Crypto Gold Scrap: How to use the "narrative scoring" formula to capture the next hundred times chance

Original title:Scoring Crypto Narratives: My Formula

Original author: Ignas

Original translation: Luffy, Foresight News

You may have spent countless hours trying to capture the next hot narrative in the crypto space. If you make the right judgment, you will make a big profit; if you enter the market too late, you will become a buyer. In the crypto market, the highest ROI comes from:

1. Identify narratives as early as possible

2. Draw a capital rotation roadmap before others

3. Exit when the expected bubble reaches its peak

4. Lock profits

Then think: Will the next narrative wave come? The narrative cycles, and the wave of speculation will make a comeback when:

·The narrative has real technological innovation support, so it can still rebound after the first wave of hype recedes

· New catalysts emerge

· After the hype fades, there is a firm community to continue to build

I elaborate on my thoughts in the following article:

https://x.com/DefiIgnas/status/1757029397075230846

Taking Ordinals on Bitcoin as an example, we can clearly see 4 waves of speculation from the figure below.

December 2022: Ordinals theory is released, with very little on-chain activity.

March 2023: The BRC-20 standard triggered the first wave of the market; the activity cooled down for six months.

End of 2023-early 2024: Continuous development triggered the second and third waves of markets.

April 2024: Runes launches, prices soar and fades in a few weeks.

Ordinals provides months of layout time and multiple exit opportunities, while Runes provides only a short, single exit window. The field is now dead silent. Will Ordinals (including Runes), NFT or other new forms make a comeback? Maybe. It depends on my narrative score.

Analytical framework

This is a framework for identifying hot new narratives and judging whether subsequent speculation waves continue. This is a version that is still being refined, and here is my formula for version 1.0:

Narrative score = [(1.5× Innovation × Simplicity) + (1.5× Community × Simplicity) + (Liquidity × Token Economics) + Incentive Mechanism] × Market Environment

This formula is not perfect, but it shows what factors are important and how weights are. Let's break it down one by one!

Innovation

The innovation here refers to the technical level of encryption native innovation that I am concerned about. The most powerful catalyst is innovation from 0 to 1. It can appear in new fields (DeFi, NFT, RWA, etc.), new token economics models (such as veToken), and even token issuance methods (fair launch, Pump.fun).

I have written before: Innovation from 0 to 1 has the uniqueness of changing the industry trajectory, and its originality will give birth to new crypto segments. Due to cognitive bias, it is difficult to identify such innovations. When something new comes, it may receive little attention (like Ordinals) or even be regarded as noise. Therefore, staying open and trying every new trend (especially controversial one) is the key to taking the lead. Without real technological innovation, narrative is just a short-lived speculative bubble.

This cycle is unique because its innovation (AI) comes from outside. Thanks to AI, we have seen innovations like Kaito InfoFi and AI agents. Some examples of this cycle:

· Ordinals

· Restaking

· AI Agent

· InfoFi

SocialFi

· ERC404

My goal is not to list all cases, but to build a thinking model that identifies them. Innovation can be scored from 0 to 10 points.

Simplicity and meme potential

Not all innovations have the same communication power. Some are easy to understand, some are not. Complex narratives (such as zero-knowledge proof, re-pled) spread slowly, and simple or memetic narratives (such as WIF) spread rapidly. Can you explain this concept clearly in 5 seconds? Is there any joke?

For example:

· High simplicity (10/10): AI, Memecoin, XRP as a blockchain bank

· Medium simplicity (5/10): SocialFi, DeFi, NFT, Ordinals

· Low simplicity (3/10): zero-knowledge proof, modular chain, re-pled

Complex narratives require time to ferment and prices rise more slowly. In addition, simplicity can drive community growth.

Community

Bitcoin is the greatest innovation from 0 to 1, but without the community, it's just a piece of code. The value of Bitcoin comes from the stories we give it to. People still don't understand why Cardano or XRP performs well with limited innovation because of: a diehard community. Or to use a more radical statement: Memecoin.

They have no technological innovations, but Memecoin is now a $66 billion sector, thanks solely to a crowd of people gathered around tokens. The tricky part is calculating the size of the community: is it to look at the number of followers on X platform, the popularity of topics on X, or the number of Reddit subscriptions and posts?

