What Are Meme Coins?
Home
Articles
What Are Meme Coins?

What Are Meme Coins?

Beginner
Published Nov 15, 2021Updated Jul 11, 2024
13m

Disclaimer: This article is for educational purposes only. Binance has no relationship to these projects, and there is no endorsement for these projects. The information provided through Binance does not constitute advice or recommendation of investment or trading. Binance does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks.

Key Takeaways 

  • Meme coins are meme-inspired cryptocurrencies that tend to be more volatile than major cryptocurrencies, like bitcoin (BTC) and ether (ETH). 

  • Meme coins generally gain popularity due to their low prices, community-driven nature, active marketing through social media, and endorsements from high-profile figures.

  • Meme coins carry significant risks due to their often inflationary tokenomics, high volatility, and a high potential for rug pulls.

Introduction

Meme coins are a significant part of the cryptocurrency market and are known for their rapid and unpredictable price movements. They are often inspired by internet memes and jokes, gaining popularity through social media and online communities. In this article, we will explore what meme coins are, why they have gained such popularity, and the potential risks associated with them.

What Are Meme Coins?

Meme coins are cryptocurrencies inspired by memes or jokes on the Internet and social media. The first meme coin was Dogecoin (DOGE). Launched in 2013 as a parody, DOGE was inspired by the popular Doge meme of a Japanese Shiba Inu named Kabosu.

Meme coins tend to be highly volatile. They are mainly community-driven and can gain popularity overnight due to online community endorsements and FOMO. Still, their price can also crash unexpectedly when traders turn their attention to the next meme coin.

Another typical characteristic of meme coins is their huge or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1 quadrillion tokens, while DOGE has no maximum supply. As meme tokens generally do not have a coin-burning mechanism, the huge supply explains their relatively low prices.

During the COVID-19 pandemic, the crypto market grew as retail investors looked for ways to hedge against inflation. Amidst the hype, meme coins boomed, increasing in both market capitalization and variety. The phenomenon gained momentum after the "meme stock" saga involving GameStop (GME) and AMC Entertainment (AMC), where the Reddit community significantly boosted the prices of these assets. 

Inspired by this, people started joking about pumping the price of Dogecoin (DOGE) to create a crypto equivalent of GME. This trend, coupled with endorsements from high-profile figures like Tesla CEO Elon Musk, led to a significant rally in DOGE's price. 

The excitement around meme coins was further fueled when traders started exploring other meme coins like Shiba Inu (SHIB), hoping to replicate the success of DOGE. Retail investors were drawn to meme coins because they are typically very affordable, often costing just a few cents or even fractions of a cent. This allows traders to hold thousands or even millions of tokens, which feels different from holding fractions of major cryptocurrencies like ETH or BTC. 

The meme coin frenzy is also driven by community and market sentiments. Meme coins are inspired by popular internet memes and are intended to be fun, often serving as "insider jokes" for their communities. Buying meme coins can be seen as a way to show support for these communities.

The institutionalization of meme coins significantly boosted their popularity in 2024. A key development was the launch of a meme coin index by VanEck, which tracks the six largest meme coins by market cap (DOGE, SHIB, PEPE, WIF, FLOKI, and BONK as of May 2024). 

The VanEck meme coin index increased the visibility of meme coins and is serving as a benchmark in the asset management industry, encouraging funds to try and outperform it. In addition, the inclusion of meme coin tickers on channels like Bloomberg helped spread information about meme coins and attract more trading activity.

What Do Meme Coins Mean for the Crypto Community?

Many meme coins, such as Dogecoin (DOGE), were launched with a fair distribution model, meaning they were available to the public without premining or significant early allocations to project founders. This aligns with the views of many cryptocurrency enthusiasts who value open access and community-driven growth. The decentralized nature of these launches fosters a sense of ownership and participation among the community.

However, not all projects follow the same principles. Some meme coins are premined, where a significant portion of the tokens is allocated to the creators or early investors before public distribution. This often leads to concerns about transparency and fairness, as it might allow a few individuals or groups to control a substantial portion of the coin's supply. For example, coins like Shiba Inu (SHIB) have seen mixed reactions due to the allocation strategies used by their creators.

Decentralized meme coins tend to be viewed more favorably by the community, as they embody the principles of decentralization and community involvement that are foundational to the crypto movement. Conversely, centralized meme coins often face criticism due to the potential risks of manipulation and unfair practices.

