What are Memecoins?

What are Memecoins?
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At the intersection of internet culture and investing, memecoins can be legitimate digital assets despite their light-hearted nature. Although memecoins are fun, they can be volatile.  Here’s what you need to know:

  • A background on memecoin mania, from DOGE to BONK
  • Why Solana is the home of memecoins in web3
  • Major memecoins on Solana: BONK, SAMO, WEN, and WIF
  • Memecoin risks: hype. volatility, and scams
  • Good memecoin practices: research, verify, prioritize security

If you've spent any time in the world of cryptocurrency, you've likely heard about memecoins, which are cryptocurrencies inspired by internet memes. Memecoins sit at the intersection of cryptocurrency, internet culture, and speculative investing. With names like DOGE and BONK, memecoins might sound unserious — and often they are meant to be — they have become a legitimate form of digital asset with real value worth over $60 billion in total today.  

Most cryptocurrencies are built with an ambitious utility in mind. Bitcoin, for example, is like digital gold, so it’s coded to be scarce. Web3 tokens like Solana (SOL) and Ether (ETH) operate like the fuel of their respective networks, and provide the infrastructure for entire ecosystems and technologies. Memecoins, on the other hand, are cryptocurrencies that derive their value primarily from community excitement, social media, and speculation. 

Memecoins are a fun, approachable way to speculate on high-risk digital assets and participate in the global crypto community. However, investing in memecoins should be approached with caution as they can be incredibly volatile. Now that you know your way around cryptocurrency, wallets, trading, and staking, we’ll tell you what you need to know about memecoins.

The Rise of Memecoins on Solana

Inspired by the popular and lovable shiba inu meme, Dogecoin was the first memecoin to launch in 2013. Over the next decade, DOGE has become one of the largest cryptocurrencies in the world by market cap, and thousands of memecoins have followed in its wake. In particular, the next generation of memecoins has emerged on the Solana network. Solana has proven the ideal network for memecoins because of its extremely low transaction fees, high speed, and a growing ecosystem of developers, projects and community. 

The appeal of these memecoins is multi-faceted. Their light-hearted nature and meme-inspired branding resonate with the playful, irreverent side of crypto culture. Memecoins often come with large token supplies and low prices, which makes them accessible to even small investors, creating a sense of inclusivity. But perhaps most importantly, the volatility of memecoins offers the opportunity for significant financial reward for anyone willing to accept the equally significant risk. 

Now, there are thousands of memecoins. Many launch and disappear within weeks. Others achieve huge valuations and lose them within minutes. Some, however, grow to become global phenomena with active communities, ecosystems of their own, and a lasting impact.  

Let’s take a look at some of those…

BONK — One of the biggest Solana memecoins, BONK airdropped 50% of its supply to Solana users. BONK is well integrated into Solana DeFi and functions as a community activation and user-onboarding tool for Solana.

SAMO — Samoyedcoin is another dog-themed memecoin on Solana. The SAMO community helps educate and onboard people into the Solana community—helping to accelerate the adoption of blockchains and all things self-custody.

WEN — a Solana-based meme coin centered around the concept of fractional NFTs.

WIF — Dogwifhat is a memecoin that adds a pink-knitted hat atop a Shiba Inu. It became the first memecoin to surpass $3 in value per token.

The Risks of Memecoins

Investing in memecoins comes with significant risks of which you should always remain aware. First and foremost, memecoin valuations are primarily driven purely by hype and speculation, and often have no underlying utility or fundamentals to support these valuations. This makes them volatile, with the potential for significant gains along with significant losses — sometimes  in quick succession. 

Here’s a checklist of good practices for engaging with memecoins:

Have a strategy: Understand that memecoins are very risky investments, and you could lose a significant percentage of your investment. That’s why you should only invest what you can afford to lose. Consider spreading your investments across different coins, and have a strategy for when you want to sell your coins, whether that's at a certain price or for another reason, and don't get caught up in the fear of missing out.

Do your homework on a project before investing: Start by researching and evaluating different projects. Look for active communities, clear roadmaps, and legitimate development teams. It’s also good to stay up-to-date by following a project's official channels, keeping an eye on what the community is saying on social media, and watching out for potential scams or rug pulls.

Consider tokenomics: Look into the details of the coin itself, like how many coins exist, how they're distributed, if any coins get burned or bought back, and if the coin is available and used throughout the Solana DeFi ecosystem. You should also keep an eye on the token’s liquidity and market capitalization, which means how large its market of buyers and sellers is. A coin with a low market cap may be difficult to sell or buy at a fair market price. 

Security basics: Keep your coins safe by using a secure, non-custodial wallet app, and never share your private key or seed phrase with anyone. Be wary of unsolicited airdrops that may appear in your wallet. Always be vigilant on social media and keep an eye out for phishing scams, copycats, and activity that appears driven by bots rather than genuine people. Further, there is the occurrence of scams by memecoin issuers. Memecoin investors have endured what’s called a “rug pull,” which is when unscrupulous developers abandon a project and run off with investor funds. 

Don’t forget taxes: Be aware of any tax implications for investing in memecoins: keep good records of your transactions, and consider talking to a tax professional.

Most importantly: remember that memecoins are meant to be fun! They offer a unique and often entertaining entry point into the world of digital assets – just be sure to approach them with a healthy mix of humor and caution!

As always in crypto — and especially with memecoins — it’s good to keep abreast of Crypto Security Essentials.