[Wenggou Original] DeFi Summer Replay: AI Memecoin Omegacycle

The top 10 “AI Tech” tokens have a combined circulating market cap of $30.9 billion as of Q1 2024. On the other hand, the top 10 AI memecoins may have attracted more attention, but have a combined market cap of just $2.54 billion.

I believe the emergence of GOAT and terminal of truths opens up a new category of AI that could easily grow 100x from now. This is a great opportunity, just like getting in early in the DeFi Summer of 2020.

Market Opportunities

Memecoin Supercycle + AI Supercycle = AI Memecoin Omegacycle.

Following NVDA’s crazy rally in Q1 2024, many AI tokens are going parabolic despite questionable fundamentals and token economics. We are seeing valuations of over $30 billion for the top 10 “AI Tech Tokens” and we are not even counting FDV and smaller market cap tokens. I believe this is a “testing the waters” for the Crypto x AI space and we will see a much bigger rally in 2025.

However, I believe that the vast majority of outperformance will be in the AI memecoin category. The total market cap of AI memecoin is equivalent to that of ETHEREUM CLASSIC. AI memecoin will slowly siphon off the capital of AI Tech coins, static meme coins, and VC coins.

DeFi SUMMER Moment

Some have likened GOAT’s journey from $0 to $1 billion to the “YFI moment” for this new industry. One of the catalysts for DeFi SUMMER 2020 was the emergence of YFI, which “Fair Launched” in July and reached a market cap of $1 billion within 2 months. This activated a large amount of on-chain capital to enter DeFi tokens because it allowed the industry to verify that a fair-launched DeFi token could start from $0 and reach $1 billion.

DeFi was a hot area in the last cycle because it was new, attractive, and gave people the ability to dream. With interest rates at 0%, there were rumors that DeFi would siphon capital from TradFi and become the future of finance. This led to a speculative frenzy on the chain, helping DeFi applications gain TVL and users to test the ecosystem. When YFI launched, the total DeFi market cap was about $5 billion. It peaked at about $170 billion at the top of the market, an increase of 34 times. If GOAT is similar to YFI, then we are still in the very early stages as the total market cap of AI memecoins is less than $5 billion.

The DeFi cycle combines catalysts/factors internal to crypto (liquidity mining, Ponzi yield farming, speculation) and catalysts/factors external to crypto (interest rates drop to zero → capital enters crypto seeking yield), and bubbles form. AI Memecoin Omegacycle is no exception.

Reflexivity in the new paradigm

Reflexivity theory states that investors make decisions not based on reality, but on their perception of reality. These perceptions trigger actions that have an impact on reality or fundamentals, which in turn affects investor perceptions, which in turn affects prices.

Price is the total market cap of the AI memecoin space, fundamentals based on attention and how big the "dream" is. These are not "pure memecoins" in my opinion. They are closer to the "tokenized AGI" launched by all fair on pumpfun in my opinion. If VC wants to sell heavily, these tokens will be issued at a FDV of $1 billion with a 10% float. But these AI memecoins start at $0, and anyone has the opportunity to get in early.

In my opinion, reflexivity works as follows:

• The “AI Memecoin” category attracts speculators. Most ignore it because “it’s just another PvP memecoin narrative.” (We are here)
• The AI agent continues to improve functionality over time (Zerebro launching record labels, Truth Terminal in Infinite Backrooms v2, etc.), thus changing investors’ perception from “memecoin” to “a whole new space.”
• This activated more capital/attention in and outside the crypto space, attracting more attention and speculation. Failed AI startups issued tokens as a last ditch effort. Wealthy tech billionaires started investing in some tokens.
• Unlike a "static memecoin," these AI agents will begin to perform activities on-chain, launch NFT/DeFi projects, and have an impact in the real world. They are not static. They will evolve over time, attracting more attention.
• All of the above factors put an unlimited ceiling on potential valuations. This breeds bubbles and ultimately boom-bust cycles.

It’s really important to note that all of these tokens started out as pumpfun. It fits with the current zeitgeist, the Memecoin/AI supercycle, and anti-VC sentiment. Elon Musk expects AGI to be achieved in 2025–26, so if you believe in 4-year cycles, the hype peak could coincide with the top of cryptocurrencies in Q4 2025.

My Positioning

Last cycle, the total DeFi market cap reached $170 billion. If the industry reaches these valuations, it would mean about 40x growth from now. But since the total cryptocurrency market cap is much higher, we can easily surpass these levels. The key is to have confidence, be patient, and adjust the portfolio accordingly, because rotation and volatility will be intense.