Some communities are difficult to recognize because they use different languages ​​or communicate on different channels, such as Korean users discuss XRP in local forums. Kaito proposed "Mindshare" is an excellent indicator, but Loudio experiments show that having a huge mental share does not necessarily mean building a real community.

https://x.com/DefiIgnas/status/1929511567768363174

To identify a real community, especially in the early stages, the best way to get involved: Buy a token or NFT, join a Discord or Telegram group, and see who is talking about it on X (non-paid promotion). If you feel the true sense of belonging and connection, this is a strong bullish signal. In my opinion, Hyperliquid is the fastest growing community. Binance and OKX's attack on HYPE instead strengthens its cohesion, giving the community a mission and goal to support the team and protocol. Hyperliquid has become a sport.

https://x.com/DefiIgnas/status/1904923406325473286

I think innovation and community are the most important factors, so I assigned 1.5 times the weight to both. Like innovation, I have added the same simplicity variable to the community factor: the simpler the narrative, the easier it is to spread.

Memecoin (such as PEPE) is easy to understand, while Hyperliquid, though not so simple, succeeds in bringing together the community. Both Runes and Ordinals bring technological innovations (allowing the issuance of alternative tokens on Bitcoin, which was once considered impossible) and have a strong community. But why did the price fall? Because there is a third factor to consider.

Liquidity

Innovation ignites narratives, communities build stories and beliefs, but liquidity is the fuel that allows you to ride on the momentum and exit safely at the top. This is the key to distinguishing the "sustainable wave" from "the final takeover when music stops". Casey Rodarmor, the creator of Runes, performed well in building alternative token models, but perhaps he should also build a Uniswap-like AMM pool on Bitcoin to maintain Runes’ popularity.

Runes Memecoin has difficulty competing with Solana or Layer2 Memecoin because they lack passive liquidity pools. In fact, Runes is more like an NFT trading on Magic Eden: Although there is good buying liquidity, there is insufficient selling liquidity for large withdrawals. Low trading volume cannot incentivize first-tier CEX to go online.

NFTs also face liquidity issues. That's why I've had high hopes for the ERC404 NFT fragmentation model, which could have provided passive selling liquidity and annualized returns through trading volume. Unfortunately, it failed. I think liquidity is the main reason why DeFi options have struggled to rise over the years.

https://x.com/kristinlow/status/1929851536965873977

In recent market volatility, I want to use options to hedge portfolios, but the on-chain liquidity is extremely poor. I had high expectations for Derive, the crypto options platform, but its future is now full of uncertainty. Liquidity refers not only to deep order books, continuous inflow of new funds, CEX online or medium and high lock-in volume (TVL) in liquidity pools, but these are of course important. Liquidity in the formula also includes protocols that achieve exponential growth as liquidity increases, or projects with built-in liquidity-guided models, such as:

Hyperliquid: More liquidity means better trading experience, attracting more users, and thus bringing more liquidity

Velodrome's ve3.3 DEX: Building liquidity through bribery mechanisms

· Olympus OHM: Protocol has its own liquidity

· Virtuals DEX: Pairing the release of new AI agents with VIRTUAL tokens

Token Economics

Token economics is as important as liquidity. Poor token economics can lead to sell-offs. Even with deep liquidity, the continuous selling pressure brought by unlocking is a huge risk.

· Excellent cases: high circulation, no large VC/team allocation, clear unlocking plan, destruction mechanism (such as HYPE, well-designed fair start), etc.

· Bad cases: hyperinflation, large-scale cliff-like unlocking, no income (such as some Layer2 projects).

An innovation score of 10/10 but a token economics score of 2/10 is a time bomb.

Incentive mechanism

Incentives can make or destroy a protocol, or even the entire narrative. The re-staking narrative relies on the performance of Eigenlayer, but the token issuance failed (possibly due to the complex narrative or the weak community) that the narrative stagnates. Evaluating liquidity early in the narrative is challenging, but innovative incentives help build liquidity. I'm particularly interested in the new token issuance model. If you read my previous article, you will understand what I mean: When tokens are issued in innovative ways, the market often changes.

