Are Memecoins the Trojan horse of cryptocurrency?

Forward the Original Title‘What Do You Meme?’

Introduction

Memes, defined as units that carry cultural ideas from person to person, have been deeply intertwined with crypto culture for the past 10 years.

The first memecoin, launched in 2014 as a lighthearted spin-off of Bitcoin, marked the dawn of memecoins, peaking with a $75 billion market cap in the 2021 bull market.

Recently, the memecoin market has seen explosive growth. An ERC-20 token around Pepe The Frog has surged 400% to a $2 billion market cap in less than a year. Another memecoin that depicts a purple top hat, which launched on decentralized social network Farcaster, has impressively reached over $1 billion market cap, outpacing Farcaster’s own valuation. Finally, there’s been a meme of a dog with a knitted hat, which has gained fame on Crypto Twitter with its viral appeal-it has soared over 20x since the year’s start, now boasting a market cap of around $4 billion.

A community graphic representing the dog with a knitted hat memecoin

Memecoins are here to stay, and this article will explore why. We’ll offer a framework to better understand memecoins, examine the evolving infrastructure supporting them, and discuss how they can significantly enhance network engagement.

Memecoins Rely On Attention

One key realization is that memecoins thrive off of attention. In the world of memecoins, attention is everything; attention drives community behavior, the surrounding buzz, and the memecoin’s price action.

You’ll often find comment sections on Twitter swamped with people promoting memecoins. The behavior stems from a simple fact: the memecoin’s price ultimately depends on how much attention it receives. The more attention a memecoin receives, the more potential buyers. If the associated meme is fun or interesting, those potential buyers are more likely to make a purchase.

Community Members Promoting Memes To Bring Attention To Their Token

Besides sharing memes on social media, memecoin enthusiasts find creative ways to bring attention to their tokens. For instance, the community around the memecoin of the dog with a knitted hat has raised $700,000 for a campaign, aiming to display their meme on the iconic Las Vegas Sphere. As a result, anticipating the buzz from this publicity stunt, the value of the token surged by 25%.

Sometimes, memecoins leverage existing attention rather than generating it themselves. For example, while prediction markets like PredictIt and Polymarket let users bet on Presidential Election outcomes, attention-based “Politifi” memecoins around Presidential Candidates were developed for speculating on the public interest surrounding the candidates. As the 2024 elections have drawn closer, speculation and hence the price on these “Politifi” memecoins has significantly increased.

So which memecoins do well? The ones that people think will consume the most attention.

The Importance of Distribution

When evaluating a memecoin, token distribution remains a key factor for many potential buyers.

Some memecoin projects decide to reserve tokens for the team and other initiatives. In addition to airdropping community members and developers, many choose to set aside a portion of the supply for marketing initiatives, the team, and to their DAO.

Setting aside part of the supply creates stronger incentive alignment and better chance of long-term success. By allocating themselves vested tokens, the team is incentivized to participate more heavily in the project and ensure that the token is successful over the longer term. Second, DAOs can be used to fund big initiatives.

Memecoin DAO Governance Initiatives

Other memecoins, like the memecoin depicting the dog with a knitted hat, may be seen as “more organic”. Aside from initial liquidity provision, tokens had to be acquired on the open market. While this strategy may mean that it is harder to fund initiatives and do marketing for the project, fair distribution remains a crucial factor for many memecoin enthusiasts.

Memecoin Trading Creates Gigantic New Market Opportunities

The memecoin market is becoming enormous-currently, the top 10 coins collectively are responsible for over $50 billion in marketcap. On-chain volume for memecoins is extraordinary-the over billion of dollars of daily volume on Solana is largely driven by memecoins. Just take a look at the top 10 tokens on Dexscreener at any point:

Memecoins Make Up A Large Part of The Top 10 Daily Traded Tokens (Source: Dexscreener)

Thus, there are valuable market opportunities for builders. Tools and applications that cater to the process of creating and trading memecoins have been gaining a lot of traction. For instance, Bonkbot is a simple Telegram Trading bot that makes it easy to trade memecoins on Solana. Over just 5 months, its revenue has surpassed over $23 million.

Not only is it becoming easier to trade memecoins with platforms like Bonkbot-there is also infrastructure being built to make the process of launching memecoins easier. To start a memecoin, one usually needs to create a token, use their funds to set up a liquidity pool on a Decentralized Exchange such as Uniswap or Raydium, and market the project.

Pump.fun, a platform which enables users to launch memecoins in a single click, is one such example-thousands of users have already used their platform to launch and find the newest memecoins. It is currently doing hundreds of thousands of dollars in revenue every day via trading fees!

