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Value Investment Notes: $DEGEN

I'm a big believer in the value investing approach of doing deep research and analysis to find undervalued assets with long-term potential. One of the key practices I've developed is writing out my full investment notes every time I buy a token or get involved with a new project.

I've found that the process of researching and articulating the key points of any investment is invaluable. It forces me to really scrutinize my assumptions, identify potential risks and weaknesses in the logic, and make sure I have strong conviction before putting capital at risk. It's all too easy to get caught up in hype cycles and FOMO in this space, but writing out a memo for each investment has become a great mental check for me. If I struggle to coherently express the reasoning, it's a sign I need to dig deeper or reconsider.

Beyond improving my own decision making, I believe sharing these investment theses can benefit the wider community. Putting the ideas out there allows for constructive debate and stress-testing from other informed investors. I learn a ton from the feedback and it makes my analysis more robust.

Going forward I'm going to try to share more of these notes publicly - even if they’re a work in progress - starting with my notes on $DEGEN and the potential to become the index token of Base L2. I hope that folks find value in this type of long-form analysis and that it sparks productive discussion. At the end of the day, I think we're all here to learn and get better as investors and hopefully generate some positive returns in the process.

The overall idea - $DEGEN as the community and social finance token of the Farcaster network is one of my key value investing picks; due in part to its grass roots growth, its brand penetration, utility as a socialfi tool and its potential to become the de facto index token of Coinbase's new Base layer 2 blockchain.

The lack of a native token on Base opens the door for $DEGEN to fill a void and gain significant usage and traction. At current depressed prices due to temporary tip farming activity, $DEGEN is undervalued relative to its long-term potential.

Thesis:

  1. Meme coins incl. $WIF and $PEPE have reached multi-billion dollar valuations; it is reasonable to believe that’s possible for $DEGEN.

  2. Base is a major layer 2 blockchain launched by Coinbase, the largest U.S. crypto exchange. Base purposefully lacks a native token, which is highly unusual. This leaves an opening for an existing token to establish itself as the primary token of the Base ecosystem.

  3. $DEGEN, as a decentralized community token already used heavily in the crypto social media space, is well-positioned to gain adoption on Base and become the ecosystem's de facto "index token". Base users will need a medium of exchange and $DEGEN can fill that role.

  4. $DEGEN's price is currently depressed due to temporary distortions from "tip farming" activity. The sell pressure from tip farmers is likely to subside, allowing the price to appreciate towards fundamental value. The current price represents an attractive entry point.

  5. As Base gains traction and $DEGEN gets adopted as the primary token, both by the network and by the Farcaster social graph, demand and usage of $DEGEN should increase significantly. The fixed supply will create upward price pressure as adoption grows.

  6. Risks include failure of Base to achieve adoption, competition from other tokens, potential regulatory scrutiny, failure to recover from tip farming and typical volatility re: speculative crypto assets. Plus, despite comments at Farcon to the effect that Base is not planning their own token, there is a danger that a $BASE token launch would rewrite the rules. However, the risk/reward at these price levels is skewed positively.

Variant Perception:

The market is overly focused on the short-term price volatility caused by tip farming and is underestimating the long-term potential for $DEGEN to become the index token of a major layer 2 blockchain - and the fastest growing web3 social platform, Farcaster. The lack of a native Base token is a key factor that the market is overlooking. Patient investors can take advantage of market short-termism.

Target Price:

A 100-200x return on investment within 1-2 years is achievable if Base gains expected adoption and $DEGEN becomes the ecosystem's primary token as the thesis anticipates. Smaller outcomes are possible if Base underperforms and/or $DEGEN fails to gain preferential status. A partial outcome would still likely exceed the current depressed valuation.

Current prices represent an attractive value investing setup based on $DEGEN's potential future role in the Base ecosystem. I am a buyer at these levels with a multi-year time horizon.

I am quite happy to be patient about this and look at a long term investment. I don’t believe there’s any rush here. And I am prepared to take returns as they come. I am also willing to be proven wrong - while maintaining a healthy confidence in my thinking here.

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