Memecoins Economies: How to value a memecoin

Are memecoins worth anything?

Memecoins have been pumping, dumping and generally creating more fomo than is healthy. They also generate an intense discourse. Are memecoins good for crypto? Bad? For society? It's ironic that coins that are really, well, memes, generate such intense discussion and emotions. Vitalik has contributed his 2c, so have folks like Polynya, Bankless, Blockworks and traders and hedge fund managers.

Naturally I felt the urge to contribute my own thoughts as well, but putting on my tokenomics hat to answer the question of whether meme coins have functionality, and if so, is there a way to value them. Based on that, maybe we can parse apart a question that's tearing the web3 ecosystem apart these days: is Solana coming for Ethereum??

Why token

When approaching any token I always go back to basics and ask: what's the point of this token? What purpose does it serve? Who does it help, why, and by how much? Tokens generally have seven main reasons for existing. But memecoins are different, because they're...memes. Memes are altogether different from a token that's part of a 'product'.

So what are memecoins about?

What are memes about? Memes are culture. They convey information, oftentimes a joke or some piece of cultural context and information. Memecoins add a financial aspect to memes. Now they're not only conveying some piece of cultural reference, they also convey value. They convey how much a meme is 'worth' by the price of the token, and they convey whether you want this meme to be more valuable or not by letting you bet on the direction of that price.

As Vitalik points out:

So memecoins convey culture, information and the ability to bet on a meme. I'll take it further. Beyond the ability to express your desired outcome for a cultural movement , they're also a way to gamble on that outcome. In fact memecoins are one of the best forms of modern gambling. A function that low gas cost blockchains are uniquely suited to. After all it's cheap to bet and there's no 'house' who has an edge on you. Theoretically things are transparent.

So memecoins offer a few values:

1. Gambling
2. Making a financial value bet on a piece of culture
3. 'Owning' a piece of culture

From a tokenomics perspective there's definitely a 'there' there. Memecoins do offer some value. The question is how much? What's the intrinsic value of a memecoin?

Valuing a meme

Culture has value. Gimmicks have value. Jokes have value. Anything that folks can rally behind and arouse passion has value. People love memes, just as they love collectibles, rooting and chanting football anthems or Magic the Gathering trading cards. Some have more utility than others (you can wear a shirt or play a game with a card) but in none of the cases does the utility usually justify the price one pays for a piece of culture.

Valuing a memecoin reverts to the three values it provides: gambling, a financial bet and being part of a cultural tribe. Admittedly, valuing any of the above is incredibly hard to do, but here are some frameworks for thinking about it.

Gambling

Gambling is probably the easiest to value, since it derives from financial incentives. People gamble when they think there's lot of upside, or an easy game to be won, or they're hopelessly hooked. For memecoins, this is the least sticky form of value. Memecoins rise and fall so fast it's hard to keep track. As long as something is trendy, they can have value to gamble. But inflows and outflows are fast and there's no lasting value. Trendy is the key word. It implies a cultural norm of some sort. That's the real core value of a memecoin.

Culture

Valuing culture can be thought of on two axes: how widespread is something vs how passionate is the average 'holder' of that piece of culture. For example, the Mona Lisa is extremely widespread and well known, but on average, holders don't care that much about it. They don't sympathize with the piece of art. It doesn't categorize who they are. On the opposite side of the spectrum could be a small die hard community of football fans for a highscool team. There aren't many of them, but they're die hard fans. They go to every game, sing every song and know all the players on the team.

Is one inherently more valuable than the other? No, but for every piece of culture there's a point where going mainstream is a net financial benefit.

Bitcoin is the preeminent memecoin. Think of the bitcoin cultural meme:

• Have fun staying poor
• Laser eyes
• Number go up
• Orange 'B'
• Fixed supply cap
• Inflation hedge

And more. Bitcoin as a memecoin conveys a lot of different pieces of information. Holders, or Hodlers really, are part of a tribe. A tribe with a specific set of values, views on the macro economy (or financial nihilism). In the beginning, this was a small core, die hard group. Over time, the cultural relevance has become more mainstream. Today someone can own 'bitcoin' through an ETF and have almost no cultural overlap with the original memecoiners, beyond maybe 'number go up'. Is that a financial net benefit for Bitcoin? At this point in time - yes. The original group of memecoiners have basically tapped out their financial inflows into the asset class, which has grown so large, that it needs an ever increasing fiat inflow to make the meme story continue to perform.

So memecoins have cultural value, based on the value of their tribe, which can be quantified by how many people find cultural relevance in the meme and how much money they're willing to spend on it. Essentially, from an economic perspective: the GDP of a memecoin economy is based on the number of participants * the capital they spend in the economy.

The bottom line is that the value of a meme stems from the value of its community and the relevancy of the meme. Cute dogs are loved by everyone, but not very impactful. They're...cute. But if they're valued by incredibly wealthy people, they can be a rather valuable meme community.

Meme economies

Memecoins have the ability to empower and power economies. Communities that coalesce around memes and their values are able to exchange value for memes. They trade cards, shirts, Hot Wheels or yes, digital tokens, as a form of financial barter. All of these can be used to empower communities: give developer grants, reward desired behavior or build products.

While there's definite economic value to memecoins, it's important to remember their core value. Memecoins derive value from their relevancy and power of their community.