Table of contents
Key Takeaways
Overview
Industry Outlook
Competitive Landscape
View
Different voices
in conclusion
references
Disclosure
In January, $DEGEN, an ERC-20 token launched on the Base chain, was airdropped to the Farcaster community as an incentive for content creators. To some, it is just a new meme coin on the Base chain, but to others, Degen represents a bet on SocialFi as a fundamental use case for cryptocurrency. In any case, it is also a bet on two growing ecosystems: Base and Farcaster.
Source: Trading View - $DEGEN reached a market cap of $700 million on April 1 and is down 64% in the past 34 days.
The recently launched Degen Chain as Layer 3 is the first step in building an ecosystem around $DEGEN, increasing the value of token usage, and demonstrating the potential of microtransactions in social media interactions.
Source: kaito.ai - $DEGEN has been trending downwards since peaking at 3.5% of total token mindshare (measured by number of mentions and/or citations relative to the entire crypto market).
Key Takeaways
As a proxy for Base and Farcaster, $DEGEN is a simultaneous bet on two ecosystems that dominate the minds of the crypto community.
SocialFi is characterized by platforms that either lack monetization, like Lens, or heavily financialize every aspect of social interaction, like FriendTech.
Degen leans towards socially interactive microtransactions, driving engagement and supporting community building beyond just rallying around a meme coin.
As Farcaster’s parent company sets its sights on unicorn valuations, early Degen adopters have turned their tips into massive wealth, which is undoubtedly good for user retention, as users love projects that make them rich.
The Degen chain hosts an ecosystem of meme coins denominated in $DEGEN.
Overview
$DEGEN is an ERC-20 token on Base, initially introduced through an airdrop to the Farcaster community. The goal of the token is to incentivize and reward contributors within the Base and Farcaster ecosystems, fostering a dedicated and active social community.
Recently, the Degen chain was introduced as an L3 to meet the needs of the $DEGEN token library. $DEGEN is used as a fuel token to support L3 transactions on the chain. This allows for microtransactions to pay for social interactions.
Importantly, $DEGEN highlights its alignment in incentivizing token holders by conducting an airdrop. This is achieved by letting the community make decisions on token distribution and preventing Sybil attacks, as each recipient must pay with a Farcaster ID.
Source: kaito.ai - After a 400% price increase in March, market sentiment has been declining, becoming increasingly negative as prices plummet.
Currently, the community is optimistic about developments such as the launch of Degen Chain, smart wallets for purchasing $DEGEN, and new grants, while being pessimistic and cautious about chasing the token, fearing a potential sell-off and the possible diversion of attention and liquidity to competing projects like $FRIEND.
Industry Outlook
The framework of ideas often affects people's views. Some people are dismissive of "speculation", "degenerates" and "meme coins", while praising "decentralized finance (DeFi)", "social finance (SocialFi)" and "prediction markets". As Qiao Wang said in his Medium article "Degenerates are pioneers", speculation is contrarian in crypto venture capital, but widely accepted among crypto users.
With internet users spending more than two hours a day on social media, this provides fertile ground for on-chain marketplaces to flourish, where tipping creators becomes seamless.
Fundamentally, $DEGEN provides exposure to Base and Farcaster, as well as exposure to SocialFi and meme coins. In addition, the launch of its own dedicated L3 chain further enhances the value proposition: enhancing social media and promoting community participation through blockchain features such as tipping and decentralized governance.
Source: kaito.ai - Farcaster has been maintaining token mind share of around 1% or more for several months.
Competitive Landscape
In the broader SocialFi space, the industry thrives on enabling unique features and hiding blockchain technology from users. The rise of crypto payments in social applications has introduced asset pricing into social networks, shifting from a decentralized philosophy to catering to user needs.
On one hand, Lens struggles to gain adoption due to lack of monetization. On the other hand, FriendTech is at the other end of the spectrum, turning social influence into a tradable commodity. Meanwhile, $DEGEN’s role in the Farcaster ecosystem, which started as a meme coin, has evolved into a medium of exchange, a rewards mechanism, and a governance tool.
Source: kaito.ai - FriendTech has managed to attract a lot of attention during certain periods, but has struggled with user retention or keeping users’ attention over the long term.
Lens Protocol is one of the early pioneers in the SocialFi space, dedicated to giving users control over their own data and content through dynamic NFTs. Although its approach is innovative, Lens has struggled to gain mainstream attention due to its focus on decentralization and data ownership without a strong monetization or speculation mechanism. Notably, Lens also has its own third-layer chain called Momoka, which was launched a year ago.
Source: Dune dashboard courtesy of @sixdegree - Lens is losing momentum in daily transactions and user numbers.
In contrast, Friendtech successfully incorporates financialization into social media, enabling users to monetize their attention and speculate on their social influence. This approach resonates with crypto natives, driving Friendtech’s success through a series of hype waves. However, while the financialization of social interactions can empower creators and communities, it also carries the risk of increasing speculative behavior, which could undermine the authenticity of social interactions.
