Scoring Crypto Narratives: My Formula
More than a formula, but a mental model to front-run the next big crypto wave
I bet you've spent countless hours trying to spot the next hot narrative in crypto.
Get it right and you make serious money. Come in late and you become exit liquidity.
The best ROI comes from:
Identifying the narrative early
Mapping the capital‑rotation playbook before everyone else
Exiting at peak inflated expectations
Banking the profit
Then ask: is another narrative wave coming?
Narratives recycle, but speculation returns in waves when:
The narrative is backed by genuine technical innovation, so it can bounce back after the first‑wave hype fades.
A fresh catalyst appears.
A committed community keeps building after the hype dies.
I wrote more on what I mean in the post below:
Ordinals on Bitcoin is a just an example. You can see clearly the 4 speculative waves from the chart below.
Dec 2022: Ordinals theory published, little on‑chain activity.
Mar 2023: BRC‑20 standard triggers Wave 1; activity cools for six months.
Late 2023 / Early 2024: Continual shipping sparks Waves 2 and 3.
Apr 2024: Runes launch, pumps, then fades within weeks.
Ordinals gave months to position and multiple exit chances. Runes offered a short, single exit window. It has been quiet for over a year.
Will Ordinals (including Runes), NFTs, or a new format return? Maybe. It depends on my Narrative Score.
The Formula
It’s a formula to identify hot new narratives and see if a following speculative wave is possible (which can be more sustainable).
It’s a work in progress, so here’s my v1 formula.
Narrative Score = [(1.5x Innovation × Simplicity) + (1.5x Community × Simplicity) + (Liquidity × Tokenomics) + Incentives] × Market_Conditions
Not the prettiest math, but it shows which levers matter and how much.
Let’s break it down!
Innovation
This is the technical, crypto-native innovation I look for.
The strongest catalyst is zero-to-one innovation. It can happen in a new sector (DeFi, NFTs, RWA…), a tokenomics model (veToken), or even how tokens are issued (fair launch, Pump.fun).
I’ve written about this before: zero-to-one innovation is unique enough to change the industry’s trajectory. The originality sparks a new crypto sector.
Spotting it is hard due to our own biases.
When a new thing appears, it may get little attention (like Ordinals). It may be dismissed as noise.
That’s why having an open mind and trying every new, especially controversial, trend is key to being early.
Without real technical innovation, a narrative is just a short-lived speculative bubble.
This cycle is unique because of external innovation: AI.
Thanks to AI, we’ve seen innovations like Kaito InfoFi and AI agents.
Some examples this cycle:
Ordinals
Restaking
AI agents
InfoFi
SocialFi
ERC404
The goal isn’t to list them all but to build a mental model to spot them.
You can rank innovation from 0 to 10.
Simplicity & Memetic Potential
Not all innovations are equal. Some are easy to grasp. Some aren’t.
Complex narratives (e.g., ZK-proofs, restaking) spread slowly. Simple or memeable narratives ($WIF hat dog!) spread fast.
Can you explain the idea in 5 seconds? Is there a meme hook?
Examples:
High simplicity (10/10): AI, memecoins, XRP as a blockchain bank
Medium simplicity (5/10): SocialFi, DeFi, NFT, Ordinals
Low simplicity (3/10): ZK-proofs, modular chains, Restaking
Complex narratives take time and pump slower.
And simplicity also boosts community.
Community
Bitcoin is the top zero-to-one innovation. But without community, it’s just code. BTC’s value comes from the stories we attach to it.
It still confuses people why Cardano or XRP perform well despite limited innovation. The reason: die-hard communities.
Or take a more radical narrative: memecoins.
They have zero technical innovation yet memecoins is now a $66B sector. All thanks to a group of individuals who decide to rally around a token.
The tricky part is calculating the size of a community. Is it the number of followers on X, the mindshare on X, or the number of subreddit followers and posts?
Some communities are hard to identify because they speak different languages or post on different channels, like Koreans discussing XRP on their local forums.
