Original Author: Honest Mai (X: @Michael_Liu93)

It has been a long time since I wrote such a lengthy article. This is a piece that is "heavily flavored with investor insights," as the logic needs to be interconnected, which may not be very easy to read. However, if you take the time to read it carefully, it will definitely give you a new understanding of the crypto market and the Meme sector. Today, I will attempt to answer three questions from the perspective of an "institutional investor":

1. Has the crypto industry already entered the stage of mass adoption?

2. Could Meme become the killer application that opens the door to mass penetration in the crypto market? What is the underlying logic of the Meme sector?

3. What stage of the cycle is today's Meme market roughly in?

1. Has the crypto industry already entered the stage of mass adoption?

Before discussing Meme, I want to ask everyone a controversial question. Do you think the crypto industry has already entered the stage of mass adoption? The two extreme viewpoints I often hear on this question are: one side claims that crypto has already achieved mass adoption, with Wall Street entering the market and retail investors having already bought coins, so where are the new entrants in this cycle? The other side believes that it has not yet been widely adopted, often comparing it to AI, because the crypto market has not seen a Killer App with over 200 million users like ChatGPT.

I think both sides are correct, but essentially they are discussing two different things: one is about mass adoption, while the other is about mass penetration. What is the difference between these two points? I will try to explain my thoughts using the history of the development of the internet in the United States.

In 1995, the computer penetration rate in the U.S. was around 40%, with approximately 85 to 90 million Americans using computers. At the same time, the internet penetration rate in the U.S. was only about 13%, with a total of 25 million users, meaning that one out of three computers in the U.S. was connected to the internet. It might be hard for you to imagine today what the other two computers were doing. The remaining two computers were being used as calculators and typewriters (because computers began to be popularized in work scenarios and only gradually entered households by the end of the 20th century).

Why did I choose 1995 as an example? Because the 40% computer penetration rate in the U.S. in 1995 is roughly equivalent to the current penetration rate of digital currency in the U.S. Yes, by 2024, 40% of the U.S. population will hold digital currency, totaling about 93 million people. Next, if we compare "going on-chain" to "going online," we can see that the largest wallet on Solana, Phantom, has about 7 million monthly active wallets, while the largest wallet on Ethereum, Metamask, has about 30 million monthly active wallets (both figures taken from the highest values available). Assuming that Americans make up half of the on-chain users and that each person has three wallets, a rough estimate would put the number of on-chain users in the U.S. at around 6 million. Of course, this estimate is not entirely accurate, as there are many other wallets, and the average number of wallets per person may exceed three. The assumption that the U.S. accounts for half of the global on-chain player count may also not be accurate, but since I have taken optimistic assumptions, no matter how you calculate it, the number of "on-chain" users in the U.S. is unlikely to exceed 10 million, which is at most about 3% of today's total U.S. population.

So today, the crypto industry is in a more awkward position than the internet industry in 1995. A 40% digital currency penetration rate is already significantly sufficient, but a less than 3% on-chain penetration rate is clearly still too low, even lower than the 13% internet penetration rate in 1995.

This is why I say that when everyone discusses whether crypto has been mass adopted, both sides are correct; they are just discussing different dimensions. One side talks about the penetration rate of "computers = digital currency," while the other side discusses the penetration rate of "the internet = on-chain applications." (It is worth mentioning that the internet penetration rate in the U.S. was 3% in 1993, and from 1994 to 2000, the U.S. internet penetration rate rapidly grew from 3% to 43%. So what happened in 1994? The Netscape browser appeared, which was the first killer application of the internet era. A killer application can truly drive rapid growth in the overall penetration rate of the industry.)

As I write this article at my desk, I can imagine that the first batch of pioneers who went online in 1995 must have been discussing the same questions we are today, feeling that computers have already achieved such a high level of penetration, and it seems that there is nothing that "cannot be done without a computer." Going online felt somewhat tasteless, yet too precious to abandon, purely driven by love. Isn't this the feeling we have in today's crypto industry?

