Three-party perspective on new things: How to find Alpha in the Base ecosystem?

Three Perspectives on Base: Secondary Investment Analysts, Independent Researchers, and Ecological Developers

FC (Twitter@@FC_0X0)

I just saw that Base's TVL has reached a new high of 1.7 billion, so I think it's a good time to discuss this today and see if we can uncover some new Alpha. I was initially interested in Base because two of our team members are in New York, allowing them to experience it firsthand. They discovered Degen quite early on and mentioned it to me, but it was hard for the fund to invest because we couldn't write a memo, and we couldn't tell LPs that the community was good or that the meme name was great, so we missed out. Today, we have three guests who will discuss Base from three different perspectives. Teacher Jiang has a research background and discovered Base's Alpha very early on. Teacher Liang will look at Base from a developer's perspective. Minta, who is with me in the fund, will likely approach it more from a trading angle. This is our lineup for today.

The first question is for Minta to introduce the current data situation of Base.

Minta (Twitter@minta0103)

Since early March, Base's TVL has rapidly surged from 400 million to 1.8 billion, a 4.5x increase. In recent weeks, the weekly active users have consistently been over 1.4 million. The total number of users has exceeded 9 million, and total revenue is approaching 60 million.

At the same time, phenomenal products like DEGEN, Friend.tech, and Farcaster have emerged on the Base network. When discussing the Base ecosystem, the market often views it as a leader in the social sector. Besides the hundred-fold coin Degen, a batch of tens-fold coins has recently emerged in the Base ecosystem, such as Brett, the little blue man Normilo, and Mog. Today, Bankless published an article discussing whether the Base ecosystem or the Solana ecosystem is more likely to become the next meme wealth creation center.

In addition to memes, Base's DeFi ecosystem has also seen several golden dogs in the past two months, such as Aero, Extra Finance, and Equalizer Dex. The income of $Aero and $Equal in the past quarter has increased by over six times.

FC (Twitter@@FC_0X0)

Let's hear from our other two guests about how you became aware of Base and how you see its rise from your perspectives—what key points did it get right?

Xin (Twitter@xingpt)

Actually, I wasn't among the earliest to pay attention to the Base ecosystem. I noticed it when it launched during the on-chain summer (last summer) because I thought it was a big deal that Coinbase was launching a chain, and I have a friend who is an engineer working on Base, so I discussed some technical aspects with him. They made some improvements and performance optimizations based on the OP Stack.

I think one of the things they did particularly well is that they don't emphasize DeFi too much, which is different from most public chains. Their team enjoys art and cultural elements, which attracts many non-speculative users or players who are not yield-driven. They are not rushing to chase various meme coins; instead, they are drawn to the development and community atmosphere, which I find quite unique. So I started to pay attention to Base and engage with some social aspects of the ecosystem or new products. The second reason is that I am quite optimistic about the social track. Although I think this sector hasn't reached my expected level yet, Farcaster, as a leader, has at least gathered many core players. Additionally, with North American VCs like Paradigm involved, it has formed what I believe to be the earliest seed users on Farcaster. I think these two points are what make Base quite unique.

Liang (Twitter@QiaoLiang3)

Teacher Jiang has already provided a comprehensive overview. I would just like to add my perspective as a Farcaster ecosystem developer. When Base first came out, the general impression was similar to what Teacher Jiang mentioned: when an exchange launches a chain, there are definitely benefits related to the exchange, similar to the expectations when BSC was launched. It's not so much about the technical aspects but rather the strong user base and funding pathways associated with the exchange itself, which naturally drew a lot of attention to the Base chain. However, looking at its specific development path later on, it also greatly reflects the user attributes that Coinbase has in North America.

Initially, they didn't launch any particularly meme-like products or projects. This is very much like Coinbase, which tends to be conservative in listing coins, likely due to its compliance background in the U.S. Currently, the Base chain is still closely tied to Coinbase, as mentioned in previous Coinbase financial reports, so I'm not sure if it has become a separate entity, but it should still be very closely linked, not in a state of isolation due to compliance.

However, I initially felt somewhat disappointed with Base. Since the on-chain summer, it hasn't developed a rich ecosystem like other Layer 1s and Layer 2s. For example, you would expect to have token launchpads, various DeFi packages, lending, and perpetuals all available, with various Ponzi-like plays, similar to what Blast has.

