From Points to Currency- An initial look at $DEGEN

The $DEGEN memecoin launched in January 2024, with the objective of bootstrapping participation in the Farcaster protocol by giving points to users who contribute content to the platform, initially on the popular client, Warpcast. So what? Well, each of the two individuals who launched this token are now worth $37 million at the current price of 2 cents(approximately)! In just three months....

So how does a meme coin meant to encourage participation in a channel (/degen) on a fledgling client (warpcast) built on a permissionless, decentralized protocol(farcaster) land up with some real utility and a market cap of over $200 million in three months?

Here is my attempt to whet your appetite, pending a deeper dive into the numbers in a follow up post.

What started as a way to incentivize and recognize posting in a channel on Farcaster, has now become a mechanism for rewarding across the platform, and now integrated into https://bracket.game/ : a game to invest in/bet on outcomes of the NCAA tournament to start and https://drakula.app/ : a tiktok lookalike that pays you for contributing/watching videos. Drakula received a grant of 20 million $DEGEN tokens(worth about $400,000 at 2 cents for $DEGEN) which they will use to drive adoption by incentivizing creators to post videos and earn. DEGEN also launched a partnership with Airstack.xyz , which provides data and tools to build on top of Farcaster, among other web3 protocols. This will enable builders to integrate the $DEGEN token easily into their apps once the new L3 solution launches.

As on date(March 26), there are over 50,000 holders of this token, over half a million transactions, with a cumulative trading volume of about $250 million. For more stats, check out this excellent Dune Dashboard . On this same dashboard you can see the wallet addresses and contract addresses holding the token and the current value. You will see two wallets belonging to the founders, each containing about 1.87 billion tokens, out of the initial 37 billion tokens created. I haven't figured out all the other wallets, but you can get more information from the tokenomics section and match up the totals. About 70% of the tokens are intended for the community!

But the important question remains: How does a meme coin suddenly have a value? This value is usually relative to some other asset(another token such as Ethereum) which has an exchange rate with some fiat currency, such as the USD. This is where the permissionless nature of decentralized exchanges comes in, and we learn about Uniswap. Uniswap is a leading decentralized finance protocol, enabling users to swap cryptocurrencies without a centralized intermediary through an automated market maker (AMM) system. It utilizes liquidity pools containing pairs of tokens to facilitate trades. Prices are determined by a constant product formula, balancing supply and demand. Anyone can provide liquidity by depositing equivalent values of both tokens in a pool, earning trading fees in return. In this case, the initial liquidity was probably provided by the founders, and subsequently they incentivise others to provide liquidity by giving them rewards in guess what? ... you got it ... $DEGEN tokens. Once there is enough demand for the token, and enough transactions, you have some sense of the value of the token. $DEGEN launched at $0.00002255 on Jan 15th and is at $0.02 today, a gain of about 75,000%. In other words $100 in $DEGEN on Jan 15 would be worth $75000 today!!

All of this would not happen without a narrative behind the project (after all it started as a meme coin), consistent backing by the founders who have some reputation, and the community. The community around a memecoin plays a crucial role in its promotion and valuation. The strength and activity of the community can be a major driver of the coin's success. The Farcaster community embraced the token, and is an important reason for its success.

With any new memecoin project, and there are hundreds these days , you have the uncertainty of trusting the founders, who might execute a rug pull . You want to see some evidence that the founders stand behind the project and thus any tokens they allocate themselves are locked up or vested. These tokens are usually vested with dates being set in the future encoded in a smart contract, which are designed to release tokens or assets over a specific period. This approach is commonly used to incentivize the long-term commitment of team members, investors, or participants in a project by gradually allowing them access to their tokens. The start, cliff, and end dates set in the future ensure that the vested parties have a vested interest over a longer term, aligning their goals with the success of the project. If you are geeky enough to want to check when the tokens vest, you can always pick the contract from the dune dashboard and paste it on BaseScan(as I did for the first address with 1.87 billion tokens), the explorer for the Base L2 chain.

Now, unless you code smart contracts for a living, you would not know how to read the contract on the link above. The trusted ChatGPT comes to our rescue. If you look at the OtcVesting.sol file, copy the code and feed it to GPT and ask for an interpretation(as i did ), you might get some level of comfort. If you look further down on the same page on BaseScan, you will find the values used to call the functions used in the OtcVesting.sol file. They show the dates used to setup the smart contract, but in a unix timestamp format. Copy those dates(Arg [ ] values in the image below) into ChatGPT and you will see that vesting begins in September 2024, and the first withdrawals are permitted in March 2025, and final withdrawals happen in September 2025. This suggests that the founders have a stake in supporting the project and growing the ecosystem for at least 1 year or more.

As always, look before you leap with any output from ChatGPT and I am not a smart contract security expert. Im just showing you what is possible with the transparency of the blockchain to evaluate and understand a new experiment, $DEGEN. There is a lot more to discover about the project and more data to surface. If you want more deep dives into $DEGEN and Farcaster and other permissionless projects, stay tuned!

And a standard disclaimer, this is not financial advice, and is purely for education.