Mindshare, as popularized by Kaito, is an excellent metric. However, the Loudio experiment shows that having huge mindshare doesn't necessarily equate to building a real community.
To identify a genuine community, especially in the early stages, immerse yourself in it. Buy a token or NFT, join Discord or Telegram groups, and observe who's talking on X about it (without being paid!) You'll sense it if it's authentic. It's a big bullish sign if you feel a sense of belonging and connection with the community.
Hyperliquid is, in my view, the fastest-growing community. The attacks by Binance and OKx on HYPE have only strengthened our resolve, giving us a mission and purpose to support the team and protocol. Hyperliquid has become a movement.
I believe innovation and community are the most important factors, which is why I assigned a 1.5x multiple to both.
Like innovation, I add the same simplicity variable to the community factor. The simpler the story, the easier it spreads.
Memecoins (like PEPE) are easy to understand, but even Hyperliquid, though not as simple, manages to rally the community.
Runes and Ordinals both bring technical innovation, allowing fungible tokens on Bitcoin, which once was thought impossible, and boast strong communities. So why are prices down?
There's a third factor to consider.
Liquidity
Innovation sparks the idea. Community builds the story and belief. But liquidity is the fuel that lets you ride the wave and get off at the top.
It’s the difference between catching a sustainable wave and being the last one holding the bag when the music stops.
Runes creator Casey Rodarmor did an amazing job building a fungible token model but perhaps he should’ve built a Uniswap AMM pool on Bitcoin too for Runes to sustain the hype.
Runes memecoins struggle to compete with Solana or L2 memecoins because they lack passive liquidity pools. In fact, Runes trade more like NFTs on Magic Eden; while there is OK buy liquidity, there's insufficient sell liquidity for large exits. Low volume doesn’t incentivize Tier 1 CEXs to list.
NFTs also face liquidity issues. That’s why I had high hopes for the ERC404 NFT fractionalization model, as it could have provided passive sell liquidity and APY from trading volume.
Unfortunately, it failed.
I believe liquidity is the primary reason DeFi options fail for years to pick up.
During recent market uncertainty, I wanted to hedge my portfolio with options, but onchain liquidity was terrible. I had high hopes for Derive, but its future is now uncertain.
Yet, I’m not just talking about simply having deep order books, new money coming in over time, CEX listings, or high TVL in liquidity pools. These are crucial.
Liquidity in the formula encompasses protocols that achieve exponential growth as their liquidity increases or have a liquidity bootstrapping model incorporated. Examples:
Hyperliquid: More liquidity means better trading experience which leads to more users and even more liquidity.
DEX ve3.3 like Velodrome: Bribing builds liquidity
Olympus OHM: Protocol Owned Liquidity
Virtuals DEX: Pairing new AI agent launches with VIRTUAL token.
Tokenomics
Tokenomics matter as much as liquidity. Bad tokenomics lead to dumping. Even if there’s deep liquidity, continuous sell pressure from unlocks is a big risk.
Good: High float, no big VC/team allocations, clear unlock schedules, burns (HYPE, well-designed fair launches), etc.
Bad: Hyperinflation, huge cliff unlocks, no revenue (L2s).
A narrative with 10/10 innovation but 2/10 tokenomics is a time bomb.
Incentives
Incentives can either make or break a protocol, or even the entire narrative.
Restaking relied on Eigenlayer's performance, but a token launch failure (perhaps due to a complex narrative or a weak community) sidelined the narrative for some time.
Evaluating liquidity at the narrative's outset is challenging, but an innovative incentives mechanism helps build that liquidity.
I'm particularly interested in the new token printing model.
If you've read my previous posts, you'll know what I mean: those market shifts occur when tokens are issued in innovative new ways.