At the beginning, Base was more focused on NFTs and culture, which felt very much like Zora, with many native artists and cultural or commemorative attributes. For these people, minting NFTs is more of a consumption activity, like stamp collecting or bottle cap collecting, with relatively weak speculative motives. After some time, it felt like the noise around it had diminished significantly, lacking the rich applications that were initially expected from BSC.

However, later on, I realized that the truly powerful aspect of Base is its deep integration with Farcaster. Because outside of Base and Farcaster, in my view, various Layer 1s and Layer 2s face a significant challenge: they lack platform stickiness, or platform stickiness often comes from their financial attributes. This can be seen when we measure a Layer 1/Layer 2 using metrics that often focus on TVL. A chain with high TVL is considered impressive. However, traditional Web2 platforms' daily and monthly active user data often does not apply to public chains.

This reflects the fact that the blockchain ecosystem and system itself lacks a rich account system. Users are using non-custodial wallet systems. For developers, it is challenging to easily reach these users. Whether you have a chain with 10,000 daily active users or 100,000 daily active users, as a developer, you still have to go to Twitter and Discord to attract users. This has always been the case and is why there is a heavy reliance on the so-called crypto Twitter phenomenon.

However, Farcaster, due to its deep integration with Base, has somewhat improved this situation. If you want to reach users on Base, a good go-to-market strategy is to go to Farcaster. If we look at the data, we can see that a lot of trading volume on Base actually comes from Farcaster, which is a very killer application feature.

There are many reasons behind this, but a simple and direct one is what Teacher Jiang mentioned about the Coinbase Mafia. Dan and Jesse were colleagues, and Linda Xie has been familiar with them since 2017-2018. Including the recent Farcon in early May, Jesse also brought the Base team to provide deep support and visibility on social media. So this is a very unique aspect, and the impacts and characteristics it brings are profound. Because whether it's Layer 2 or Rollup, they are currently very homogeneous; launching 100 chains is very difficult to differentiate. Under these conditions, Base, with the active users from the entire Farcaster protocol, is a very distinctive feature.

FC (Twitter@@FC_0X0)

Are there any differences in ecological policies for development on Farcaster or Base compared to other public chains?

Liang (Twitter@QiaoLiang3)

Compared to other public chains, Base's direct grant model provides relatively little support, which developers have complained about to some extent. For example, in the recent round of Farcaster funding, they had 30 million, and the team only had a dozen people, so they were not short of money. However, when seven or eight client developers got together, we felt it was unreasonable that they had so much money but didn't give any grants. Recently, they have given some, but it's only after you've produced something that they give you a little based on your influence. However, this kind of support is not enough to save a burning situation. Moreover, Base does not have the same situation as other ecosystems where they come in and provide large grants or significant support upfront. They will look at your product and only provide some support after you have produced something.

Overall, I think Base has done particularly well in the early stages by focusing on ecological construction, including Farcaster. Before its growth, daily active users were around 1,000 to 2,000. I personally feel that about half of those users were developers, which is something they did quite well.

Successfully Finding Alpha on Base: Paths and Methodologies

FC (Twitter@@FC_0X0)

You have each found different Alphas on Base, with returns possibly in the tens of times. I want to know how you discovered these targets at that time? What was your thought process and action plan?

Xin (Twitter@xingpt)

I think there are two points. The first is that I got involved relatively early. I did participate in Degen, but I didn't get the hundreds of times returns that some group members did. I actually just provided LP and got free money from airdrops. At that time, I saw Degen and didn't know it could grow this big. To be honest, I thought the community channel was quite interesting, so I just put in some LP to play around. Since community coins hadn't taken off before, I didn't expect it to grow this large.

Later, there were a few opportunities to increase my position. One was when Coinbase announced it would develop L3 for Degen, which provided a clear boost. Earlier, I remember when its market cap was between 100 million and 300 million, there was a catalyst when another application started using Degen as its ecological token, transforming it from a Farcaster community token into an application token. This helped it grow from 100 million to 300 million. Both of these waves had opportunities to increase my position, but I didn't add much because the surge was indeed a bit too aggressive, so I only added a little and still hold it.

