and some simply seek to profit from exiting liquidity.

Community members: extremely loyal and willing to do whatever it takes. These people frequently appear in chat groups, interact with others, and tirelessly promote their investments under the posts of popular figures whose attention can determine the success or failure of a project.

Snipers: By automating on-chain interactions to indiscriminately buy tokens as soon as a liquidity pool is created and opened for trading, holders of these wallets hope to take advantage of the upward momentum generated by regular traders buying after them. In most cases, they don't hold it for a long time, but sell it early to make a profit, because there are many opportunities to do so.

Remember, this all takes place in a ruthless player gaming environment. To stay competitive, we have developed a number of trading tools with useful analytical features to speed up decision-making and execution. Services such as Photon and BonkBot are favored by most traders.

Characteristics of a Successful Memecoin

In the vast ocean of tokens, only a few have been able to sustain high valuations for long periods of time and have close-knit communities. This means there must be some quantifiable factors that contribute to their success.

Having a solid due diligence framework in place will make the process of screening watch lists easier and less time-consuming. This begs the question: What valuable information can we use to conduct effective analysis of these unpredictable coins?

Using historical data, we can try to identify common patterns and indicators that can help us gauge a project’s potential to some extent. For example, by analyzing the top 50 Memecoins, we can get a rough idea of what attributes outperformers possess.

Trends

Since the entire Memecoin circuit is primarily trend and narrative driven, it pays to keep an eye on which categories or topics are currently popular to avoid boarding a sinking ship.

By visualizing hot topics with word maps, it's easy to see what's hot right now.

As can be seen, animal-themed tokens are the most popular, with cats being the most popular sub-theme. The second largest sub-theme in the graph is “Internet culture”, which usually includes crypto Twitter and mainstream memes.

An interesting detail about the above graph is the keyword “copy”, which includes projects that have been derived from the original concept and have their own unique twists. They keep popping up, providing a second chance for those who missed out on the previous project.

Indicators

Once you’ve narrowed down the potential categories, it’s time to evaluate some technical details.

Percentage of projects with Mint authorization disabled: 100%

Every project should be prohibited from minting additional tokens to avoid unlimited selling pressure. In our observation group, all projects have this setting disabled.

LP Burn Percent: Mean – 78.7%, Median – 98.0%

The LP tokens that deployers receive when adding initial liquidity are destroyed, which reduces the risk of creators withdrawing liquidity. The median percentage here shows that typically most of the initial LPs are destroyed.

Percentage of tokens held by top 10 wallets: Average — 27.51%, Median — 21.79%

In most cases, the top token holders hold around 20% and it varies from project to project. The lower the percentage, the lower the chance that a few people can cause damage through a massive sell-off.

Number of days since trade started: Mean — 23.52, Median — 6.66

Since most Memecoins have a lifespan of only a few days, age over 100 hours is usually a good indicator. The fact that the average age of the top 50 Memecoins is just under a week shows how rapidly the market is changing. However, the top Memecoins tend to remain relatively stable and hold their own in terms of leaderboard rankings.

Community

The hardest, yet most critical aspect is probably the cornerstone of every Memecoin - the community. An active, outspoken community with its own unique culture is essential to spread the message and attract new members to fuel its growth in an extremely saturated market.

In order to stimulate discussions first and market themselves at an early stage, projects need to be featured on media platforms such as websites, Twitter, Telegram and Discord to gain verifiable credibility and maximum impact.

Number of media platforms per project:

• 1 platform — 2%
• 2 platforms — 10%
• 3 platforms — 78%
• 4 platforms — 10%

We observed that more than two-thirds of Memecoins have at least 3 marketing channels, so the lack of Telegram and Twitter chat functionality should immediately raise alarm.

Using these channels, we can survey the community for positive indicators, which typically are (but are not limited to):

Don’t fight among yourself: People constantly bickering in group chats or on Twitter is bad for a project’s image, and investors may stay away. Positive emotions and healthy discussions are more attractive to investors.

Strong Twitter presence: Having a well-known brand on Twitter with distinguishable characteristics (such as inside jokes) is a must to maximize the chances of the brand being memorable, recognizable, and going viral, thereby attracting as much attention as possible.

Respected Influencers: Backing from a reputable social media personality is a huge plus, while associating with notorious influencers who have a tendency to pump and dump should be avoided.

Final Assessment

The final stage of the analysis will use an evaluation matrix to summarize all our thoughts and observations to draw a conclusion. Everyone should develop their own approach based on personal parameters and risk tolerance. In this section, we will use an in-house solution provided to us by the quants at On Chain Times.

If you're wondering why the "red flag" axis starts at 4, the answer is: there is no Memecoin on Solana without a red flag. By establishing a ratio between community ranking and the number of negative factors present, we can loosely assign each token into a category.

The goal should always be to identify and interact with Memecoins that have high community ratings and minimal warning signs, as they have a greater chance of success.

However, there are some common phenomena that should be considered when trying to classify projects:

Community takeover: In some cases, the developers of a promising and popular concept decide to exit the project by selling all of its tokens, and in response, the community creates new communication channels, essentially restarting the project without the risk of developer shenanigans.

Influencer Revival: This is hard to predict, but there are extreme cases where a dead project gets a second chance and gets a lot of attention thanks to the involvement of a popular creator.

Sniper Exits: Early exits by snipers often leave a stain on the leaderboard for the project, and they can increase their chances of marketing on social media because they are less likely to offset community efforts through huge sales pressure, which can easily scare people away.

Finding gemstones is a difficult task, but as history has proven, they do exist and occasionally appear on our radar.

in conclusion

The importance of Memecoin has reached a level that cannot be ignored, and despite its absurdity, it will still be around for a long time. Even without the intention of participating, ignoring an important area of the market would be an unforgivable mistake for any informed cryptocurrency investor. With the knowledge you gained from this article, hopefully you won't feel like you're stumbling around in the dark and grasping at straws as you navigate the world of tradable memes.