According to Google Trends, the number of search queries for the term “memecoins” increased tenfold in March 2024 compared to February. At the time of writing, the corresponding category of assets on the CoinGecko aggregator has nearly 900 tokens, and their total market capitalization exceeds $50 billion.
The Incrypted team explored why memecoins are becoming increasingly popular among retail investors, which networks they have gained the most traction in, and what benefits they can bring to the community and the industry.
What is “meme coin mania”?
The terms “meme coin mania” and “meme coin supercycle” emerged in the media amid the rapid growth of the segment, accompanied by an influx of new users and investments. They denote an abnormal interest in meme tokens, which has become a distinguishing feature of the current market cycle.
According to Coingecko, the total market capitalization of this asset class grew by almost 1313% in the first quarter of 2024. Journalist Colin Wu also reports that the returns on memecoins for the first half of the year were 1834%, which is nine times greater than the RWA segment. Additionally, the GMCI Meme index, which includes 19 popular memecoins, showed a 174% increase on a year-over-year basis.
At the same time, IntoTheBlock reports a record influx of new traders into this market segment in March 2024. Interest in memecoins is being shown not only by retail investors but also by some venture companies like Mechanism Capital, as well as blockchain projects such as The Sandbox.
Key Memecoin Ecosystems
Despite the fact that memecoins are available on nearly all major networks, some ecosystems have taken the lead in this segment. Among the key players are Solana and the L2 solution Base.
Solana
According to The Block, over 450,000 tokens have been created on the Solana network as of May 2024, the majority of which are memecoins. As of June 26, more than 1 million new assets have been launched through the pump.fun service, making Solana the largest memecoin ecosystem in the industry.
The peak of memecoin trading occurred in March 2024 and was primarily driven by the tokens BOME and SLERF, which offered the launch and distribution of new assets in a presale format.
Several factors contribute to the rising popularity of Solana in the context of launching memecoins:
- High throughput. Solana can process over 3,000 transactions per second, ensuring a quality user experience even during peak load periods.
- Low fees. At the time of writing, the average network fee on Solana is 0.00015 SOL or $0.02—ten times lower than Ethereum and even below the rates of most L2 networks.
- Availability of infrastructure. A key platform for launching and trading memecoins in the ecosystem is the pump.fun service, which allows users to create tokens without needing to provide liquidity or technical skills.
Base
Base is the leader in user activity and the number of new tokens among L2 networks. As of now, the blockchain processes over 3 million transactions daily, and the number of active addresses exceeds 600,000. According to CoinGecko, the token BRETT, launched in this ecosystem, ranks among the top 10 memecoins by market capitalization.
Similar to Solana, key drivers of growth include low fees and the availability of user-friendly infrastructure, such as the Basecamp service and the specialized L3 network Degen Chain with the eponymous memecoin. Such projects contribute to the formation of a strong community within the Base ecosystem that is interested in trading high-risk assets.
Another potential hub for memecoins could be the TON ecosystem, aided by its connection to the Telegram messenger and the launch of the Memelandia platform. However, memecoins in this network have not yet gained widespread popularity.
Reasons for the Boom in the Memecoin Segment
As of now, the memecoin segment is actively developing, making it difficult to determine the value and place of this asset class in the industry. Influencers, analysts, investors, and other market participants present various theories explaining the popularity of such tokens. All of these are based on economic or cultural factors.
Economic Narrative
The economic narrative attempts to justify the growing demand for memecoins due to financial problems that compel investors to seek new tools for earning. Among these problems is:
Dominance of Venture Capital
Within the blockchain industry, this trend is most broadly revealed through the issue of tokens with high FDV (fully diluted value) and low circulating supply. Such assets reflect the imbalance between the share of retail and venture investors in the financing structure of projects and indicate shrinking opportunities for the former.
A report published by Binance in May 2024 raised important questions for token holders, such as off-market pricing, artificial supply crises, and inflated valuations of many projects. Some participants in this discussion believe that memecoins attract retail investors more than manipulative “VC tokens.”