The second is Mfer. I might have a higher multiple because I discovered it early; it's a major NFT IP, and I jumped in. Third, I think some listeners may have jumped in even earlier than I did. After Degen was hyped up, I started looking for those low liquidity, small market cap coins, as well as some coins on Zora.

I think I still missed quite a few opportunities, like Brett. When we first saw it, we thought it was a good brother of PEPE, but we had concerns that the meme ecosystem on Base hadn't taken off yet, so we might have only bought a little for protection and didn't dare to go heavy. I think a significant reason for the recent surge in the meme ecosystem on Base is that Solana started to congest, and a lot of hot money flowed from Solana to Base. After Solana resumed normal functionality, the enthusiasm for many meme coins returned.

Recently, it seems that most of the memes on Base still haven't returned to the highs of March. This is some of my personal experience with Base. I think early discovery is quite important; if you don't discover it early, being able to quickly increase your position when it changes trends is a more stable choice. After all, not everyone can consistently achieve high multiples early on.

FC (Twitter@@FC_0X0)

There are indeed several key points. The first is that when we are uncertain about a coin, we can actually participate in a zero-cost way (like being an LP) first. The second is liquidity overflow; when more money comes into the ecosystem, we can look for already popular themes that have relatively low liquidity coins to buy. The third point you mentioned about the PEPE brother, right? This is related to popular coins and may borrow some heat. I want to follow up and ask, if you were to give an example, who did you see mention it, or where was it discussed, and what reasons did they give for buying it that led you to make that trade? Can everyone share?

Xin (Twitter@xingpt)

I think it mainly comes from the players in the Farcaster and Base ecosystems on Twitter. There isn't much hype around coins on Farcaster, but the enthusiasm for Degen is quite high. The discussions about Degen and the scenarios in which people started using it have clearly increased, such as tipping for great comments. The second point is that I mentioned Dracula, along with other products, that are using Degen as their project token. The third point is its community feel, which is quite different from other projects. It hasn't taken a purely meme route, nor is it purely VC-driven; its funding comes from community projects and founders, such as one confirmation and some prominent figures in the Farcaster ecosystem. This feels quite special to me. However, my attitude towards Twitter is that buying in is not as good as selling out; when there are too many calls on Twitter, I might see it as a selling signal.

FC (Twitter@@FC_0X0)

When I scroll through Twitter, I often see discussions about a token, and I know that some KOLs might be incentivized behind the scenes, so how do you determine when it's time to sell?

Xin (Twitter@xingpt)

I haven't found a very accurate way to play this, but I have a general feeling: if it's a small KOL and their reasoning is solid, they might only have a few thousand or even a few hundred followers, often the win rate is relatively high at that time. I'm willing to buy some or try a small position, but if it's a big KOL, I might treat it as a selling point.

FC (Twitter@@FC_0X0)

So small KOLs might not have as much influence, and they might be more serious about finding fundamental things, right?

Xin (Twitter@xingpt)

Yes, and no one is paying them; to be honest, it's unlikely that someone would pay a KOL with a few hundred followers. So at that time, they might have something valuable. When a big KOL shouts, you may not have time to jump in; many bots are watching them, which might be a better exit point. If I haven't gotten in, then I won't jump on that train.

FC (Twitter@@FC_0X0)

From a developer's perspective, how do you capture Alpha?

Liang (Twitter@QiaoLiang3)

From this angle, it’s more about looking at the project side rather than memes. As Teacher Jiang mentioned, Degen doesn't resemble a traditional meme coin. Especially after the initial airdrop, it implemented many product strategies that are completely different from many memecoins on Solana. Conventional memecoins are released all at once, directly using price discovery to speculate. However, Degen initially only released a small portion, and later it could potentially release more through airdrops, with the airdrop rules deeply tied to Farcaster. Some assets with strong Farcaster attributes, such as Farcaster OG or active participants in the Farcaster community, would become attributes for determining airdrop amounts. So it resembles a project, a social token.

The initial thought process for jumping into Degen was quite simple. Farcaster has undergone a significant transformation in its product direction. We've been working on social for about a year and a half. Initially, we were focused on decentralized data, which was quite a struggle, and we found that no one was using decentralized data products. This track was basically either mining or self-indulgence, lacking a solid entry point. Later, we discovered that social protocols were a relatively solid point for using decentralized data, including later projects like CyberConnect, Lens, and Farcaster, all belonging to this category. After we completed our first client, we actually supported both Farcaster and Lens simultaneously, positioning ourselves as an aggregator. However, we later realized that these two platforms are quite different.

