1.27 What Are Memecoins?

 

There are numerous types of digital currencies on the crypto market based on their key utilities and project focuses. Some projects are geared toward DeFi features, while others are best used for creating NFTs and powering blockchain games. However, both types of cryptos have clearly defined utility and use cases. 

Memecoins, on the other hand, are community-focused cryptocurrencies that gain utility based on their popularity and community strength. These coins usually take trending memes from the internet as their logos and start off as “joke” coins. The community is the main driving force behind memecoins, and social media channels are of key importance for building the hype around these projects and launching them on the market.

Let’s dive into the memecoin craze to find out all the details about this unique crypto asset class.

 

The Memecoin Hype

Memecoins are often called the “people’s crypto” because they defy the business logic of the general cryptocurrency market. While most blockchain developers launch coins with profits on their minds, memecoins aren’t profit oriented projects by themselves. Of course, holding and trading memecoins can earn you profits, but that isn’t their primary use case. 

The memecoin hype originally started back in 2013 with the launch of Dogecoin (DOGE), the first-ever memecoin. DOGE laid the foundation for future memecoin projects and showed how crypto can be used humorously. The coin started out as a joke and took the image of the iconic Doge meme as its logo. The popularity of Dogecoin and other memecoins isn’t derived from their various utilities, like in the case of DeFi crypto or complex Layer-1 blockchains. 

A memecoin’s popularity comes from the community hype, and it’s all a question of how fun, humorous, and witty a memecoin idea is. It’s so easy to make a memecoin that anyone with some programming knowledge can create an ERC-20 or BEP-20 token with a meme as a logo. That’s why there are thousands of memecoins. However, most meme coins miserably fail because they lack a dedicated community, and they don’t manage to provide any real value to their users. The successful memecoins have thriving communities on Discord, Twitter, and other social media channels. 

If the meme logo resonates with the crypto community and the developer team puts together a good background story about the coin, it might have a chance on the market. For example, the Pepe (PEPE) memecoin has risen to tremendous popularity and even positioned itself among the top 100 coins just a few months after its launch in 2023. Crypto enthusiasts explain this by choosing the Pepe the Frog meme for the coin’s logo. The developers simply chose one of the most popular memes of all time, and this propelled the coin to a market cap of several hundred million US dollars.

 

Do Memecoins Really Have Utility?

A key question regarding memecoins is whether they have any real utility and what they can be used for? A standard critique of memecoins is that they are useless because of a lack of utility. This is true for most memecoins because they lack any actual use case and only survive for a short time on the market as a result of a temporary hype. 

However, some memecoins make it on the market thanks to a dedicated developer team and fanatic community members pushing the project. These successful memecoins gain utility as their community grows. DeFi developers and crypto companies begin to introduce various functionalities for popular memecoins, providing them with utilities such as staking, yield-farming, crypto swaps, and payment options. For example, numerous DeFi protocols and decentralized exchanges allow users to benefit from Shiba Inu (SHIB) tokens. Companies like Twitch, AirBaltic, and Tesla accept Dogecoin for payments.

It’s safe to say that most memecoins don’t have utility immediately once they are launched, and most of them don’t reach the point where they have any actual use case. Only the memecoins that become popular get to the point where they can provide varies utilities and benefits to users.

 

Key Memecoin Benefits

• Price and accessibility: Memecoins are super-cheap, which makes them highly accessible to millions of users around the world, especially in low-income countries. Hence, the term “the people’s crypto.”

• Sense of community: Memecoins are all about community. When you’re a memecoin holder, you’re part of that coin’s community and community members often get special benefits.

• Potential for huge profits: Memecoins are extremely volatile cryptos, and if you pick the right memecoin to invest in, you might get some massive gains.

• Innovation and utility potential: Memecoins can introduce various utilities and innovations as their popularity grows. However, if the coin doesn’t become popular, you might end up with a useless bag of coins.
   

Key Memecoin Risks

• Extreme volatility: Just like you can earn some crazy gains from memecoin volatility, so can you lose your entire investment in the blink of an eye if a memecoin’s price suddenly crashes 50,60, or 90%. 

• Scams: The memecoin sector is riddled with scams, and it is pretty common for newly launched memecoins to turn out to be rug pulls or pump and dump schemes. A rug pull is when the developers of a coin suddenly shut down the project and steal investor funds. Pump and dump schemes are when someone hypes up the community to buy a particular coin and drive its price up, but then suddenly cashes out a bunch of their own coins and collapse the project’s market price. 

• Lack of utility: As we said, memecoins usually don’t have any utility in their initial stages, and investing in a new memecoin can be pretty risky. That’s because you can’t know if the project will become popular and gain any real utility.

• No regulatory clarity: Only the top memecoins are recognized by regulators as legitimate cryptocurrencies. Most memecoins aren’t regulated or registered as legitimate crypto projects.
   

The Leading Memecoins

Let’s have a look at the top meme coins on the market. The following memecoins are the most successful representatives of this type of cryptocurrencies, and all are among the top 100 cryptos by market capitalization.

 

Dogecoin (DOGE)

Dogecoin is the memecoin leader, launched in 2013 on a Litecoin fork of the Luckycoin blockchain. This means that DOGE uses a similar blockchain architecture to LTC that allows DOGE enthusiasts to mine coins and contribute to the network’s stability. What originally started as a joke coin became one of the largest cryptocurrencies on the market. Even Elon Musk endorsed Dogecoin on social media, pushing the DOGE value and popularity sky-high during the 2021 crypto bull run.

 

Shiba Inu (SHIB)

Shiba Inu is the Ethereum-based “Dogecoin killer” ERC-20 token launched in 2020. SHIB was quickly accepted by the broader crypto community thanks to the developer’s promise to introduce various SHIB DeFi features. Platforms like the decentralized ShibaSwap allow SHIB token holders to engage in various DeFi features such as staking and yield-farming. 

 

Pepe (PEPE)

Pepe is the latest memecoin addition to the global top 100 list. The project achieved a massive 7500x price increase in less than two months after its launch in April 2023. Early PEPE investors managed to make crazy gains. This illustrates how investing in the right memecoin may make you some huge profits, but keep in mind that there’s absolutely no way to know which memecoin will succeed on the market.