Potential Risks of Investing in Meme Coins

Tokenomics

First of all, the tokenomics of meme coins can be concerning. For instance, Bitcoin has its blockchain, a well-written whitepaper, an established ecosystem, and is deflationary. 

In contrast, most meme coins are inflationary and have no maximum supply. Their ecosystem, use cases, and fundamentals are often defined by the collective jokes of their communities.

Volatility 

Meme coins are heavily community-driven and are generally more volatile compared to bigger market capitalization cryptocurrencies. Their prices can randomly surge from celebrity shilling or FOMO, or unexpectedly crash when the community decides to move on to the next meme coin.

Rug pulls

Rug pulls are a significant risk in the meme coin market, where developers abandon the project and disappear with investors’ funds. Unfortunately, this type of scam is very common and has occurred many times throughout the years.

Examples of Meme Coin Rug Pulls

Below are some examples of meme coin rug pulls.

  • SQUID: a 2021 meme coin inspired by the popular Netflix show of the same name, gained sudden traction due to the popularity of the show. However, the development team rug-pulled the project, causing users to lose their funds.

  • BALD: In July 2023, the BALD meme coin experienced a rug pull when the developer pulled all liquidity from the coin on Coinbase’s Layer-2 Base network, causing the token's value to plummet to zero​.

  • MetaSwap: In early 2024, the MetaSwap token experienced a rug pull, leading to substantial losses for investors. The developers suddenly withdrew liquidity, leaving investors with worthless tokens.

  • URF: In March 2024, the team behind the URF meme coin vanished after a $450,000 presale, leaving investors with worthless tokens. Promoted by boxer and social media influencer Bryce Hall, the team disappeared within 24 hours of the launch.

How to Reduce Risks When Investing in Meme Coins?

Investing in meme coins can be highly speculative and risky due to their volatility and community-driven nature. However, there are strategies you can use to reduce these risks:

  1. Do your own research (DYOR): before investing in meme coins, it’s important to research about the project. Whenever possible, check the team behind the project, their goals, whitepaper, roadmap, and overall community sentiment.

  2. Understand the tokenomics: Pay close attention to the supply dynamics of the meme coin. Coins with unlimited or extremely high supplies can face inflationary pressures, potentially leading to devaluation. Understanding the token distribution and any mechanisms like burning or staking can also provide insights into the coin's long-term viability.

  3. Diversify your portfolio: Avoid putting all your funds into a single meme coin. Diversification can help spread risk across various assets. Consider balancing your investment portfolio with more established cryptocurrencies, such as bitcoin (BTC), ether (ETH), SOL, and BNB.

  4. Stay informed: Meme coins are heavily influenced by social media trends and news. Keep an eye on the latest developments and updates related to your investments. You can use tools like Google Alerts, join relevant social media groups, and follow influential figures in the cryptocurrency space.

  5. Set stop-loss orders: Consider using stop-loss orders to automatically sell your meme coins in case the price goes below a certain level. Stop-loss orders can protect you against significant losses.

  6. Avoid impulsive decisions: Only invest what you can afford to lose and avoid impulsive decisions led by emotions like FOMO (fear of missing out). The hype surrounding meme coins can lead to impulsive buying decisions. Take a step back and evaluate whether the investment makes sense based on your research, rather than getting caught up in the excitement.

How to avoid meme coin rug pulls?

  1. Check the liquidity: A healthy liquidity pool is essential for the stability of any cryptocurrency. Ensure the meme coin you are interested in has locked liquidity, meaning the developers cannot easily withdraw the funds. Services like Unicrypt can be used to check liquidity lock status.

  2. Examine the smart contract: If you have the technical know-how, review the project's smart contract. Look for red flags, such as functions that allow developers to mint unlimited tokens or transfer large amounts of funds. Alternatively, seek out third-party audits from reputable security firms like CertiK or Hacken.

  3. Check the team: An anonymous team can be a red flag. While anonymity is common in the crypto world, it can also be used by scammers to disappear without a trace. Look for projects with transparent and credible teams who have verifiable track records in the industry.

  4. Assess community engagement: A strong and active community can be a sign of a legitimate project. Engage with the community on platforms like Discord, Telegram, or Twitter to gauge their sentiment and activity. Be wary of projects with fake followers or an unusually high amount of shilling.

