Going $DEGEN: The degen token that’s taken Farcaster by storm

Going $DEGEN: The degen token that’s taken Farcaster by storm

March 15, 2024

Let’s go DEGEN

It's memecoin season and $DEGEN has been taking the Farcaster community by storm. It has a unique tokenomic model that's been performing beautifully and there's a lot to learn from and explore whether it's sustainable.

What is $DEGEN??

$DEGEN is an ERC-20 token launched on Base for the Farcaster ecosystem. It has no L2 or protocol associated with it and simply put, it's a tipping coin. One receives $DEGEN tips for interacting on Farcaster and tips out $DEGEN to others as desired. Simple and elegant really. What's there to like in the $DEGEN model? Quite a lot. This community has managed to align a token around specific community vibes and desired outcomes and scale that alignment virally through a 'token distribution market fit'. Metrics wise, they've reached a $67m market cap with 28,000 token holders. Not bad at all for a token that's been around for two months.


The $DEGEN model

$DEGEN has simple tokenomics. 60% allocated to airdrops, 10% to liquidity mining and 15% each to the team (including investors) and ecosystem grants. It's the distribution mechanism around aligned participants that's made it work.

The model has a few stages:

  1. Create an early community of influencers who align around the vibe
  2. Spread the vibe to a larger community
  3. Become a power for distribution and a voice in the 'global' (aka Farcaster) community
  4. Sustainability

Stage 1: early vibes

During an airdrop season participants were allocated points based on doing specific actions in Farcaster - casting in the Degen channel. Points were also boosted and awareded based on how much social clout you had: followers, likes and recasts (Farcaster retweets) all boosted the points one received. At the end of the airdrop season these points were turned into $DEGEN.

This early distribution mechanism has a few advantages. The distribution rewards power users - community focal points who have social clout. The more social clout, the more points you'll receive. It also rewards early Degen believers - people who were active in the Degen channel. At the overlap of this Venn diagram are influencers who care about Degen and align with the values of the project: rewarding creators, spreading Farcaster vibes and incentivizing builders to build on Farcaster and on Base.

This early alignment of vibes and clout is what makes the model work during phase two.

Stage 2: Community growth

Stage two grows the community. The challenge in growing communities is always around maintaining the same value alignment while growing. This is done in Degen by giving a disproportionate amount of power to spread $DEGEN to those in the first airdrop. This means that the community spreads from the nucleus of early adopters who are most aligned to an immediate circle around them of folk who are most similarly aligned.

In $DEGEN this is achieved by a neat mechanic. $DEGEN is allocated daily to people to tip to others as they see fit based on their social clout. However, you only receive an allocation if you already have 10,000 $DEGEN in your wallet. One either has to buy this on the open market or be one of the early adopters. Because the early adopters also have social clout, they receive a very large daily allocation of $DEGEN to tip. This means that early $DEGEN tipping is highly aligned with community vibes - helping maintain it as it spreads.

Importantly, this daily allowance can't be stored up by these influencers, so they lose nothing by spreading the wealth and tipping people. The same applies for the next wave of adopters, removing yet another barrier from the next wave being community vibe aligned.

At the end of stage 2 a second airdrop occurs, spreading $DEGEN out wider, enabling the community to grow further and more people to tip for airdrop season 3.

Stage 3: Distribution platform

Now that the community has grown and is growing even faster as more people become part of the $DEGEN tipping community, it's time for 'institutional' growth. $DEGEN is now known in the community and therefore becomes a way for new builders to achieve distribution. They can utilize $DEGEN as a token and appeal to $DEGEN holders to bootstrap growth. The Degen community can allocate grants to specific projects and incentivize different developers.

All this in the hope that stage four will occur.

Stage 4: Sustainability

The problem with communities is that as they grow, they become less aligned with the early core values aligned group. What makes $DEGEN work in the beginning, mainly vibes aligned viral growth, will lead it to reach people who aren't aligned. Without relevant use cases, or 'sinks', what do these less aligned folks do with their $DEGEN beyond dumping? This leads $DEGEN value to drop, reducing the impact that the Degen community has and hurting their goal.

However, being a 'vibes' coin to begin with reduces the financial aspect as being purely dominant. Indeed, as the price of $DEGEN drops, it becomes easier to purchase and tip.

Another need for sinks exists though. As Airdrops cease, the growth mechanism for the community dries up. The Degen team hasn't proposed their solution to this yet. A good solution would be to 'buy back' $DEGEN and keep on distributing in the same way, but this necessitates sinks. Any other solution, such as large inflation, would be highly dilutive - not only in a monetary sense, rather in a 'anything gets rewarded' sense.

What makes $DEGEN cool and work

$DEGEN is a very cool tokenomic design with some neat mechanics and importantly, a perfect token-distribution fit. A few things make this work that should be learned from:

  1. Creating value out of nowhere in a focused way: vibes first, virality second. Vibes are achieved by hand picking the milestones for being awarded $DEGEN and optimizes for the perfect early adopters: ones with social clout who are values aligned.
  2. Distribution-token fit: $DEGEN is inherently a social token, meant to reward creators. The social distribution via the Farcaster feed (by simply casting 500 $degen) fits perfectly. It shows up in the feed and is a form of social interaction that spreads virally. Tipping $DEGEN is a ‘like’ or super like even and lets you show value and appreciation. There's a social distribution for a social token.
  3. Only holders receive a tipping allocation. This matters not so much as a token sink, rather as a gating mechanism for early adopters and keeping the early community aligned.
  4. Tipping costs the tipper nothing. In fact there's a desire to spend the daily allocation of tipping $DEGEN since it doesn't stack up.
  5. Once $DEGEN achieves a critical size, it can help other builders achieve distribution.
  6. Being early in the attention economy is a winning move. They were the first $DEGEN. The third, fourth and fifth won't work as well.

Designing Tokenomics by Yosh Zlotogorski