Pump.fun Daily Revenue (Source: DefiLlama)

Memecoins Supercharge Distribution

Memecoins, which combine the enjoyment of sharing memes with the financial incentive to encourage purchases, transform ordinary memes into “supercharged” ones. The community behind the first memecoin, incentivized by their ownership of the token, elevated the Doge (“much wow”) meme into a movement that caught the attention of figures like Elon Musk. Understanding and applying memecoins’ properties of incentivized mass distribution could significantly enhance or supercharge not just memes, but other parts of crypto.

Memecoins Supercharge Distribution of Memes Because of Incentives

One such area which can leverage properties of memecoins are NFTs. Currently, most NFTs are underperforming during this bull market. Why? They have a distribution problem.

While an NFT collection’s scarcity makes them a great luxury asset, there are only a limited number of participants that are incentivized to bring visibility to the collection. Profile Picture Collections like Cryptopunks, with a supply cap of 10,000, can serve as prestigious status symbols. Yet, this same cap restricts the fan base to a maximum of 10,000 individuals, restricting the broader engagement and visibility that memecoins enjoy.

Memecoins, because they are fungible, Have An Unlimited Ceiling Of Owners

The introduction of ERC-404s, a new standard facilitating the fractional ownership of NFTs, offers a creative solution to the NFT distribution problem. Projects like Pandora, DN-404, and Asterix are pioneering this space by allowing NFTs into multiple shares-memecoins, if you will. This means that a single NFT, traditionally owned by one individual, has the option to be divided into many parts. This division expands access to a broader audience who are incentivized to create more visibility for the collection, while maintaining exclusivity for those who hold an entire NFT.

Memecoins Supercharge Activity On Blockchains and Applications

In November of 2022, in the wake of the FTX collapse, Solana’s ecosystem experienced a sharp decline in activity. Many teams had just lost their funds in FTX, and FTX itself was closely associated with Solana, reducing community faith and activity. However, on December 25th of 2022, a memecoin depicting a playful orange Shiba Inu dog was airdropped to existing developers and users on the Solana network as a way to reward and reinvigorate the Solana community.

The strategy succeeded. The orange dog memecoin became a rallying point for the Solana community, rapidly integrating into hundreds of DeFi protocols and applications on the platform. Users found they could earn yield with the orange dog memecoin, use the memecoin as collateral, or even spend the memecoin in Solana-based games. As activity and price around the memecoin surged, so did community enthusiasm, strengthening developer activity and allowing the chain to sustain during the bear market.

These stories are not isolated events; memecoins play a crucial role in kickstarting network activity. Take the billion-dollar market cap purple top-hat memecoin that began on Farcaster as a way to tip users for their posts. Its launch led to an extra incentive for people to post, significantly boosting Farcaster’s activity. Memecoins have the power to supercharge communities and stimulate interaction within Platforms.

Since inception, the Farcaster memecoin has incentivized significant Farcaster Activity

The recognition of memecoins as a tool for stimulating network activity is growing. For example, blockchain Avalanche has established a $100 million “Culture” fund, and Blast is rewarding users with Blast Gold for engaging with memecoins. Social Platforms like short-term video platform Drakula have integrated the Farcaster purple-top-hat meancoin to drive activity. I believe more networks and platforms should consider how they can leverage memecoins to supercharge activity.

Final Thoughts-A Trojan Horse Disguised As A Toy

Here are my key takeaways on memecoins.

First, it is clear to me that memecoins are not going away. I am watching the next generation take up memecoins as an incredibly fun social activity. Our current Gen Z Pantera interns are having a lot of fun with their friends degening into newly launched memecoins as a simple and fun way to socialize, connect, and experience drawdowns and upsides together.

Secondly, memecoins greatly supercharge platforms and applications. While they are an incentive mechanism that can help spread doge memes, memecoins can greatly enhance NFT projects, social protocols, and entire blockchains.

In his recent essay, Ethereum founder Vitalik Buterin brought forth interesting ideas on what memecoins could be used for, focusing on its use for charity and Robin Hood-style games.

I would say that memecoins go even further than that. Ultimately, while they seem like a toy, memecoins are a Trojan Horse for crypto-they are the simplest gateway to onboarding the next generation to experience the latest DeFi applications and introduce them to all of web3.

Disclaimer：

1. This article is reprinted from [VeradiVerdict]. Forward the Original Title‘What Do You Meme?’. All copyrights belong to the original author [PAUL VERADITTAKIT]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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