In fact, all social protocols or social products can be viewed from two angles: their tool attributes and their community attributes. The so-called tool attributes refer to what the product can do, what the interactions are like, what the UI looks like, whether it looks like Twitter, Reddit, or Discord. The specific product functionalities differ. The community attributes refer to the type of people behind it. We know that Discord has a large gamer community, while GitHub is all about developers. Farcaster and Lens are similar in that from a product functionality perspective, they are quite homogeneous; they all have social graphs and user profiles, but their community attributes are very different.

The community attribute of Farcaster is that its founders belong to the North American Crypto OGs, coming from Coinbase, and their control and cultivation of the community's attributes are very deep. Early users of Forecaster were all brought over one by one through Twitter, and they even had long Zoom calls with them. So early users of Farcaster, whether builders, VCs, or many people from the North American crypto community, essentially do not engage in particularly Ponzi-like activities; they focus more on the quality of discussions. In contrast, Lens feels more like the Wild West, with everything coming in—people posting NFTs daily, showcasing their projects, spamming, and a lot of opportunists. Its community attributes are more rough and ready.

However, the high-quality community attributes of Farcaster also have their issues, as they can be somewhat exclusive. Many Chinese users find that they have nothing much to discuss when they enter. If you post some content that conflicts with the community attributes, you may even get criticized or attacked. So there is an inherent atmosphere of rejecting speculation in this community. For a long time, the only community discussing coin speculation, project launches, and meme coins was Degen. Others would discuss relatively serious and clean content, but there is some internal conflict in this.

As a social protocol based on Ethereum smart contracts, you utilize many underlying crypto infrastructures and elements, but at the same time, when guiding the community, you maintain an extremely clean stance. At least two failed memecoin projects emerged earlier, one called Point and another whose name I forgot, both of which experienced explosive growth early on.

Point was a token casually released by a developer, and it had many flaws, such as high gas fees on its mainnet. When it was first released, the entire minting authority was completely controlled by the developer. To put it bluntly, after the contract was released, he gave his favorite friends the authority to mint a lot. He thought it was fun and didn't intend to launch a memecoin. However, when he woke up, he found that the contract had already accumulated about $200,000 worth of Ether. The community had started frantically pulling together to demand that he take action, treating him as the project party. However, he didn't want to push the project forward, of course, he did some community-driven actions, such as burning the remaining supply or burning his admin rights. But fundamentally, this didn't change the fact that he didn't want to advance the project, and soon the project cooled down. However, the community had a very high demand for memecoins, which was fully released when the first wave emerged. Many early community participants were very eager to engage deeply.

FC (Twitter@@FC_0X0)

Let me interrupt here. When Degen first came out, did you personally feel excited, or did you think it was just okay? Because I feel that sometimes the more you participate in an ecosystem, the more "disenchanted" you become?

Liang (Twitter@QiaoLiang3)

That's indeed the case. Because we are familiar with the developers of Degen in the community, and he is also a client developer. His domain name is still there, called channels.fund. Later, he started this meme project, and everyone supported it from the community because we knew he wouldn't rug. But at the beginning, did everyone really think it would grow this big? Not really. So I initially received at least seven or eight million Degen airdrops, which I probably just sold for a few hundred Ether, and then completely bought back in the secondary market. Later, I found that after a significant washout, the community's enthusiasm for memecoins remained very high.

Another significant differentiator is that almost all developers in the early Farcaster ecosystem jumped out to say they wanted to inherit Degen, including many project parties who initially bought directly in the secondary market. At this point, I started to accumulate. On one hand, I wanted to support it, and on the other hand, I wanted to use it as leverage for marketing when the product launched.

FC (Twitter@@FC_0X0)

So everyone is hoarding it with a marketing need? Many project parties are indeed the main force.

