What are meme coins: The journey from internet jokes to a market capitalization of tens of billions of dollars
Memecoins, located at the intersection of digital currency and internet culture, have attracted the attention of cryptocurrency market participants for many cycles. They have once again captured the spirit of the times due to their accessibility, viral spread, and enticing potential for high returns.
In this article, we will explore:
What is a meme?
A meme is a unit that carries cultural ideas and symbols, spreading from one mind to another.
Like genes, memes vary in their ability to spread; those that resonate with an audience continue to live on, while less significant ones are quickly forgotten.
The internet has spawned the idea of "internet memes," allowing for faster transmission of memes and cultural ideas, usually in the form of images, videos, GIFs, and jokes. One study compared the spread of internet memes to diseases: "Memes spread through a viral model, 'infecting' individuals in a manner reminiscent of the SIR model for disease spread."
Internet memes spread in a similar way to infectious diseases.
What are memecoins?
"Memecoins" are cryptocurrencies that derive their value solely from the memes they are associated with, effectively assigning financial value to the concept of memes.
With the emergence of memecoins, cultural ideas and symbols, as well as their dissemination, can be traded and speculated upon. Their value is based on the relevance of the meme and its ability to capture attention, creating a new type of market where cultural resonance becomes quantifiable and financially assessable.
A brief history of memecoins
Below is a brief overview of crypto cycles and the memecoins created within them:
Proof-of-work memecoins
Proof-of-work memecoins were primarily developed so miners could direct their resources toward new coins for mining and selling. Many of these memecoins debuted on alternative cryptocurrency forums like Bitcointalk. While a significant number did not make it to exchanges, those that did traded on platforms such as Cryptsy and BTC-E, now-defunct centralized services. Each memecoin typically differed in name and branding, hashing algorithm, block time, and supply, all of which contributed to their overall story or "meme."
The first wave of coins after Bitcoin were "memecoins" in the sense that they provided little value beyond a new idea. Some examples include:
- Litecoin (LTC): created in 2011, with a faster block time and a different hashing algorithm.
- Feathercoin (FTC): launched in 2013 with the aim of being an "even lighter" version of Litecoin.
- Peercoin (PPC): introduced in 2012, combining proof-of-work and proof-of-stake for improved energy efficiency.
These coins, except for Litecoin, are now dead (low volume and market capitalization, lack of exchange support, ease of 51% attack). This is likely due to several reasons: the meme did not take hold (lack of cultural longevity) and difficulties accessing them (each memecoin was a separate blockchain).
The survival of Litecoin is likely attributed to the strong appeal of Bitcoin's memetic value ("digital gold"), its significantly earlier emergence, and continued support from modern exchanges.
Dogecoin: the first memecoin
The original Doge meme ("much wow") began circulating on 4chan and Reddit in the summer of 2013. Capitalizing on this cultural trend, Dogecoin was released on December 8, 2013, on Bitcointalk by Jackson Palmer and Billy Markus. It was the first cryptocurrency based on an internet meme.
The success of Dogecoin led to the emergence of a new "class" of coins that were ironic, humorous, used celebrities (Kanye West, Max Keiser), animals (Pandacoin), or attempted to capture specific communities. All of them were proof-of-work coins launched in the Bitcointalk subforum "Alternative Cryptocurrency." "Specifications" became less important, while the "meme" became more significant. Some examples include:
- Maxcoin (MAX): launched in 2014 in honor of Max Keiser.
- Coinye: a coin inspired by Kanye West, against which he filed a lawsuit.
- Pandacoin (PND): based on the popularity of giant pandas.
The ICO boom and the rise of Ethereum
The rise of Ethereum led to a wave of innovations that enabled new use cases, improved user experience, and attracted new users.
Some specific improvements included:
- Simplification of coin launches (ERC20 standard)
- Attracting a new user base (non-miners)
- Coin creators could earn more money (unlike proof-of-work coins without pre-mining, ERC20s were sold through ICOs)
- Introduction of interoperability / one ecosystem / one wallet (through ERC20)
The ICO era led to a wave of more "serious" projects: theDAO, Filecoin, Tezos, EOS, Cardano, Tron, and Bancor, which aimed to have some utility or purpose beyond memetic value.
