It’s fair to say that memecoins split opinions, with the majority viewing the latest crypto-native craze in a negative light.
Just as the crypto asset space attempts to convince TradFi and the general public of its worth with value-driven innovation, along comes another get-rich-quick feeding frenzy to clog up the ecosystem with seemingly worthless tokens.
Is the unpredictable crypto market shooting itself in the foot again? Or do memecoins offer hidden value by stress testing blockchains and DeFi, spawning new protocols and platforms that could later prove valuable additions to the industry itself?
In this article, we will look at the pros and cons of memecoins and evaluate their net worth (or damage) to the developing crypto industry.
What are memecoins?
It may come as some surprise to learn that a British evolutionary biologist is the “inventor” of memes. Richard Dawkins first coined the term in his 1976 book The Selfish Gene. He described memes as units of current culture, thinking or behaviour that spread like wildfire by word of mouth.
The Internet, social media – and now blockchains – are the perfect mediums to rapidly create and disseminate new ideas and fads. Memecoins are simply the latest “tokenised” incarnation of these social phenomena.
Images and videos of dogs, other animals, cartoons and inside jokes are currently frothing up and popping like bubbles on various blockchains. These include PEPE, WIF, BONK and a memecoin linked to the Gamestock retailer (GME), whose stock was famously spearheaded by a retail investor movement on Reddit.
Memecoins are so easy to create that by some estimates, there are around two million different versions. Most fade away fast and only the top few are listed on exchanges.
There are some, like the original memecoin Dogecoin (created in 2013) and Shiba Inu (SHIB), that have stood the test of time by sticking around for years. But this uncommon, given that the average life expectancy of a memecoin is six to twelve months. Still, at their peak earlier this year, the market cap of memecoins topped an astonishing USD 50 billion.
The latest surge of memecoins supporting candidates in this year’s US presidential elections highlights their capacity to motivate communities that rally around a cause or idea. So far, they have outperformed all other memecoins.
Why are memecoins loathed?
There is no escaping the fact that the memecoin mania is driven to a fair degree by small investors hoping to get rich quick. Memecoins pop up with minimal value, which can multiply rapidly, and individuals are quick to boast of their sudden enrichment on social media.
This in turn inspires rug pulls and scammers who pump and dump tokens, catching out unwary investors. This is exactly the image the crypto industry is trying hard to shake off as it strives to fuse with TradFi and creates assets linked to sustainable value. The memecoin mania shares some similarities with the over-hyped non-fungible token (NFT) craze of 2022, which at least represented some items of real value, such as artworks.
Furthermore, memecoins have been held responsible for clogging up the Solana blockchain, causing transaction delays earlier this year. And some memecoins have caused offence with alleged racist messages and other unsavoury themes.
Memecoins face an exceedingly high mortality rate, and recent data from Chainplay found that nearly 97 percent failed since 2024.
Their short lifespans contrast greatly with the average crypto project, but the alluring promises of colossal gains seem to obscure the fact that such gains are extremely rare and found in only a handful of memecoins. It’s a hard truth that many “gem hunters” are reluctant to accept.
Source: CoinGecko
The chart above shows why many investors have difficulty resisting memecoins, especially given their potential to outperform some of the most popular crypto assets – and by a long shot. Investors shouldn’t forget that Bitcoin and Ethereum are still highly volatile assets, but they almost seem somewhat stable compared to the wild price action of memecoins.
Positive effects?
Nearly breaking the Solana network (however temporarily) hardly qualifies memecoin issuers for an award. But in a world where blockchains are falling over themselves to produce the fastest block validation times, the stress test does serve a purpose. Blockchains find out their weaknesses while issuers of future crypto assets learn which infrastructure is the most robust and reliable for their products.
The Solana ecosystem recovered from its early memecoin setback to profit from the memecoin mania. The Solana-based Pump.fun memecoin launchpad has generated millions of dollars in fees by facilitating the launch of tokens.
The TRON blockchain followed suit with the SunPump launchpad while Coinbase’s Layer 2 network BASE is also competing hard for memecoin market share. DeFi protocols, such as Uniswap, have also benefited by adding memecoin liquidity pools and generating more activity.
Even if the memecoin frenzy disappears without a trace in future, blockchain developers and DeFi protocols will have learned valuable lessons in how to react to sudden and rapid bursts of activity. This might benefit the future of current and new decentralised protocols.
Institutional investors and tech companies have also had the opportunity to gain insight into the way community-driven projects materialise and grow in momentum – and assess the unmistakable influence of bot-driven trading.
Net value
At best, memecoins could be valued as a cultural movement that have inspired some creativity and a lot of fun. But have they delivered any true innovative value? The ease and speed at which they are created suggests there is little technical substance behind them.
The “communities” that back them with investments are probably driven by blatant greed rather than any positive social motives. And such activity could generate a degree of reputational damage for an industry trying to prove its worth and legitimacy to the world.
However, memecoins could credibly be viewed as a test run for a future wave of decentralised financial products, especially in terms of stress testing novel protocols to manage high transaction volumes and network activity, as well as other sectors that demand similar capabilities. The networks on which these products run will need to be battle tested before institutional investors can be persuaded to trust them to cope with large scale, high frequency trading.
Concluding remarks
It might also be possible to extract some consumer behaviour intelligence from the investor frenzy. However chaotic these communities appear to be, they do offer signals of how retail investors could be expected to act when future products are placed on the market.
All things considered, while memecoins appear to offer little immediate value to the decentralised ecosystem, the movement gives it some practical technical and consumer feedback for moving forward. But they have also left behind a pretty endless crypto graveyard, with insiders making quick exits and leaving many retail investors’ bags buried six feet under the ground.
ENDS
Disclaimer: The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorisation or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.