BTC hard forks → Bitcoin Cash, Bitcoin Gold. ETH → ETH Classic
Then ICOs
Liquidity mining, Fair launch, low-float, high FDV (good for airdrops, bad for secondary market)
Points meta
Pump dot fun
Private-public sales on Echo/Legion
As market changes, the way we launch tokens and incentives change as well. As one incentive model is overused and the playbook rules become clear to everyone, it marks market saturation stage and peak hype.
The latest trend is crypto treasuries, where publicly listed companies buy crypto (BTC, ETH, SOL) which surprisingly lead their stock price valuation exceeding the value of their crypto holdings.
What are the incentives here? Understanding this is important to avoid becoming exit liquidity.
Market Conditions
The best narrative launched into a brutal bear market or during a macro risk-off event (early tariff wars) will drown. Conversely, even average narratives can fly in a raging bull market fuelled by loose liquidity.
It's the macro/regulation tide.
Use a multiplier:
0.1 = Brutal bear
0.5 = Choppy
1.0 = Bull
2.0+ = Parabolic mania
Example: Runes (April 2024) had Innovation, Community, initial Liquidity, and some incentives.
But it hit just as the broader market started correcting hard after the BTC halving hype faded (Market_Conditions ~ 0.3). Result: Mehhh. The same launch 3 months earlier might have done better.
How to Use the Formula
Rate each factor 1-10:
Innovation: Is it zero-to-1? (Ordinals: 9, memecoins: 1-3)
Community: Real believers or mercenaries? (Hyperliquid: 8, VC-chain: 3)
Liquidity: Deep markets? (Quick Tier 1 CEX listings: 9, Runes that trade like NFTs: 2)
Incentives: Juicy and sticky? (Hyperliquid airdrop: 8, No incentives: 1)
Simplicity: Can it meme? ($WIF: 10, zkEVM: 3)
Tokenomics: Sustainable or Ponzi? (BTC: 10, 90% pre-mine: 2)
Market Conditions: Bull (2.0), Bear (0.1), Neutral (0.5-1)
Score is subjective! I give Runes innovation score of 9, but you might give it just 5. And the formula is just a suggestion of what factors to include.
In any case, if we calculate variables for Runes it would be:
Innovation = 9 Community = 7 Liquidity = 3 Incentives = 3 simplicity = 5 tokenomics = 5 Current Market conditions = 0.5
Plugging the numbers in (thanks chatGPT o3):
1.5 × Innovation × Simplicity = 1.5 × 9 × 5 = 67.5
1.5 × Community × Simplicity = 1.5 × 7 × 5 = 52.5
Liquidity × Tokenomics = 3 × 5 = 15
Incentives = 3
Subtotal = 67.5 + 52.5 + 15 + 3 = 138
Apply Market Conditions (0.5):
Runes Narrative Score = 138 × 0.5 = 69
So Runes score 69 under this model.
In contrast, Memecoins would score higher at 116 because of my relatively subjective evaluation score:
Innovation = 3 (Not zero due to Pumpfun innovative model to launch memecoins)
Community = 9
Liquidity = 9 (Bonding into AMMs, high volumes = high LP yields, CEX listings)
Incentives = 7
Simplicity = 10
Tokenomics = 5 (100% circulating at launch, no VCs, but cabal risk/or snipping, no rev share)
Market conditions = 0.5
What score would you give to DeFi at the current macro situation, improving regulation, and increased stablecoin adoption by TradFi? Share in the comments.
Takeaways
Scan for narratives early: Use tools like Kaito, Dexuai. Focus on innovation + catalyst.
Score ruthlessly: Be honest. Terrible tokenomics? Bear market? No incentives? Market conditions change all the time and new sector-native innovations can revive the narrative (AMM DEX for Runes)
Exit before incentives decay: Sell when emissions peak or airdrop hits.
Respect the tide: Don’t fight macro. Stack cash in bears, deploy in bulls.
Be open minded: Try the protocol, buy some of the hot token, join the community discussions… Learn by doing.
This is just my v1 formula. I’ll improve it over time.
Banger🔥
Brilliant submission