Financial Nihilism
Financial nihilism is cited as a reason for the popularization of memetic assets by several sources, including Jason Choi, the founder of Tangent. In his view, buyers tend to take significant risks in hopes of changing their financial situation and lifestyle.
This phenomenon arises from the decline in real incomes, the dominance of large capital in various sectors, and the growing gap between the rich and the poor. As a result, people lose hope of changing their lives through honest and hard work and regard regular income with disdain, opting for riskier methods like gambling or trading memecoins as a more socially acceptable form.
Due to such high risk tolerance, Quinn Thompson, the founder of the hedge fund Lekker Capital, referred to memecoins as “the madness of retail traders.”
Speculative Expectations
With limited initial liquidity and attracting the attention of traders, some memecoins demonstrate rapid price growth immediately after launch. This has led to a perception within the community that these instruments are more profitable compared to Bitcoin or altcoins.
In practice, in most cases, rapid growth is followed by an equally swift decline in prices due to market manipulation or fading attention. Only a few projects like PepeCoin (PEPE), Bonk (BONK), or Shiba Inu (SHIB) manage to get listed on major exchanges and maintain a stable market position through a large number of holders and the creation of fundamental value.
It is worth noting that despite the intuitive appeal of the financial narrative, there is no direct correlation between the popularity of memecoins and the decline in prices of “VC tokens,” as emphasized by Hasib Qureshi, managing partner of the investment fund Dragonfly Capital.
As for financial nihilism and the associated speculative expectations of retail investors, several questions arise that prevent making definitive conclusions. For instance, do buyers of these tokens use alternative methods for quick enrichment? And is the pursuit of easy money driven by investors’ tendencies toward gambling?
Cultural Narrative
Another perspective prioritizes the cultural significance of memecoins. Proponents believe that the true reason for the popularity of this class of assets is not linked to the pursuit of easy money, but has other foundations.
Strengthening Tribalism
Tribalism is a phenomenon where members of a certain community criticize competing social groups, insisting on their exclusivity and superiority. An example would be Bitcoin maximalists.
Yee Lin, co-founder of the venture fund VariantFund, points out that due to the widespread prevalence of tribalism, for success in the crypto industry, projects need to first capture attention and build a strong community, and memecoins are an effective tool to achieve this goal.
A New Way to Spread Memes
To explain the importance of memecoins, Galaxy analysts use a broader understanding of memes as a fundamental cultural unit. They argue that the value and role of memes remain unchanged, but methods of dissemination constantly evolve — from cave paintings, newspapers, and books to the internet, and today, to tokens.
In their view, one aspect of the value of memecoins is that they are the most technically advanced format of cultural code. Tokenized memes are easy to create and distribute, and blockchain guarantees their secure storage and resistance to censorship.
This elevates memecoins beyond the crypto market, making them part of a broader cultural process.
In practice, there is a combination of economic and cultural factors — just as different analysts focus on various aspects of memecoins, individual investors may see them as a means of quick profit, a symbol of belonging to a community, or an important cultural meme. Moreover, it is often challenging to separate material value from cultural significance.
For example, purchasing memecoins as an alternative to “VC tokens” has both economic (higher potential profits and fair distribution) and cultural (“rebellion” against venture investors) components. Perhaps due to these characteristics, Kane Warwick, founder of the Synthetix protocol, believes that memecoins encapsulate culture, financial instruments, and tokenized assets.
Do Memecoins Really Lack Fundamental Value?
Eddie Lazarin, the CTO of a16z, expressed the opinion that memecoins “undermine the long-term vision of cryptocurrencies” and are not very interesting from a technical standpoint, which deters serious developers. At the same time, Michael Novogratz, CEO of Galaxy Digital, called memecoins “the cornerstone of the crypto economy.”
The opinions of these individuals are diametrically opposed; however, neither perspective has been substantiated with solid arguments in the public space. At the same time, according to Vitalik Buterin, the issue is not the absence of fundamental value in such assets but rather the community’s inability to apply them for useful purposes like charity.