So what happened between the emergence of the internet and its mass adoption? The first batch of users who went online were certainly the most geeky individuals, using the first batch of the most useless applications on the internet, such as online radio, online television, and online phone books—these were all pseudo-needs that were already satisfied through offline means. They went online purely out of a love for new things.

As the first batch of computer users connected to the internet, the first batch of "killer applications" gradually emerged, such as email and e-commerce (although e-commerce at that time was still much more cumbersome than offline shopping and could also be considered a pseudo-need; for example, when Amazon was initially selling books, they realized that they could only compete with offline bookstores by selling niche books that were rarely available in physical stores). As the user base of the internet grew, the user dividend created the possibility for new killer applications to emerge. For instance, if you have only one friend using WeChat compared to 100 friends using it, your motivation to download WeChat is completely different (often, whether an application is a killer app depends on the user base; telephone, email, and social networks are the most typical examples).

Thus, you can see that once the user base of the internet reached a critical mass, the speed of innovation began to accelerate, and the frequency of killer applications emerging increased. Every couple of years, there would be a wave of innovation. The first batch of VC investors in China who experienced this process over the past twenty years should resonate deeply with this evolution (I entered the industry in 2016, just as the internet era was coming to an end).

2. Could Meme become the killer application that opens the door to mass penetration in the crypto market? What is the underlying logic of the Meme sector?

If we take the internet era as a reference, the explosion of the internet was certainly based on the premise that computers were already sufficiently popular. Today, for the crypto industry, with a 40% penetration rate, the crypto industry is already sufficiently popular, but we are like the first batch of internet users in 1995, still searching for that killer application that can bring hundreds of millions of users onto the blockchain. I believe I see the shadow of a killer application in Meme.

I previously discussed this concept in my space; I believe that memes are a new form of streaming media, akin to TikTok in the new era. Have you noticed that since you started using http://pump.fun, your time spent on TikTok has decreased? Or you might not even use it anymore? Both are products of the attention economy and are products of the larger historical context. TikTok is a product of young people's increasingly fragmented time, providing a brief and timely dopamine fix amidst the hustle of work and life; it is fast entertainment. In contrast, memes are a form of entertainment that young people urgently need to gamble on in the context of social class rigidity; it is "poor entertainment." One satisfies lust and laziness, while the other satisfies greed. Essentially, both are dopamine businesses that fulfill the most basic "original sin" of human nature. This is why everyone is tirelessly scrolling through TikTok or Pump for 24 hours; it is genuinely "addictive."

If I compare various "terms" from TikTok with memes, you will understand better:

1. Content creator = dev/project team (producing content = producing meme projects)

2. TikTok recommendation algorithm = meme KOL (the recommendation algorithm determines what content you see, while meme KOL determines which meme coins you will pay attention to; both are core positions for distributing traffic)

3. Monetizing traffic = market makers (by pumping and dumping, they attract more attention to their own memes while helping the project team monetize in the process)

4. Advertising = dexscreener, CMC, TikTok ads (activities that attract retail investors' attention and traffic)

5. Professional generated content (PGC) = strong market manipulation

6. User generated content (UGC) = pure CTO projects

7. Junk advertisement videos = Rug projects

If you understand the above logic, then we can use the development path of TikTok as a guiding stone for the meme industry. The meme industry will likely have the following trends in the future:

1. The division of labor in the industry chain will become increasingly detailed and professional. Those who are not professional in each link will gradually be eliminated, including devs, project teams, KOLs, and market makers. This is an extremely strong market where the strong will continue to get stronger.

2. Initially, there will still be UGC content (pure community projects), but over time, traffic will increasingly concentrate at the top, and new emerging content will become more PGC (strong market manipulation), while UGC content will gradually fade from view (but you can still see hidden UGC that is actually PGC created by professional teams, as some audiences prefer UGC styles, and these projects are also designed to cater to this group). The logic is simple: on Solana, any project that can take off must have strong backing behind it, with high control over the supply attracting everyone's attention. Only a professional marketing team can tell the story well, and then, as the price rises, the strong will gradually distribute their tokens, eventually forming a strong community over time. Therefore, it is always the strong backing first, followed by the establishment of a strong community. This is why I have repeatedly emphasized in my space that good meme coins must be mutually beneficial for both the strong and retail investors. You need to look for "good backers," assess the quality of the content produced, the market maker's trading methods, and the team's dedication to community management.

