The history of memecoins dates to 2013, when two software engineers created Dogecoin (DOGE) over the course of just 3 hours. The new cryptocurrency was based on one of the most famous Internet memes of the 2010s—an image of a Shiba Inu dog often paired with funny expressions written in Comic Sans font. Dogecoin was intended purely as a joke, but an eager crypto community quickly embraced it.
Other memecoins have since cropped up, especially during crypto bull markets. Memecoins often contain references to internet memes (like Dogecoin or Pepe) and some have even gained mainstream recognition thanks to repeated attention from celebrities and influencers. While Dogecoin has its own proof of work blockchain, most other memecoins are designed as tokens on a smart contract-capable blockchain like Ethereum (as ERC-20 tokens) or Solana (as SPL tokens) where the process to create a new token has become relatively simple.
Further, because memecoins are often designed without inherent utility, trading them is largely speculative. Because of this, the memecoin sub-market is notably volatile and carries more risks when compared to the rest of the market.
Types of memecoins
There are numerous categories of memecoins, but they can be both nebulous and overlapping. However, for the sake of providing a general framework for these assets, the following are broad classifications:
- Internet meme coins/tokens – The first of these was Dogecoin, but another example is PEPE, based on the Pepe the Frog meme, which gained popularity in 2023.
- Dog-themed tokens – Following Dogecoin’s popularity, other tokens were created to capitalize on the crypto community’s clear appetite for dog-themed tokens. The most popular of these is Shiba Inu (SHIB), and later additions include FLOKI (named after Elon Musk’s own Shiba Inu dog) and Samoyedcoin (SAMO).
- Tokens based on other memecoins – Although the dog-themed tokens are casual references to each other—and ultimately to Dogecoin—some memecoins directly refer to other memecoins. For instance, Doge Killer (LEASH) and ShibaSwap’s BONE are tokens that relate to SHIB’s ecosystem. Others tag the “2.0” label onto existing tokens with the hopes of gaining a following from the original community.
- Pop culture tokens – As advances in artificial intelligence (AI) were highlighted in 2022, multiple AI-themed memecoins were created. Similarly, tokens with names referencing notable current and/or historical figures like Elon Musk and Jesus have garnered waves of recognition. In 2023, news of a possible new superconductor dubbed LK-99 sparked the creation of multiple “superconductor” and “LK-99” memecoins.
Memecoin value and risks
Memecoins gain traction by relying on current events, social (and conventional) media attention, and the willingness of traders to speculate on their price. This differs from more established cryptocurrencies like Bitcoin and Ethereum which boast use-cases directly at launch and are constantly developed through community input. However, it is important to acknowledge that some memecoins have later developed DeFi ecosystems or other use-cases, notably seen with Shiba Inu.
Therefore, while other cryptocurrencies are theoretically valued according to their utility, the true value of memecoins is less clear. This results in high price volatility, with significant swings during both bull and bear markets. Volatility is further augmented by low liquidity, as fewer traders participate in the memecoin market, and memecoins are typically underrepresented on both centralized and decentralized exchanges. Therefore, small groups buying or selling memecoins can create outsized price movement.
There are several types of cryptocurrency scams that are more prominent when trading memecoins. One of these scams is a rug pull, which occurs when founders hold a large portion of a memecoin’s supply and then sells (or “dumps”) them on the market after hype has driven up its price. They can make large profits while leaving holders of the token with digital assets that have depreciated significantly.
The combination of limited practical use cases, difficulty in valuation, high volatility, illiquidity, and the risk of rug pulls makes memecoin trading particularly speculative.
- Memecoins are cryptocurrencies based on Internet memes and other popular topics; they draw traders’ attention by subject matter and the potential for quick profits rather than utility.
- The original memecoin was Dogecoin, but the memecoin space has expanded to other meme-inspired tokens, more dog-themed tokens, “meta” tokens based on other memecoins, and those referencing pop culture phenomena.
- Memecoins are often highly volatile assets that trade in low-liquidity markets and are at particularly high risk of rug pulls, making it important to consider the risks before trading them.