Xin (Twitter@xingpt)

If you are familiar with the early Farcaster developer ecosystem, almost all project parties integrated Degen to some extent. For example, Linda Xie’s Bounty Caster, which is similar to a product like Pig Eight, allows users to use Degen as the currency for issuing bounties on the platform. Then there’s Dracula, a video DApp similar to TikTok. They also said you could use Degen to buy the keys of your favorite creators. Their key trading model is very similar to Friend.tech, which doesn't have much novelty. Their innovation mainly lies in the integration with Farcaster, and the content is about making videos, with keys being a simple bonding curve play. However, they made a change by allowing users to directly purchase keys of their favorite creators with Degen. At that time, the number of Degen holders was already over ten thousand, far exceeding that, so this was also a good strategy.

This, in turn, helped Degen pull up its trading volume. Because supporting Degen for purchases essentially required you to first swap Ether for Degen before buying their keys, this also led to a significant surge.

FC (Twitter@@FC_0X0)

I have a follow-up question. From your perspective, if you were to focus on just one person or just one website for information in the Base ecosystem, what would you recommend?

Liang (Twitter@QiaoLiang3)

From a social perspective, I think it's worth following Luo Laoshi (Twitter@0xluo), as he does a great job. However, to be honest, some on-chain or DeFi-related topics are not areas I focus on deeply, so I can't say much about them. But in the social space, I think Luo Laoshi has a deep understanding and is very willing to share, so I think it's worth paying attention to.

There's another website I highly recommend called Kiwi News: https://news.kiwistand.com/. This is a product that both Luo Laoshi and I really like. It’s very similar to Hacker News. Hacker News is a news release board from YC, and the community quality is very high. Kiwi News is actually a news release board within the Farcaster ecosystem, featuring a lot of content related to Farcaster and Base.

Possibilities in the Base Ecosystem Beyond Social

FC (Twitter@@FC_0X0)

We will conclude the Alpha segment here. Next, let's discuss the Base ecosystem. Minta, please introduce the various segments of the Base ecosystem and the current data. We want to see what new possibilities are emerging beyond social.

Minta (Twitter@minta0103)

Sure. Currently, the Base ecosystem can be divided into four main areas. The first is the foundational infrastructure, which includes some basic wallet tools and DEXs. The second category is the application layer, which can be further divided into two types: one is social applications like Farcaster, and the other includes many application tools or software developed based on Farcaster's friend system, which can also be independently targeted at end-users. For example, you can see Kiosk and Recaster, which just launched on the Apple Store, both fall into this category. The application layer will also include some games within the Base ecosystem. However, from the data, it is clear that the overall user base of Base is still concentrated in Farcaster and Friend.tech.

The third category includes community, NFT, and art-related projects, including memes. There are also some loyalty point systems, like the little blue man and Mog, as well as an on-chain achievement system that was launched today, which can also be categorized here. The fourth category, which I personally pay more attention to and believe may rise in the future, is RWA (Real World Assets). Currently, Base is investing in some projects in this area, but it hasn't fully launched yet. However, I will pay special attention to this segment for two reasons: one is that the Ethereum ETF has passed, which is favorable for the compliance narrative. The second is that there are many gamified RWAs, like Lingo, and Coinbase has also bet on RWAs like Midas, including Centrifuge, which is also trying to launch an RWA lending market on Base. So overall, these are the four categories.

FC (Twitter@@FC_0X0)

So do you personally lean towards RWA as a potential next explosive point?

Minta (Twitter@minta0103)

Yes, this could be the next growth curve, but whether it will be an explosive point still needs to be observed.

FC (Twitter@@FC_0X0)

What do the other two guests think might be the next focus area for Base? Also, could you share your general trading strategies or what proportion of your funds you would allocate to trying out the Base ecosystem?

Xin (Twitter@xingpt)

I'll start with the positives. I think Base is a community with an ecosystem. Other public chains make you feel the absence of real people; they are mostly airdrop hunters and farmers. But in the Base ecosystem, at least on Farcaster, there are real people, along with insights, including artists. I think the Chinese community is not very active in this ecosystem, but the Korean community, the UK community, and some Vietnamese communities are very active, which I see as a significant advantage.

The second point is RWA. I also think this narrative is worth buying into. I tweeted today that the theme of this bull market is to tell a good American story. Institutions in the U.S. are playing with RWA, and Base will certainly be a part of that. However, as Minta just mentioned, I haven't yet thought of which specific project will emerge, to be honest; we still need to keep an eye on RWA on Base.

