Charles from TechFlow has coined this period as the “memecoin cycle,” with some even dubbing it the “memecoin supercycle.” We’ve witnessed new memecoins like WIF skyrocket from zero to billions in market value within months. This surge has also spawned various products like pump.fun. Whether you love them or not, memecoins demand attention.
Most active participants in cryptocurrency can deeply feel the standout performance of memecoins in this cycle. They have outpaced all other sectors by far. When we hear stories of traders making multiples on memecoins, the question always arises: “How did they identify that specific memecoin?” Certainly, survivorship bias plays a role, but are there other factors at play?
At HFAResearch, we focus on fundamental-driven ideas from an investment, trading, and mining perspective. This makes covering the memecoin sector akin to navigating NFTs—investment logic is often fuzzy and relies heavily on “vibe” and memes themselves, complicating fundamental analysis. At least, this was our view before stumbling upon what we now call the “Memecoin TVL Surge Theory.”
The Memecoin TVL Surge Theory posits that major memecoins or a basket of them serve as leveraged bets on on-chain Total Value Locked (TVL). Before delving into historical examples, let’s understand why this theory holds water.
As TVL increases on a chain, a proportion of funds flows into specific applications or “destinations”… X% into stablecoins, Y% into major decentralized exchanges (DEXs), and so forth. Hence, it’s logical that a small portion of capital seeking the highest beta exposure on that chain would find its way into major memecoins or a basket thereof. While this may seem obvious to some, we believe it provides a valuable and potentially risk-mitigating way to engage with memecoins, offering some fundamental methods to assess future performance, be it upward or downward.
Let’s examine a few historical instances that illustrate this:
Base
{TBL}
Base TVL
{TBL}
TOSHI’s performance coincided with a surge in Base TVL in March.
{TSI}
BRETT’s two parabolic price hikes occurred during periods of Base TVL uptrends.
TON
{TBL}
TON TVL
{TBL}
REDO emerged as a major memecoin on the TON network.
These examples clearly demonstrate: TVL inflows = major memecoin performance. By predicting TVL increases, one can hold positions in major memecoins on that chain as leveraged bets on TVL forecasts.
Critics of this strategy argue it dilutes returns, requiring knowledge of which memecoin is most significant to determine TVL flows. This criticism holds merit; certainly, the strategy doesn’t allow for targeting a memecoin at $100k market cap and seeing it rise 1000x to $100M. However, it can effectively identify somewhat larger, slightly more mature memecoins and ride them from there. For instance, from late February to early April, Base experienced parabolic TVL growth, propelling Toshi from a $40M market cap to over $300M in less than two months, yielding substantial returns.
Predicting long-term TVL growth divides into two categories: long-term and short-term. Long-term predictions involve forecasting TVL flows over several months. We might point to Base using Coinbase as a funnel for retail user onboarding, a stable TVL growth factor. We might consider the quasi-incestuous relationship between TON and Telegram, understanding the impact of all 900 million Telegram monthly active users going on-chain on TVL. We might reference Solana and its superior chain UX and mobile wallets as reasons to believe TVL will also flow there. You get the idea; long-term, predicting TVL growth requires delving deeper into the on-chain distribution fundamentals. Then, you analyze major memecoins or memecoins on that chain accordingly.
Short-term methods view catalysts like tokenomics or airdrops as reasons for TVL growth. For instance, as a leading memecoin on Linea, $FOXY performed exceptionally well following the announcement of its tokenomics surge:
{LTV}
Linea TVL surged post-May release
{LMV}
$FOXY Market Cap
Short-term methods demand more active market scrutiny, anticipating where capital may flow based on incentives. This somewhat parallels games some of us played in the last cycle—entering the number two pool on a new DEX on a new chain to bet on incentive-induced TVL growth.
A more specific example is Scroll. Following the introduction of its latest tokenomics plan, we’ve already seen explosive growth in its TVL. Could Scroll be the next ideal target for short-term strategies?
{SMV}
We believe this approach offers a more systematic and lower-risk way to engage with the memecoin sector, though we’re newcomers here and would love to hear your feedback!