There were fewer memecoins that were not particularly notable but still attracted some attention.
One example was the Useless Ethereum Token, released in June 2017, which mocked the idea of ICOs and raised 310 ETH.
Dentacoin, although initially intended to be "the cryptocurrency for dentists," was viewed as a memecoin and peaked at a market capitalization of $2 billion in January 2018.
HAYCOIN, the first ERC20 deployed on Uniswap v1, was also a memecoin created during this era (2018). Hayden Adams, the founder of Uniswap, created the token as a test for the Uniswap protocol. It did not receive much response or volume at the time but was revived in 2023 due to its historical significance.
Collectible memes and early NFTs
Beyond crypto, a subset of memes featuring Pepe the Frog were called "Rare Pepes" — memes that were not publicly published, and if they were, they bore the watermark "RARE PEPE DO NOT SAVE."
Between 2016 and 2018, a group of developers from Counterparty (a Bitcoin-based smart contract protocol) and Pepe meme enthusiasts created Rare Pepe Wallet, Pepe Cash, and curated "Rare Pepe memes" for trading on the Counterparty protocol.
Often considered the second collection of NFTs in history, Rare Pepes continue to hold value, with some selling for over $500,000.
After the release of CryptoPunks, MoonCats, and CryptoKitties, NFTs began to enter the Ethereum ether: non-fungible tokens that can point to images and other media. EtherRocks, launched in 2017 on Reddit as a joke, were a collection of 100 colorful clipart rocks. The collection had very little response at the time (only 30 were minted), but later it was revived and sparked a buying frenzy, reaching a minimum price of 305 Ether in August 2021 ($1 million at that time).
Another example of collectible meme coins is Unisocks (SOCKS), launched by Hayden Adams on May 9, 2019. 500 physical socks were created, and 1 SOCK (ERC20) can be used to redeem them. Priced at $53,000 per sock at the time of writing, they may be the most expensive socks in the world.
DeFi Summer
In June 2020, Compound Finance introduced a new method of token distribution: "liquidity mining" or "yield farming." Users locked their assets to provide liquidity and received rewards in tokens.
This new primitive launched the "DeFi summer" and peaked in the form of "food coin farms," which offered 10,000% annual returns (in meme coins) in exchange for locking your tokens in Yam or Pickle contracts.
Meme Stocks and Doge Coins
Stimulus checks, low interest rates, cheap money, and COVID lockdowns led to a high-risk environment throughout 2021.
In early 2021, retail traders gathered on Reddit and began spreading the "Gamestop" meme, posting images/videos and driving a rapid increase in stock prices. Many ordinary users were able to participate thanks to Robinhood's UX (mobile app, no commissions).
The "GME" mania led many to start speculating on other assets, especially those also available on Robinhood. DOGE was listed on Robinhood in 2018 and was priced at 0.008 cents at the end of January, which was a very attractive "price" for retail users. In early February 2021, Elon Musk began posting numerous tweets promoting the Doge meme. DOGE peaked in May 2021 with a market capitalization of $90 billion.
The popularity of DOGE led to the emergence of many crypto-native meme coins, including Shiba Inu, Floki, and Safemoon, all of which reached very high valuations within months.
NFT Boom: "Meme Coins with Pictures"
With the standardization of ERC721 and the emergence of common marketplaces like OpenSea, NFTs created a new "class" of crypto assets: unique, visual representations of shared "culture" or "meme."
Some of the most recognizable NFTs include: CryptoPunks, Bored Apes, Squiggles, and Pudgy Penguins. NFTs were used as profile pictures on platforms like Twitter and Discord, spreading
their virality through individuals who wore them as their identity. These PFPs signaled prestige and "membership in a cultural club." Many collections made their holders wealthy, but they could not sell their NFT without "leaving the community." To reward their loyal holders, some NFT projects released a "meme coin" (ERC20) component for their community, as a form of liquidity, "utility," and cultural "currency."