The third point is that I still have a positive outlook on the Farcaster ecosystem, especially its integration with gaming. If there are friends working on games, we can discuss how to develop this gaming ecosystem together. I am currently also on the devnet, and everyone can test it out. Now, I will mention some negative factors.

Base has a significant disadvantage in that it is unlikely to issue a token, or at least it hasn't stated any plans to do so. This actually hinders many speculative users from participating, and I believe these speculative users may account for at least 50% of the users on most public chains. Without expectations of airdrops or token incentives, especially native token incentives, many public chains would lack ecosystems. If you remove the token aspect, many public chains cannot sustain the ecosystem, as you can't just throw your own money into the ecosystem. This is also why Base has not seen many DeFi projects. Secondly, it lacks that ecosystem stack feeling. If the valuation of top projects like Degen isn't high enough, I worry about how high the subsequent ecosystem can reach.

Another concern is that as Coinbase's "child," if it doesn't maintain a good relationship with Binance or OKX, from another perspective, if Degen can get listed on Binance, I think its valuation space would open up significantly. But whether it can get listed, I don't know. So overall, I have a positive outlook, but based on these concerns, I might still focus more on building or supporting builders. If I were to buy in the secondary market, I would likely hold my bags for now. I forgot to mention two points: besides the ecosystems we discussed regarding Farcaster, I think Sofamon and Mfer can also be consolidated.

I believe that after Friend.tech's rise, a lot of traffic will flow to applications outside of Friend.tech. Sofamon is one of the few playable options. Mfer has also been stagnant; from a secondary market perspective, I think it has been washed enough, and its valuation is only 40 million, which any random meme coin on Solana can reach. So I think there is still a chance it could reach 100 million.

Liang (Twitter@QiaoLiang3)

I am still long-term optimistic about Degen and the entire Farcaster ecosystem, especially the chemical reactions that occur with its deep integration with Base. As I mentioned earlier, don't view Farcaster merely as a social protocol or social content; it should be seen as a financial network or a protocolized wallet.

In addition, I am very optimistic about the combination of social and on-chain, including Farcaster, which has also undergone changes in the past three months. Previously, it was very fixated on becoming a social protocol that could rival Twitter one day, with the founder's original words being that he wanted to have one billion users on the protocol. This is a rather unrealistic goal. Realistically, there must be a path to first conquer the crypto-native users. Under these conditions, the growth that has occurred in the past three months, or the changes in product and strategy after this growth, have embraced the on-chain scenario more deeply. Under these conditions, I see a lot of new possibilities. Developers who were once quite desperate or confused in the Farcaster ecosystem have suddenly realized that the combination of social and on-chain presents significant opportunities.

Previously, the official client Warpcast was very dominant, making it difficult for many developers to compete, and many client developers faced significant challenges in financing and growth. However, after Degen, the entire Farcaster community reached a consensus that the combination of social and on-chain is in a state of great exploration. This includes the Mirror team, which sold its content platform to Paragraph and raised 10 million for its Kiosk product. They are all moving in this direction, but currently, no leading product has emerged, which is something we are looking forward to in the long term.

FC (Twitter@@FC_0X0)

Earlier, you mentioned that Farcaster is adjusting its strategy. Could you elaborate on that?

Liang (Twitter@QiaoLiang3)

This is what I mentioned earlier about the internal contradictions within Farcaster. The founder initially built the community into an extremely pure one. All the Degen, on-chain plays, and memecoins were seen as marginalized, subcultural, and niche communities. He was personally very resistant to them, including Degen. However, without Degen, he wouldn't have been able to raise 150 million recently; Degen helped him pull in 20x or 30x more users. He must be grateful for this product on some level, even if he doesn't want to admit it.

You spend two and a half years developing a product, and your daily active users are only 1,000 to 2,000, and then suddenly an ecosystem developer inexplicably creates a token that pulls your user base up by 50 times. But the direction in which he pulls is one that you were not particularly embracing before. So after experiencing an inexplicable 50-fold growth in a new scenario, you adjust your strategy and say, "Okay, now I realize I still want to build this billion-user social client and social protocol, but I recognize that these crypto-native users will definitely be my first wave of seed users. I need to provide them with the types of plays and scenarios they enjoy, such as Ponzi schemes and memecoins, which are things he has to accept.