MemeFi

Today, I explore thoughts around MemeFi, which is exactly what it sounds like: DeFi for memes. I delve into the “why” behind my specific MemeFi thesis, and present a potential “how” through a solution I myself have invested in and contributed to.

Previously, I provided my thesis on the memecoin narrative at the center of this cycle. Now, I consider the natural next step in the evolution of any liquid market: financial rails.

In the world of crypto, memes have blown up. They’re not just funny internet jokes anymore; they’ve become serious business. The memecoin supercycle theory is proving to be very real, with memes achieving escape velocity and forming their own market. Some of these coins have hit multi-billion dollar valuations and built entire ecosystems around them.

As memecoins have skyrocketed in popularity and value, the need for robust financial systems tailored to their unique characteristics has become increasingly apparent.

The natural next step in the evolution of any liquid market is the development of financial infrastructure. Financial infrastructure provides the backbone for any market, enabling efficient transactions, liquidity, risk management, and most importantly, credit creation.

Traditional markets have robust financial systems, and crypto has DeFi. However, current DeFi infrastructure doesn't adequately support memecoins beyond simple swap pools. A common argument as to why memecoins lack credit markets is that they are highly volatile and introduce significant risk into existing DeFi credit systems and money markets. 

This reason, IMHO, is disingenuous, ETH had access to credit markets, borrow/lend platforms, ETH-backed stablecoins, and other financial tools even when it had a market cap as small as $20 billion. Currently, the largest memecoins on Ethereum—SHIB and PEPE—have market caps of a similar size, yet the idea of supporting financial infrastructure for memecoins seems far-fetched.

There is a gap in the market, not sure why this gap exists, but its not necessarily due to any fundamental reason. Potentially a misplaced, paternalistic view from the more serious side of crypto. The sentiment seems to be, meme investors dont need or cant handle financial rails, memes are too risky and bring fragility to the system as well as all memes are destined to go to 0. I believe a core tenant of DeFi is permissionless innovation, and the market will always route around gatekeepers.

As memecoins continue to grow in popularity, culture, and value, the need for robust financial systems tailored to their unique characteristics has become increasingly apparent.

Enter MemeFi..

A DeFi approach specifically designed for the meme market. I believe any attempt at creating financial infrastructure for memecoins should be isolated to memecoins alone. Also it must be designed to accommodate the immense volatility and unique risks of the market participants, without introducing systemic risks to the broader Ethereum DeFi sector.

Furthermore, I believe the financial infrastructure should embody a level of “memetics” to be accepted by the meme economy. Just as unserious assets don't mix with serious finance, serious finance won't mix with unserious assets. What do I mean by this? Well, I'm not entirely sure, but I have a sense that it should reflect the culture and values of the meme economy, recognizing that the meme itself has value.

Lately I have contributed and invested in the International Meme Fund (IMF).

The IMF began as a humorous idea among friends at the ETHGlobal Sydney Hackathon. It has since expanded scope and evolved into a well thought out protocol that has what we like to call the “meme mullet”, where it is just pure Memes in the front and a full blown DeFi protocol in the back.

At its core, it is a DeFi credit application with the ambition of becoming the first of its kind in MemeFi by attempting to embody the memetic qualities and unique mechanics I believe essential for the meme economy.

Memetic factor

Starting with the branding, it plays on the IMF, which in traditional finance stands for the International Monetary Fund. We have created the International Meme Fund, with branding and cultural values that parody its traditional counterpart. For example, “we aim to bring fiscal stimulus to all serious accredited meme investors”, and “you will own memes and be happy.” Ironically, the IMF achieves these goals by allowing meme holders to farm rewards as part of our meme economy and it also lets meme coin holders access liquidity without having to sell their memes—so you will literally own memes and be happy.

The native stablecoin, $MONEY, further embodies the cultural values of the meme economy. It’s actually an "unstable" coin, giving it a unique meme factor. Importantly, it’s not pegged to $1 like serious stablecoins; instead, it’s soft-pegged to $6.90—because of inflation bro. More on this later.

More memetic factors include the Interest rate mechanism targeting a rate of 6.9% when $MONEY is at peg. A slightly more technical point on this, the fixed points of the rate and peg don't affect the stability of the system, but is an opportunity to differentiate on the memetic level. DeFi needed to be skeuomorphic to TradFi, hence pegs at $1. MemeFi can be free of this constraint, and by doing so, potentially changes overall mindshare on a stablecoin entirely.

Isolated and Unique Infrastructure for Memecoins:

To increase its chances of success, IMF is focused on a meme-centric approach. It only accepts memes as collateral, and the initial liquidity pools are exclusively between memes and $MONEY, with no external assets.

This isolation is important because unserious assets don't mix well with serious finance. To accommodate the immense volatility and unique risks of memes, the underlying native tokens should be priced and backed accordingly. I believe introducing ETH or “serious assets” as collateral or a proper hard-pegged stablecoin changes the dynamic completely.

The “unstable” coin is a more innovative primitive than it may first appear. It represents a game-changing model in both the use case of a stablecoin and the mindset behind how a stablecoin operates and is utilized.

A caveat here: this is not a technical paper, more info in official IMF protocol documentation.

However bear with me in my attempt to get some understanding across on how IMF is uniquely built for this market.