He noted the ability of memecoins to attract attention, which many experts consider the main advantage of tokens in this segment. For example, DeSpread analyst Deklam Keen pointed out that memecoins are a crystallization of the attention economy.
In his view, memecoins are the simplest way to monetize attention that a particular meme (event, personality, object, etc.) can attract. The value of the token will be directly proportional to its popularity.
This assertion has been indirectly confirmed by analysts at Messari, who studied the distribution structure of memecoins. According to their data, the most successful assets are characterized by a gradual spread among an increasing number of holders with minimal influence from “whales.” The research shows that memecoins in the Solana ecosystem require 3,000 investors to attract initial attention and 10,000 for rapid growth.
Bright examples of attention tokenization are celebrity memecoins like MOTHER by Iggy Azalea, as well as assets referencing candidates for the upcoming U.S. elections—Donald Trump and Joe Biden. For instance, Jeo Boden (BODEN) showed growth during the hearing regarding Hunter Biden, when the president’s name was mentioned across all news outlets.
Against the backdrop of the popularity of PolitFi, Andrew Kang, co-founder of the venture firm Mechanism Capital, expressed the opinion that a new class of memecoins is forming in the market, which will use political and religious narratives to attract attention.
In this broad sense, memecoins allow for the tokenization of attention to any event, person, or object, extracting profit from it.
Memecoins as a New Project Launch Strategy
According to Li Yin, more and more projects are using memecoins as a market entry strategy. Developers initially launch an asset that attracts user attention and allows for the formation of a strong community, and then create a product associated with the token. An example is BonkBot.
This approach correlates with the principles of attention economics and fundamentally differs from the strategy of most contemporary projects, which first create a product and attract users using incentives (such as a potential airdrop), and then attempt to leverage the attention gained for token sales.
As researcher Yash Agarwal from Superteam DAO states, in this sense, governance tokens of many projects are hardly different from memecoins. Often, these assets do not perform their direct function or do so inefficiently, with their primary purpose being to attract the attention of market participants. Therefore, Agarwal refers to them as “memecoins in suits.”
Attracting New Users
The third aspect of the utility of memecoins lies in their ability to attract users beyond the industry. If we rely on Agarwal’s position and the core principles of attention economics, the main advantage of memecoins over other tokens is that they are associated with well-known personalities and events, making them more recognizable to a wider audience.
For example, the governance token of Arbitrum (ARB) interests investors who have studied the challenges of Ethereum and are familiar with the concept of L2 networks. In contrast, PEPE attracts the attention of users who recognize this character through memes and comics. It is likely that the number of people in the latter category is greater than in the former, and many of them are outside the crypto market.
By targeting a broader cultural landscape and, consequently, a wider audience, memecoins can draw “fresh blood” into the crypto market, similar to how NFTs did in 2021-2022.
Arthur Hayes shares this view, indicating that networks that support memecoins and encourage their further adoption in the industry will represent increasing value over time. Furthermore, Martti Busa, vice president of research at Messari, described memecoins as a “Trojan horse” that facilitates the mass adoption of technology.
This is also aided by more effective marketing campaigns compared to other Web3 projects. For instance, the community of the memecoin Dog Wif Hat (WIF) raised over $700,000 to purchase advertising on the MSG Sphere in Las Vegas, Iggy Azalea posts daily to promote the token Mother (MOTHER), and Elon Musk occasionally acts as an “attention magnet” for Dogecoin (DOGE).
Many teams enter into partnerships, buy advertisements, and mobilize their community resources with the sole aim of gaining recognition.
As a result, active social media profiles and marketing strategies of meme projects, based on broad cultural narratives, often attract a more extensive and engaged audience than financially incentivized activities through airdrops or point programs.
Thus, the fundamental value of memecoins lies in their ability to capture audience attention and then leverage it for various purposes, such as launching a new product. This is why Vitalik Buterin does not speak of the uselessness of memecoins per se, but rather points to the lack of worthy goals for their application.