Source: Dune dashboard published by @cryptokoryo - Transaction numbers have leveled off since the initial hype wave.
At the same time, Farcaster successfully attracted early members of the Ethereum community, led by Vitalik. The Degen community was born here, and the $DEGEN token was used as a medium for communication and participation rewards. Through the financialization of $DEGEN on Farcaster, users were able to monetize their social influence, transform social interactions into economic microtransactions, and create a social influence market that encourages active participation rather than extreme speculative behavior.
Source: Dune Dashboard by @pixelhack - Farcaster has seen a sharp increase in daily active users since the beginning of the year.
View
Degen is the first L3 to gain substantial adoption, attracting a lot of attention, with supporters and critics alike. As Farcaster sets new records and its parent company strives to reach a unicorn valuation, early $DEGEN adopters have seen significant profits. For example, one trader turned a $7,000 investment into more than $2 million in profits. In addition, the success of the ecosystem has also extended to Base and Degen Chain, which together host a thriving meme coin ecosystem with millions of dollars in trading volume.
Different voices
Although $DEGEN currently has over 25,000 unique token holders and a $300 million market cap, it faces strong competition from Lens and FriendTech, as well as multiple meme coins on Base, such as $BRETT with a market cap of $350 million, $TOSHI with a market cap of $160 million, or NORMIE with a market cap of $53 million. Despite the enthusiasm surrounding SocialFi and meme coins, the increasing competition from new tokens threatens the dominance of existing projects like $DEGEN.
Critics, including the CEO of Polygon Labs, argue that layer 3 solutions could potentially shift value and transaction volume from Ethereum (layer 1) to layer 2 platforms and then to layer 3. This could dilute economic activity on Ethereum itself, as transactions and fees that would normally contribute to Ethereum’s security and economic resilience are captured by layer 2 and 3 networks (which typically use their own tokens as fuel, rather than $ETH).
With FriendTech V2 now live, there are concerns that liquidity and attention could shift away from $DEGEN, affecting its valuation. This risk could be mitigated by a potential FriendTech fork that uses $DEGEN as its native currency, although this would be a challenge given the cultural and distributional differences between the two.
Source: Marc Boiron (CEO of Polygon Labs) on Twitter
Additionally, if $DEGEN is deemed overvalued and there is a strong sell-off or market downturn, this could limit its upside potential. For reference, the current market cap is around $300 million and the FDV is $900 million. Most of the remaining tokens are part of the unallocated airdrop supply, with the rest used for incentives.
The current price is about 60% below the all-time high of FDV over $1 billion on March 31. From the FOMC bottom, it successfully reclaimed the 0.01825 support and rallied higher. Entering this level would present a good risk-reward ratio, with a maximum retracement of 30% relative to the previous low (i.e. FOMC bottom) and a maximum retracement of 184% relative to the all-time high.
Source: Coingecko - On Base, $DEGEN's fully diluted valuation far exceeds other meme coins and social tokens, more than twice that of the second place and more than five times that of $FRIEND.
Given its association with Base, $DEGEN will likely have a high chance of being listed on Coinbase, despite its higher valuation, followed by other large platforms like Binance or Upbit.
It will be important to assess the shift in attention away from Friendtech and towards Farcaster/$DEGEN. Currently, sentiment on X is focused on the view that $FRIEND is still undervalued after the initial airdrop sell-off. This could be a good time to monitor a shift towards $DEGEN once a local apex occurs. As a primarily narrative driven trade, if Friendtech manages to break above the CT consensus $1B FDV mark, this would be a good "price driven narrative" scenario before looking to other SocialFi coins like $DEGEN. Exit timing is therefore dependent on how much attention the narrative is gaining; and typically, sell at the apex of attention or euphoria.
Another key information is the early investors and over-the-counter transactions of $DEGEN. In the over-the-counter transactions of 1confirmation, 1.8 billion $DEGEN was traded at a price of $0.00054111 per coin (about 39 times return), equivalent to about 39 million US dollars now. The unlocking period will end on August 12, 2024.
in conclusion
$DEGEN was initially launched as an ERC-20 token on Base and airdropped to the Farcaster community, and is one of the few liquid investments we can make in the SocialFi space, excluding $FRIEND. The token represents a bet on the dual ecosystems of Base and Farcaster, which have been gaining momentum since the beginning of the year.
References
Degen.tips
X (formerly Twitter)
Discord
Coingecko
DefiLlama
Block Explorer
Degens are pioneers
Lens protocol dashboard (Dune)
Lens protocol ecosystem analysis (Dune)
FriendTech dashboard (Dune)
Farcaster dashboard (Dune)
Base memecoins (Coingecko)
Disclosures
We have never had any commercial dealings with Degen and this report was not paid for or commissioned.
Members of our team, including those directly involved in the analysis above, may have positions in the tokens discussed.
This content is for educational purposes only and does not constitute financial or investment advice. You should do your own research and only invest what you can afford to lose. We are a research platform, not an investment or financial advisor.
Source of this article: Revelointel