Mechanically, it doesn't matter where you peg a stablecoin, it could be $1, $69, or $420,000; the mechanics are the same. However, the chosen peg value has a memetic anchor that this market has not yet fully realized.

The stablecoin market aims to maintain a strict $1 peg, creating the firmest representation of US Dollars on-chain. This is because there's substantial rewards and business success in tokenizing real-world USD and treasuries or its crypto backed representation onchain.

Most of the demand for a strong on-chain stables comes from its use as a store of value to escape crypto volatility, earn interest, and trade on-chain.

However, pegging a stablecoin to a value other than $1 changes the whole concept of a stablecoin. This approach removes the need for it to mimic the USD as a store of value and earn interest revenue. Instead, it becomes something relatively stable that can unlock value through debt and leverage and facilitate trade. The key value proposition here is that suddenly being off-peg is not instantly bearish, unlike any USD-style stablecoin.

This unstablecoin is not designed to be held as a store of value but to be used, creating pure money. My intuition is that having a pure trade and debt currency is bullish for a meme-backed stablecoin. It has constant demand for use, and nobody would want to hold it anyway. This further reinforces the concept of building financial infrastructure uniquely for the meme ecosystem.

Lastly, the memetic value of being soft-pegged and "unstable" perpetuates the idea that "memes themselves have value." For example, "The unstablecoin has value because, well, the real economic system is unstable anyway, bro. We just embrace it."

This approach isolates the experimental MemeFi ecosystem from the broader Ethereum DeFi space, preventing any uncalculated risks from affecting either side. Simultaneously and more importantly, it is architected uniquely and purposefully for the meme economy and its participants, further doubling down on our thesis that this is the way in which MemeFi will thrive.

For this final section, I decided to include some user stories to highlight how MemeFi can actually enhance and assist accredited meme investors in this market. Hopefully inspiring, relatable and adding further understanding behind the “why” these financial rails will be demanded.

Cooked Charlie

Cooked Charlie bought a memecoin for $10,000 at the bear market bottom. After a long holiday, he finds it's now worth $100,000. Charlie believes it will go higher but wants to protect his initial investment. He discovers IMF and takes a $10,000 loan against his meme.

Now, Charlie has cashed out his initial investment while maintaining exposure to his full meme bag, though with interest costs.

If the meme’s value increases, Charlie can repay the debt, reclaim his full collateral, now worth over $100,000, and sell for a profit. If the value decreases, he can sell before liquidation or even if liquidated, he's already secured his initial $10,000.

Charlie used IMF as insurance on his risky memecoin investment, maintaining full exposure with peace of mind for the cost of interest.

Druggo Danny

Druggo Danny is a highly degenerate gambler deeply entrenched in the memecoin market. Extremely bullish on his memecoins, he aims to maximize his exposure, already being all in. Danny discovers the IMF and realizes he can borrow against his memecoins.

He deposits his memecoins as collateral, borrows money to buy more memecoins, and repeats the process to leverage his exposure through the IMF.

If Danny is right, his leveraged investments will yield significantly higher returns as his memecoins appreciate. However, this strategy is extremely risky; even a slight drop in memecoin prices could lead to losing his entire collateral to liquidation.

Despite the risks, Danny has used the IMF to open a leveraged long position on his memecoins, at the price of paying interest in the process.

Fried Freddy

Fried Freddy is a smart investor who recognized early on that meme coins would be a strong narrative, leading to considerable gains. To manage his portfolio better, Freddy discovered the IMF and devised a strategy to reduce risk on his profitable memecoin investments.

He deposited his memes as collateral and took out a loan of $MONEY. Using the $MONEY, he bought ETH, deposited it into another DeFi CDP platform to borrow stablecoins, and repaid his meme coin debt, increasing his health factor on his Meme CDP.

Freddy's strategy relies on Ethereum being less volatile than memecoins. By reallocating borrowed funds to Ethereum, he reduced his risk. He repaid part of his memecoin debt with stablecoin debt secured against Ethereum.

If memecoin prices drop, Freddy can close the ETH CDP, use the proceeds to pay down his $MONEY debt, and avoid liquidation. If meme coin prices rise, Freddy benefits from full exposure to his stack despite debt and interest costs.

Freddy used the IMF to manage his portfolio and minimize risk, hedging his meme bets with more stable exposure to Ethereum and stablecoins, all at the cost of paying interest.

In essence, unserious finance has become unironically serious finance and now requires serious financial rails uniquely designed to be unserious… or something like that.

There is a gap in the market for MemeFi, I believe it needs to be done uniquely and with purpose for the meme market and tailored specifically to its participants to have the best chance of success. The solution must reflect the unique properties and values of the meme economy and its participants, even if it seems absurd to the larger DeFi crowd.

The memetic factor is crucial, and embracing the culture is essential to appeal to and grow the meme space. Memes are ideas, and empowering these ideas benefits everyone involved.

MemeFi lets you own memes and be happy. MemeFi shows memes are money.

IMF lets you own memes and be happy. IMF shows memes are money.

Lastly, I want to note, although my aim here is to present a well-thought-out thesis that MemeFi is needed, there is demand for it, and outline how I believe it can succeed, like all investments and market trends before they solidify, it remains a calculated bet and speculation. IMF is a protocol that needs to bootstrap itself and get off the ground. It remains highly speculative and risky, with potential for disappointment. Please don't take anything as financial advice; these are simply my thoughts.

Clouted