6 min read

We are all narrators now


The history of markets and those of narratives have been intertwined since the beginning of time. Some of the earliest human records tracked debt. Millenniums later, when stock issuances became common, men hung out in cafes discussing price movements. The original London Stock Exchange was initially a cafe, and Wall street was simply a gathering around a tree in the 1790s. Humans have evolved around stories and communication gives us signals in a time marked by noise. Things like influencer marketing and flashbots may seem like innovations, but they are simply iterations of old concepts updated with technological changes. Nerding out on financial history aside, I wanted to look at how the public markets have been behaving when it comes to digital assets.

In today’s post, we take a look at two of the industry’s favourite dog-related assets - Doge and Shibu and observe their on-chain data to get a sense of what is going on.

The Dogema we face

Dogecoin’s prominence in the public psyche is partly due to Musk’s memes. The man understands the need to be a part of public narratives and has been exceptionally good. When clubbed with digital assets that retail users trade, his action can have after-effects. By proclaiming himself as the dogefather on SNL and tweeting about using dogecoin as an alternative for Bitcoin payments, Elon Musk has given credibility to a digital asset launched as a joke. Anybody that believes in the power of free markets can’t blame Elon Musk. He is practising his right to free speech. The challenge is that we live in an age of fake news, viral echo chambers, and declining economic opportunities. Individuals increasingly look for opportunities in more esoteric instruments. Combining desperation with a lack of financial education and regulatory involvement leads to the situation we are currently in—one where joke assets get more attention than ones laying the foundation for the future of the web.

Consider the chart above from IntoTheBlock. It tracks the percentage of wallets that held doge for a few months against ones that have had it for over a year. The percentage of those holding the asset for over a year has reduced from close to 75% to slightly above 50%. Those holding the asset for less than a month have surged from under 5% to over 22% for the year. The average wallet in dogecoin today keeps over $16,000. Only a mere 8% of those holding dogecoin are in the negatives as of writing this. Safe to say, a large number of individuals have put meaningful sums of money for very short-term, speculatory bets in the asset. When the party stops, it will not be pleasant.

This is not to say a bull market driven frenzy is always destructive. User education and onboarding are critical for the future of the web. The chart above looks at the combined number of new addresses on dogecoin each month. The network went from averaging around half a million new wallets each month over 2019 to 1.5 million in April 2021. Those numbers are not a joke considering doge’s only purpose is to be a joke. You cannot use them in a smart contract or practically use them for anything other than speculation. Narratives hold the power to enable networks to cross the chasm and absorb new users. More importantly, powerful narratives force people to spend time learning about new technology. The question is, what do we onboard them to. A game like Axie Infinity can change people’s lives. DeFi has opportunities that would be relevant for the future of finance. Onboarding individuals to meme assets is the 2021 variation of selling them beanie babies.

Shibunomics For Social Goods

While Doge has a rich history of over seven years in which they donated to campaigns and built tipping bots for Reddit, some assets have become prominent simply because of social media in the past few weeks. Consider the case of Shibu tokens. It has become the people’s darling due to a mix of unit bias (low price) and TikTok and Instagram based marketing.

Side note: If you want to spend your weekend getting out of the crypto bubble and looking at how crypto is often marketed to unknowing users - consider going down this TikTok rabbit hole. Fair warning - it may not be worth your time.

Over the past week, Shibu tokens have spent ~1800+ ETH in fees, primarily driven by the use of decentralised exchanges for trading. If you think memes cannot be strong marketing, consider the number of active wallets below. SHIB Tokens rose from a little under 10,000 active wallets to over 100,000 between February and April. The most interesting hike for this figure occurred in the first week of May when over 150k new addresses began interacting with it in a single week. The interest in the token reached a level where Binance listed it ahead of other relevant DeFi assets.

To understand the nature of who is buying these tokens, we need to look at how long they hold these coins. The graph below from Nansen.ai breaks that down. Close to 65% of wallets holding Shib tokens have owned it for less than seven days. This means most individuals exposed to the asset have barely been a part of the community for over a week. If we align it with the timeline of social media posts, we have fair reason to believe they are coming through TikTok and Instagram. The founders sent half of Shib tokens to Vitalik’s wallet at the time of launch. Yesterday, he donated the vast majority of it to India’s crypto relief funds - which is equal parts ironic and iconic. Ironic because liquidating any of the $1 billion or so worth in tokens will be almost impossible given that there is barely enough liquidity for $5-$10 million. Iconic because he removed his affiliation with the project in such a dramatic fashion. Unfortunately, this meant the token’s price collapsed in a matter of hours, and with that, a large number of retail investors likely found themselves in the negative.

Narratives Can Be On-Ramps

What I found interesting about Shib tokens was that much of the initial trading occurred on Uniswap. The data above indicate that 100,000 trades were happening for the asset on decentralised exchanges at its peak. This was, again, a function of social media posts explaining where to find the asset. Decentralised exchanges power all kinds of players - good and bad. While it is not practically possible to censor what assets get listed, these instances act as a mechanism for user education. SHIB tokens were at one point one of the most traded assets on Uniswap, and with that - we have a few hundreds of thousands of users now onboarded to decentralised exchanges. A few years back, that was a dream for the vast majority of decentralised applications.

Narratives like the ones powered by Shib tokens and dogecoins play an instrumental role in raising awareness and expanding the userbase. Much like the early days of the web, users will, unfortunately, have a painful process before they realise there is no prince with untold riches waiting for them in web3.0. More importantly, it reduces the cost of acquiring customers for new startups in the space. Should users lose tens of thousands of dollars learning about the space? Likely not. And that is where people who are in the industry today have a responsibility. Making new entrants aware of the pitfalls of investing in the wrong thing could reduce losses. Passing them off as yet another joke is a disservice to those building what counts. Assets that are memes are indicative of the times we live in. Elon Musk referred to doge as the “people’s hustle”. In an ideal world, the people’s hustle would constitute people building their ventures in what truly matters to them instead of hoping a speculative asset they purchased changes their life for good.

Have a wonderful weekend,

1. None of this is financial advice
2. Opinions expressed are of my own and not of firms I am associated with
3. I don’t hold exposure to any assets mentioned above.

Product Launch

Regan Bozman and team have built a database with information on thousands of investment rounds in the industry. It is updated frequently and has the most concise information on who is investing into what. If you are a founder or investor -make sure you take time to go through it. Lots of hidden alpha in there.

You can access the whole thing here. This is not a paid endoresement. I genuinely think it could be useful for the industry :)

Weekend Reading List

I am currently splitting time between The Sovereign Individual and Money: The True Story of A Made Up Thing. Here are some additional reads for the weekend

  1. Peter Thiel’s Religion
  2. Sleeping late is an underrated form of self-care
  3. From outsider to $5B SPAC in six years
  4. Other people’s money
  5. Building parallel financial systems
  6. What is an entertainment company in 2021
  7. An introduction to Thorchain for Bitcoiners
  8. How Archegos affected Bitcoin
  9. What critics dont understand about NFTs
  10. Excel never dies