Some examples of NFT projects from this era (and their meme coin, if applicable) include:
- Bored Ape Yacht Club (BAYC) and their token APE
- Pudgy Penguins focusing on merchandising and cultural influence
- Moonbirds and their token TALON
Our Time
As the crypto market recovers from the bear market, new memes, cultures, ideas, and ecosystems are emerging. Meme coins have been one of the few categories that continued to resonate (volume, market cap growth, social interest) and have recently experienced a surge in interest.
Some recent narratives include:
- The Rise of Ordinals: the integration of NFTs into the Bitcoin ecosystem, leading to the emergence of new meme coins based on Bitcoin.
- The Revival of Old Memes: memes like PEPE have found new life as tokens on modern blockchains.
- New Ecosystems: the emergence of new blockchains focused on meme coins, such as Solana and others.
Common Patterns
- Every cycle has its meme coins: meme coins manifest differently depending on the underlying technology (proof-of-work coins vs. ERC20 vs. NFTs), they are among the earliest "applications" of new technology or form factors.
- The meme came first, the coin after: for the most successful meme coins, such as DOGE, PEPE, and others, the internet meme appeared first, and the coins capitalized on existing awareness and spread.
- Memes arising from crypto are just beginning: crypto natives have started creating memes that successfully transcend Web3 circles. A prime example of this trend is the emergence of crypto-native intellectual property, especially NFT projects like Pudgy Penguins.
- Low price as a meme: since the earliest days of altcoins, users have enjoyed speculating on tokens with low "prices" (due to high supply). There is a psychological appeal that if a token with seemingly insignificant price reaches $1, it could turn holders into millionaires overnight. The price itself serves as a meme.
- Strong community and marketing: meme coins need a strong community, a founder or "spokesperson" who can create content, promote the brand, and spread the "meme."
- Organic launches to dedicated teams: the first wave of meme coins was organic, often fairly launched without internal or team distribution. These organic launches have many advantages but also carry risks such as "rug pulls" and fund theft. An emerging solution is meme coins with dedicated teams interested in launching attention around them, such as PFP projects.
- Strong visual components, derivative images, and slogans spread the meme: images are the primary way memes spread on social media. This often starts with one key character that manifests itself in many different forms.
Investment Opportunities
With a total market capitalization of over $60 billion and daily volume exceeding $13 billion, meme coins hold significant financial value.
Since the sole function of a meme is to spread in the minds of others, catching the next "meme" early can be a lucrative opportunity. Creators and investors "work on the meme," spreading its reach and being rewarded in the process for being early supporters.
Whether it's a lottery ticket to wealth, following the choice of a specific influencer, or speculating on public trends and ideas, meme coins continue to grow rapidly since the inception of cryptocurrency.
Criticism of Meme Coins and Risks
Despite the opportunities, meme coins are not without risks. Many meme coins tend to attract users seeking instant wealth with minimal effort, viewing them as a lottery ticket or a form of gambling.
Another common trend is "rug pulls" and "pump-and-dump" schemes, which occur almost daily on decentralized networks through meme coins. According to a recent report by CipherTrace, a blockchain analytics company, "rug pulls" accounted for 99% of all crypto fraud in 2023, leading to losses of $2.1 billion. It is important to check some key features of a meme coin, such as the status of liquidity tokens (are they burned or held centrally?), team distribution, transfer taxes, and contract renouncement.
There is also a lack of regulatory clarity regarding meme coins. The most notable regulation on meme coins was the Thai SEC's ban on tokens that do not have a "clear purpose or content" and whose prices fluctuate under the influence of social media and influencers in June 2021.
Another serious issue is that memes may not "survive" purely due to a lack of interest, attention, and awareness, rather than any malicious action. These investment losses can create a hostile or apathetic community of holders.
Conclusion
Meme coins represent a unique phenomenon at the intersection of finance, technology, and culture. They reflect our collective interests, humor, and aspirations. While they offer significant profit opportunities, they also carry substantial risks. Understanding the history, mechanisms, and psychology behind meme coins is vital for navigating this dynamic and often unpredictable space.