In this mini-article, I aim to shed light on the events leading to Farcaster's recent growth, emphasizing the interplay between:

1. Memecoin speculation - representing financial capital

2. Product innovation - signifying production capital

The dance between money and product innovation in tech

The dance between production and financial capital is central to 'technological revolutions' as pointed out by economist Carlota Perez in her book on the topic. With the advent of new technologies, entrepreneurs envision new possibilities, supported by investors who provide the necessary resources to bring these visions to life.

A recurring pattern emerges: the creation of a bubble as financial capital overshadows production capital, inflating the value of underdeveloped production assets. This is particularly pronounced when retail investors join en masse, fueled by excitement over new technologies and speculative financial activities.

However, actual product innovation is inherently slower. That is, building tangible technologies cannot keep pace with the speed of speculation or the imagination of what the technology might enable.

Consider the internet bubble, with the NASDAQ index as a case in point. It demonstrates the decoupling of financial and production capital, taking 20 years for NASDAQ to match the heights it reached in the late '90s.

Here is the Dow Jones crash of the 1930s. It took the market 25 years to recover.

Farcaster’s mini technological revolution

This bubble phenomena also happens at all scales and at all times in crypto, multiple times per week or even days. Each cycle finances infrastructure and product experiments, though the bubble dynamics may lessen over time as the market matures and investors recognize the real worth of their investments later on, during the deployment phase of these technologies and products.

Recently, Farcaster's growth was spurred by a combination of factors:

• Product innovation: The introduction of Frame mini-apps opened new avenues for developers and entrepreneurs.

• Financial assets for speculation: Including $DEGEN, $FRAMES, Frame NFTs, and Farcats. Allowing the Farcaster community to ‘align their bank’ with the growth of the network

After a surge in growth and a period of exploring the capabilities of Frame technology, the excitement is recalibrating to align with the reality of Farcaster's development status, despite notable progress.

Its striking to see how the $DEGEN memecoin chart now resembles the chart of a typical crypto bubble.

EDIT March 3rd 2024:

I’m adding two excellent charts illustrating Farcaster’s growth in correlation with $DEGEN.

This one by @sidshekhar shows the number of casts mentioning degens compared to all other casts. Showing that a good chunk of casts on the network are driven by degens.

Even more striking, this chart below by @0xluo.eth shows the correlation between average $degen price and the total number of casts on the Farcaster network. Displaying very high correlation in cast volume and price movements.

Finally this last chart shows that it is the overall number of casts that is driving the $degen price, not solely those containing $degen in them.

The question that remains here is the following: which is the chicken and which is the egg?

The sequence of events that led to FC’s growth

The narrative that Farcaster's daily active user (DAU) growth is solely due to product innovation or speculation misses the mark. In reality, both elements are closely intertwined. A timeline of key events demonstrates how Farcaster's growth was fueled:

• Over 3+ years, the Farcaster team developed the protocol, network, and Warpcast client, gradually building a community.

• In the summer of 2023, Warpcast introduced 'Channels,' akin to sub-reddit features.

• By October 2023, Warpcast launched an off-chain points system and in-game currency called Warps, making them non transferrable and intentionally preventing speculation.

• But soon enough, as memecoins were gaining popularity in the Solana ecosystem, the Farcaster community began to express interest in creating its own memecoins.

• The launch of Rainbow wallet's offchain points system prompted the Farcaster community to launch $points. In just 24 hours $points price action led to the re-engagement on Farcaster of leading Crypto Twitter (CT) figures and influencers.

• A few other memecoins followed including $WOWOW, $SPAM and so on.

• Among various memecoins, $DEGEN emerged with a more robust design and team, becoming the top memecoin on Farcaster.

• On the product side on things, the Mod team's demo of embedded mini-apps inspired the Farcaster team to develop the Frames feature, transforming Warpcast into a platform a potential super app where users would interact with third party apps directly in the Warpcast feed and setting the stage for explosive growth.

• $DEGEN concurrently increased in price as speculators saw it as the top token on Farcaster (Warps being offchain, centralized and non-tradable).

• Price increase attracted more influences, devs, users to try this exciting new Frames feature, take part to the FC euphoria and take a bet on $DEGEN, $FRAME and other speculative assets issued with Frames.

https://twitter.com/js_horne/status/1755245199456977325

As noted by Jacob, memecoins act as a beacon in the crypto noise, drawing attention with their price charts and sparking conversations around projects. Influencers and enthusiasts from Crypto Twitter (CT) and tech circles quickly joined the platform, eager to be part of the trend.

Lastly, according to Spindl’s Frame analytics, about half of the reshared and liked Frames to date are related to memecoins and airdrops. The other half were created by a range of projects like Layer3, Seam, Coinbase, PartyDAO, Perl, Base, Syndicate, as well as by individual developers.

It is not a new thing that financial speculation is a key component of growth in crypto. I feel that given the discussions I saw around Farcaster’s recent growth, the relationship between degens and builders was worth highlighting, and I’ve enjoyed applying Carlota Perez’s research to crypto especially since i first wrote my master thesis on the topic.