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Intro

Skill Issue is a platform to create and distribute consumer-facing tools that make crypto more fun. Skill Issue is developed by FirstMate Labs, Inc. which is funded by Dragonfly Capital and Coinbase Ventures.

Problem

Memecoin trading is a form of speculation on future attention. When attention and demand agglomerate onto one token, the price of the token has gone up. Conversely, when the same amount of trading demand is dispersed across more tokens, if all else is held equal we would expect the attention, liquidity, and price to decrease on any given token.

Since the public launch of pump.fun in March 2024, more than 1,000,000 token contracts have been deployed. On the protocol, users are able to cheaply create memecoins that are sold on a bonding curve.

The new ease of creating and launching a new token has brought a new problem to the fore: A seeming limitless number of different tokens including duplicates and rugs; and a lack of coordination among investing parties, which results in suboptimal returns for allocators. This can be thought of as a Coordination Problem (aka Coordination Game) where a buyer’s payoff is higher if they buy what other buyers would buy.

Multiple Equilibria

Tokens on pump.fun are relatively undifferentiated: tokenomics are identical, while names, tickers, and images are distinct. Multiple tokens vie for canonicalization of the most recent viral meme, while speculators aim to choose the token that others will want to buy. Ultimately, so many similar tokens means that the experience of buying one or another is not differentiated, and there are multiple potential stable outcomes. The marketplace has multiple equilibria.

In this marketplace, individual tokens suffer from stagnation as resources are too thinly distributed for tokens to reach the necessary threshold. The current state where traders spread their investments across many tokens can be described as a Nash equilibrium. Each trader's strategy (diversifying investments) is optimal given the strategies of others. However, this equilibrium is suboptimal because it prevents any single token from reaching the necessary threshold, leading to stagnation and lower returns.

<aside> 💡 Choose between four tokens. You will only get paid if you choose the same token as your partner. Which do you choose?

This scenario resembles a stag hunt game. Traders must cooperate to choose the same token and reach the threshold. Because they fail to coordinate and choose different tokens, a suboptimal scenario is produced where no token gets enough support.

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