· BTC Hard Fork → Bitcoin Cash, Bitcoin Gold

· ETH→Ethereum Classic

· Initial Token Issuance (ICO)

· Liquidity mining, fair start-up, low circulation and high complete dilution valuation (FDV, suitable for airdrop but not good for secondary market)

· Points narrative

· Pump.fun

· Private equity on Echo/Legion - Public equity sales

As the market changes, token issuance and incentive mechanisms are also evolving. When an incentive model is overused and its rules are widely known to the market, it means that the market has entered a saturation phase and a peak of hype.

The latest trend is cryptocurrency treasury. When listed companies purchase cryptocurrencies (BTC, ETH, SOL), their stock price valuation exceeds the value of their holdings. What is the incentive mechanism here? Understanding this is crucial to avoid becoming a buyer.

Market environment

The best narratives launched in a brutal bear market or macro-risk event like early tariff wars will also be overwhelmed. On the contrary, in the crazy bull market with loose liquidity, even ordinary narratives can soar. The market environment determines the following multiplier:

0.1 = Cruel Bear Market

0.5 = volatile market

1.0 = Bull Market

2.0+ = Parabolic Frenzy

Case: Runes (April 2024) has innovation, community, initial liquidity and certain incentive mechanisms, but its launch coincided with the market starting to pull back sharply after the Bitcoin halving speculation receded (market environment multiplier ~ 0.3). Results: Mediocre performance. If launched 3 months in advance, the effect may be better.

How to use formulas

Rating each factor by 1-10:

Innovation: Is it a breakthrough from 0 to 1? (Ordinals: 9, Memecoin: 1-3)

Community: Are you a true believer or a speculator? (Hyperliquid: 8, VC-led projects: 3)

Liquidity: What is the depth of the market? (Quickly launch first-line CEX: 9, transactions such as NFT Runes: 2)

Incentives: Is it attractive and persistent? (Hyperliquid airdrop: 8, no incentive: 1)

Simplicity: Can a meme be formed? ($WIF: 10, zkEVM: 3)

Token Economics: Is it sustainable? (BTC: 10, 90% Pre-mine: 2)

Market environment: bull market (2.0), bear market (0.1), neutral (0.5-1)

The rating is subjective. I've given Runes an innovation score of 9, but you might give it a 5. This formula is just a suggestion of factors that need to be considered. Taking Runes as an example calculation: Innovation = 9, Community = 7, Liquidity = 3, Incentive Mechanism = 3, Simplicity = 5, Token Economics = 5, Current Market Environment = 0.5

Substitute the formula:

1.5× Innovation× Simplicity=1.5×9×5 = 67.5

1.5× Community× Simplicity=1.5×7×5=52.5

Liquidity × Token Economics = 3×5 = 15

Incentive mechanism = 3

Subtotal = 67.5 + 52.5 + 15 + 3 = 138

· Multiply by the market environment (0.5): Runes narrative score = 138×0.5 = 69

Memecoin scored higher on my subjective rating (116):

Innovation = 3 (because of Pump.fun's innovative issuance model, non-complete zero points)

Community = 9

Liquidity = 9 (integrated into AMM, high trading volume = high LP returns, CEX online)

Incentive mechanism = 7

Simplicity = 10

Token Economics = 5 (issuance is 100% circulation, no VC, but there is small group risk/rush purchase, no income sharing)

Market environment = 0.5

Summarize

· Scan the narrative early: Use tools such as Kaito and Dexuai to focus on innovation and catalysts

· Strictly rating: truthfully evaluated. Token economics is bad? In a bear market? Lack of motivation? The market environment changes at any time, and new areas of native innovation may revive narratives (such as Runes' AMM DEX)

· Exit before incentive mechanism recession: Sell when token release peaks or airdrops land

· Respect trends: Do not confront macro trends. Hoard cash in bear markets, deploy funds in bull markets

· Stay open-minded: try agreements, buy popular tokens, participate in community discussions... Learn in practice

This is just my version 1.0 formula and I will continue to improve it.