Cryptocurrency Gold Rush: How to Capture the Next Hundredfold Opportunity with the "Narrative Score" Formula

Original Title: Scoring Crypto Narratives: My Formula

Original Author: Ignas

Original Compilation: Luffy, Foresight News

You may have spent countless hours trying to capture the next hot narrative in the crypto space. If you judge correctly, you will make a fortune; if you enter too late, you will become the bag holder. In the crypto market, the highest investment returns come from:

1. Identifying narratives early

2. Mapping out capital rotation routes before others

3. Exiting when the anticipated bubble peaks

4. Locking in profits

Then think: Will the next wave of narratives come? Narratives cycle, and speculative waves will return under the following conditions:

• There is real technological innovation supporting the narrative, allowing it to rebound even after the first wave of hype fades

• New catalysts emerge

• A committed community continues to build after the hype subsides

I elaborate on my thoughts in the article below:

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

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

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

March 2023: The BRC-20 standard triggers the first wave of the market; activity cools for six months.

Late 2023 - Early 2024: Ongoing development sparks the second and third waves of the market.

April 2024: Runes launch, prices soar, and then fade a few weeks later.

Ordinals provided months of layout time and multiple exit opportunities, while Runes only offered a brief single exit window. The field is currently silent. Will Ordinals (including Runes), NFTs, or other new forms make a comeback? Perhaps. It depends on my narrative scoring.

Analytical Framework

This is a framework for identifying hot new narratives and assessing whether subsequent speculative waves will persist. This is a version still being refined, and below is my 1.0 formula:

Narrative Score = [(1.5× Innovation × Simplicity) + (1.5× Community × Simplicity) + (Liquidity × Tokenomics) + Incentive Mechanism] × Market Environment

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

Innovation

Here, innovation refers to the crypto-native innovations at the technical level that I focus on. The most powerful catalysts are innovations from 0 to 1. They can appear in new fields (DeFi, NFTs, RWA, etc.), new tokenomics models (like veToken), or even in token issuance methods (fair launches, Pump.fun).

I have previously written that innovations from 0 to 1 have a uniqueness that can change the trajectory of the industry, and their originality can spawn new crypto subfields. Due to cognitive biases, recognizing such innovations can be quite challenging. When something new appears, it may receive little attention (like Ordinals) or even be seen as noise. Therefore, maintaining an open mind and trying every new trend (especially controversial ones) is key to seizing opportunities. Without real technological innovation, narratives are merely fleeting speculative bubbles.

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 from this cycle include:

• Ordinals

• Restaking

• AI agents

• InfoFi

• SocialFi

• ERC404

My goal is not to list all cases but to establish a mental model for recognizing them. The degree of innovation can be scored from 0 to 10.

Simplicity and Meme Potential

Not all innovations have the same virality. Some are easy to understand, while others are not. Complex narratives (like zero-knowledge proofs, restaking) spread slowly, while simple or meme-like narratives (like WIF) spread quickly. Can you explain this concept in 5 seconds? Is it meme-worthy?

Examples:

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

• Medium simplicity (5/10): SocialFi, DeFi, NFTs, Ordinals

• Low simplicity (3/10): Zero-knowledge proofs, modular chains, restaking

Complex narratives require time to ferment, and price increases are slower. Additionally, simplicity can drive community growth.

Community

Bitcoin is the greatest innovation from 0 to 1, but without a community, it is just a piece of code. The value of Bitcoin comes from the story we give it. People still do not understand why Cardano or XRP performs well despite limited innovation; the reason lies in their loyal communities. Or to put it more radically: Memecoins.

They have no technological innovation, but Memecoins have now become a $66 billion sector, thanks entirely to a group of people rallying around the token. The tricky part is calculating the size of the community: should we look at the number of fans on platform X, the topic's popularity on X, or the number of Reddit subscribers and posts?

Some communities are hard to identify because they communicate in different languages or on different channels, like Korean users discussing XRP on local forums. Kaito's concept of "Mindshare" is an excellent metric, but the Loudio experiment shows that having a large mindshare does not necessarily mean a real community has been established.

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

To identify a real community, especially in the early stages, the best approach is to immerse yourself: buy tokens or NFTs, join Discord or Telegram groups, and observe who is discussing it on X (non-paid promotions). If you feel a genuine sense of belonging and connection, that is a strong bullish signal. In my view, Hyperliquid is the fastest-growing community. The attacks from Binance and OKX on HYPE have instead strengthened its cohesion, giving the community a mission and goal to support the team and protocol. Hyperliquid has become a movement.

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

I believe innovation and community are the most important factors, so I assign a weight of 1.5 to both. Like innovation, I have included the same simplicity variable in the community factor: the simpler the narrative, the easier it is to spread.

Memecoins (like PEPE) are easy to understand, while Hyperliquid, though less simple, has still successfully united a community. Runes and Ordinals both brought technological innovations (allowing the issuance of fungible tokens on Bitcoin, which was once thought impossible) and have strong communities. But why did prices drop? Because there is a third factor to consider.

Liquidity

Innovation ignites narratives, and the community builds stories and beliefs, but liquidity is the fuel that allows you to ride the wave and exit safely at the peak. This is key to distinguishing between a "sustainable wave" and "being the last bag holder when the music stops." Runes creator Casey Rodarmor excelled in building a fungible token model, but perhaps he should have also built an AMM pool similar to Uniswap on Bitcoin to maintain Runes' momentum.