  5. Check the project’s roadmap: Legitimate projects usually have a detailed roadmap outlining their development goals and timelines. Compare the roadmap with the project's actual progress to see if they are delivering on their promises. Projects that make unrealistic promises or frequently delay milestones may be suspect.

  6. Look for red flags: Be cautious of projects that heavily rely on hype and celebrity endorsements without offering substantial information about their technology or use case. High-pressure tactics, such as limited-time offers or guaranteed returns, are often signs of a scam.

By following these guidelines and maintaining a healthy level of skepticism, you can better navigate the meme coin landscape and avoid potential scams like rug pulls. Always remember that investing in cryptocurrencies, especially meme coins, carries significant risk, and it’s essential to only invest money that you can afford to lose.

As of June 2024, the total market capitalization of meme coins is roughly $63 billion. The top 6 meme coins are DOGE, SHIB, PEPE, WIF, BONK, and FLOKI – according to CoinMarketCap data.

Dogecoin (DOGE)

Dogecoin (DOGE) was created in 2013 by software engineers Billy Markus and Jackson Palmer. It was inspired by the meme of a Shiba Inu dog and was intended to be a joke cryptocurrency to attract mainstream attention. As a fork of Litecoin (LTC), DOGE adopts the same Proof of Work (PoW) mechanism and has no maximum supply. 

For a more comprehensive overview of DOGE, check out What Is Dogecoin?

Shiba Inu (SHIB)

Shiba Inu (SHIB) is the rival of DOGE and is often referred to as the “Dogecoin killer”. SHIB is also named after a Japanese dog breed. It was created by an anonymous developer named Ryoshi in August 2020. The main difference between DOGE and SHIB is that the latter has a limited supply of 1 quadrillion tokens, of which 50% were burnt and donated to charity. SHIB’s ecosystem also includes a decentralized exchange, an NFT art incubator, NFTs, and an NFT game.

To learn more about SHIB and its ecosystem, check out What Is Shiba Inu (SHIB)?

Pepe (PEPE)

Pepe (PEPE) is a meme coin inspired by the popular internet meme character Pepe the Frog. Launched in April 2023, PEPE has quickly gained popularity due to its humorous and nostalgic appeal to internet culture enthusiasts. PEPE has a circulating supply of 420 trillion tokens.

Dogwifhat (WIF)

Dogwifhat (WIF) is a meme coin that has garnered significant attention since its launch in late 2023. Unlike some meme coins that pivot towards utility, Dogwifhat remains purely a meme-centric token.

FLOKI (FLOKI)

FLOKI (FLOKI) is a meme coin inspired by Elon Musk’s Shiba Inu dog. Launched with the vision of merging memes with real-world utility, FLOKI has developed into a project with an ecosystem that includes NFT marketplaces, NFT collections, and staking.

Bonk (BONK)

Bonk (BONK) is a dog-themed meme coin on the Solana blockchain. Launched in 2022, BONK gained attention after 50% of its total supply was airdropped to the Solana community.

Milady Meme Coin (LADYS)

Milady Meme Coin (LADYS) was launched in May 2023. Inspired by the Milady NFT collection, LADYS aims to combine meme coins with the growing popularity of NFTs. The total supply of LADYS is 888 trillion tokens.

How to Buy Meme Coins

You can buy the more popular meme coins, such as DOGE, SHIB, PEPE, and WIF, on cryptocurrency exchanges like Binance. For less prominent meme coins, you can go to decentralized exchanges. Let’s take DOGE as an example.

1. Log in to your Binance account. Then, head to [Trade] at the top bar to select the Spot market page.

2. On the right side of the screen, type “DOGE” on the search bar to see a list of the available trading pairs. We will use DOGE/FDUSD as an example. Click “DOGE/FDUSD” to open its trading page.

3. Scroll down to the [Spot] box and select the preferred order type. We will use a market order in this example. Enter the amount of DOGE you want to buy and click [Buy DOGE] to confirm the order. When the order is filled, you will see the DOGE you purchased in your Binance Spot Wallet.

Closing Thoughts

With new meme coins entering the market every day and traders hoping to replicate the profits posted by DOGE and SHIB, it’s important to DYOR before committing to any meme coins. Keep in mind that meme coins are highly volatile compared to other digital currencies. Trading or investing in cryptocurrencies involves high risk. Meme coins are largely community-driven and might crash unexpectedly, so you should never invest what you cannot afford to lose.

Further Reading

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.