3. KOLs will ultimately compete based on their ability to match high-quality "content." Whoever conducts the best project research and can find the most valuable "content" to push to their followers, allowing them to make money, will have a larger following, which in turn allows them to match even higher quality "content," creating a positive cycle. Those who have studied Murad closely will understand how he operates. If TikTok's recommendation algorithm keeps pushing you junk videos—if you are a girl, it shows you videos of beautiful women dancing, and if you are a boy, it shows you how to choose cosmetics—you will likely keep clicking "not interested" to adjust your recommendation algorithm. This is also why I believe that in the future, rug developers will likely become fewer (as long as you don't go digging for gold in the trash), because KOLs are gradually becoming more professional. KOLs won't want to promote junk projects; every promotion is a hit to their most valuable resource, "traffic." Therefore, these rug developers will find it increasingly difficult to gain traffic promotion from KOLs (of course, matrix accounts and scam KOLs will always exist, but with each scam, their "sales" ability will decrease by a level until no one pays attention to them anymore).

4. The leading content creators will attract more and more traffic, and the same goes for the meme sector. The top projects will aggressively siphon off the long-tail projects. In the future, the meme sector will see the emergence of top "Meme projects" like Xinba, Xiao Yang Ge, Li Jiaqi, and Wei Ya. Think about those trading memes in the secondary market; the memes that everyone will want to "stock up" on are likely to be those like PEPE, WIF, POPCAT, and SPX, which have already demonstrated their strength and have very large communities, right? (But this does not mean that new "content creators" won't emerge; there will definitely be new Memes that will break through.)

I present the underlying logic so starkly that it may make some people uncomfortable, but there’s no way around it; this is the truth, and such trends have already occurred. You need to understand the truth of the game rules in order to win in this game, don’t you agree?

3. What stage of the cycle is today's Meme market roughly in?

First, let's take a look at the current user data for Pump Fun, which can be checked on Dune. Pump Fun currently has around 150,000 daily active wallets. During the peak of Solana memes a couple of weeks ago, it reached a maximum of 200,000 daily active wallets. If we divide this by the previously discussed 7 million monthly active users of Phantom, we can roughly calculate the penetration rate. Currently, Pump Fun's daily active users account for 2.9% of Phantom's user base, so considering only the user count of the Phantom wallet, Pump Fun is still far from mass penetration.

In addition to looking at the number of participants in Pump Fun's internal trading, we can also examine the number of holders of the largest meme coins to get a rough understanding of the scale of on-chain players (many addresses are inflated, so the actual number will be lower; my personal judgment is that the number of addresses/users is at least 2-3 times). Currently, the number of wallets holding WIF is 190,000, Popcat is 110,000, Bonk is 11,000, PEPE is 270,000, and SPX is 25,000 (this somewhat reveals whether Murad's constant promotion of SPX is truly backed by a strong community).

So whether we look at the user data of Pump Fun or the wallet holding data of the top blue-chip memes, we generally arrive at a number within the range of 200,000 to 300,000. Therefore, the penetration rate of memes among the current users who already have wallets on-chain is between 3-5%. There are still several million users among this batch of on-chain users who have not been penetrated by memes, which means the current scale of Meme users is 20-30 times larger.

If we assume that memes will also penetrate a portion of the users who originally traded on exchanges onto the blockchain, then we need to reference the total number of global crypto users, which is around 500-600 million. This means that a 1% penetration rate could bring an incremental user base of 20-30 times, while a 10% penetration rate could lead to 200-300 times.

If we consider memes to be the true killer application of Web3 and that they will become the streaming media of the new era, akin to TikTok for Web3, we can look at TikTok's data from November 2024, which shows 700 million daily active users, making it 2000-3000 times the total number of meme players globally.

This is indeed the best era for crypto entrepreneurs and investors.

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