Runes Memecoins struggle to compete with Solana or Layer2 Memecoins because they lack passive liquidity pools. In fact, Runes are more like NFTs traded on Magic Eden: while there is decent buying liquidity, there is not enough selling liquidity for large exits. Low trading volume fails to incentivize listings on top-tier CEXs.

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

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

In recent market fluctuations, I wanted to hedge my portfolio with options, but on-chain liquidity was terrible. I had high hopes for the crypto options platform Derive, but its future is now uncertain. Liquidity does not only refer to deep order books, continuous inflows of new funds, CEX listings, or high TVL in liquidity pools, although these are important. The liquidity in the formula also includes protocols that achieve exponential growth with increasing liquidity or projects with built-in liquidity guiding models, such as:

• Hyperliquid: More liquidity means a better trading experience, attracting more users, which in turn brings more liquidity

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

• Olympus OHM: Protocol-owned liquidity

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

Tokenomics

Tokenomics is as important as liquidity. Poor tokenomics can lead to sell-offs. Even with deep liquidity, the continuous selling pressure from unlocks poses a significant risk.

• Excellent cases: High circulation, no large VC/team allocations, clear unlocking plans, burning mechanisms (like HYPE, well-designed fair launches), etc.

• Poor cases: Malicious inflation, large cliff unlocks, no revenue (like some Layer2 projects).

A narrative with a 10/10 innovation score but a 2/10 tokenomics score is a ticking time bomb.

Incentive Mechanism

Incentive mechanisms can make or break a protocol, or even an entire narrative. The restaking narrative relies on Eigenlayer's performance, but a failed token issuance (possibly due to a complex narrative or weak community) has stalled that narrative. Assessing liquidity in the early stages of a narrative is challenging, but innovative incentive mechanisms help build liquidity. I am particularly interested in new token issuance models. If you have read my previous articles, you will understand what I mean: when tokens are issued in innovative ways, the market often undergoes a transformation.

• BTC hard forks → Bitcoin Cash, Bitcoin Gold

• ETH → Ethereum Classic

• Initial Coin Offerings (ICOs)

• Liquidity mining, fair launches, low circulation high fully diluted valuation (FDV, suitable for airdrops but detrimental to secondary markets)

• Points narratives

• Pump.fun

• Private-public sales on Echo/Legion

As the market changes, token issuance and incentive mechanisms also evolve. When an incentive model is overused and its patterns are widely known in the market, it indicates that the market has entered a saturation phase and a peak of speculation.

The latest trend is crypto treasury. Public companies are buying cryptocurrencies (BTC, ETH, SOL), and their stock valuations exceed the value of the cryptocurrencies they hold. What is the incentive mechanism here? Understanding this is crucial to avoid becoming a bag holder.

Market Environment

The best narratives launched in brutal bear markets or during macro risk events (like early tariff wars) can also be drowned out. Conversely, in a liquidity-loose bull market, even ordinary narratives can soar. The market environment determines the following multiplier:

0.1 = Brutal bear market

0.5 = Sideways market

1.0 = Bull market

2.0+ = Parabolic frenzy

Case in point: Runes (April 2024) had innovation, community, initial liquidity, and some incentive mechanisms, but its launch coincided with a significant market correction after the Bitcoin halving hype faded (market environment multiplier ~0.3). The result: mediocre performance. If it had launched three months earlier, it might have performed better.

How to Use the Formula

Score each factor on a scale of 1-10:

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

Community: Are they true believers or speculators? (Hyperliquid: 8, VC-led projects: 3)

Liquidity: How is the market depth? (Quickly listed on top-tier CEX: 9, trading like NFTs: Runes: 2)

Incentive Mechanism: Is it attractive and sustainable? (Hyperliquid airdrop: 8, no incentives: 1)

Simplicity: Can it form a meme? ($WIF: 10, zkEVM: 3)

Tokenomics: Is it sustainable? (BTC: 10, 90% pre-mined: 2)

Market Environment: Bull market (2.0), bear market (0.1), neutral (0.5-1)

Scoring is subjective. I give Runes an innovation score of 9, but you might give it a 5. This formula is merely a suggestion of factors to consider. For Runes, let's calculate: Innovation = 9, Community = 7, Liquidity = 3, Incentive Mechanism = 3, Simplicity = 5, Tokenomics = 5, Current Market Environment = 0.5

Plugging into the formula:

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

Incentive Mechanism = 3

• Subtotal = 67.5 + 52.5 + 15 + 3 = 138

• Multiply by Market Environment (0.5): Runes narrative score = 138×0.5 = 69

In contrast, Memecoins score higher in my subjective assessment (116 points):

Innovation = 3 (due to the Pump.fun innovative issuance model, not a complete zero)

Community = 9

Liquidity = 9 (integrated AMM, high trading volume = high LP yields, CEX listings)

Incentive Mechanism = 7

Simplicity = 10

Tokenomics = 5 (100% circulation at issuance, no VC, but there are small group risks / rush, no revenue sharing)

Market Environment = 0.5

Conclusion

• Scan narratives early: Use tools like Kaito, Dexuai, etc., to focus on innovation and catalysts

• Score rigorously: Assess honestly. Poor tokenomics? In a bear market? Lacking incentives? Market environments can change at any time, and new native innovations in emerging fields may revive narratives (like Runes' AMM DEX)

• Exit before incentive mechanisms decline: Sell at the peak of token releases or when airdrops land

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

• Keep an open mind: Try protocols, buy popular tokens, participate in community discussions… Learn through practice

This is just my 1.0 formula, and I will continue to refine it.