Solana memecoin frenzy raises questions about crypto utility, reputation

The Solana blockchain is currently outperforming rivals Ethereum, Avalanche and BNB Chain in terms of network activity, growth and adoption — all thanks to the memecoin frenzy that has taken crypto markets by storm.

Over the past month, the Solana blockchain has seen the launch of thousands of new memecoins with billions of dollars in trading volume. Several new memecoins made headlines and rose to new market highs within days, while others grabbed headlines for rugging users and even racism.

Memecoins are digital currencies that derive their name from internet memes and have no practical application outside of being a pop culture reference. These cryptocurrencies are often backed by a strong online community.

Memecoins are not a new concept — during the last bull cycle, memecoins like Dogecoin and Shiba Inu grabbed mainstream attention as their prices soared.

But that was nothing compared to the current memecoin frenzy, which started on Solana and has now spread to several other chains, including Coinbase’s layer-2 platform Base, Binance’s BNB Smart Chain and more.

During the last bull cycle, memecoins grew to new highs over an extended period of time and were primarily fueled by a strong online community.

Dogecoin saw a major push from Tesla CEO Elon Musk, who added DOGE payments to Tesla’s merch store to show his support.

But during the current cycle, memecoins are appearing at unprecedented rates, and tokens barely hours old have amassed millions in trading volume and billions in market capitalization.

The rise of Solana memecoins

According to an April report from CoinGecko, memecoins were the most profitable crypto sector in Q1 2024, recording average returns of 1,312.6% across multiple top tokens by market cap.

Notable gains include BRETT, with a 7,727.6% surge. Dogwifhat (WIF) rose by 2,721.2% over the quarter, while Book of Meme (BOME) briefly surged over 40,000% within days of launching.

BOME was launched on March 14 by pseudonymous artist Darkfarms1 with a market cap of around $4 million.

Within a couple of days of launching, it had reached a market cap of $1.45 billion. Within a week, it was supported by multiple major exchanges, including Binance, Bybit and KuCoin.

Dogwifhat, which launched in November 2023, was among the top 50 cryptocurrencies by market cap by the first quarter of 2024 at nearly $50 billion.

Memecoins distorting crypto’s image

While the Solana memecoin frenzy has made many new crypto millionaires, even more people have lost fortunes chasing the one memecoin that could make them rich.

Furthermore, many new memecoin projects are rug pulls — exit scams in which developers shut down the project and steal the funds they have raised from investors.

Many crypto veterans have warned against investing in memecoins due to their lack of utility and the casino-like atmosphere permeating memecoin markets.

A spokesperson from the research team at crypto exchange Bitrue told Cointelegraph that the market frenzy can “distort the image of cryptocurrencies, potentially undermining their credibility and the broader adoption of blockchain technology.”

“While the influx of new participants and trading volume may initially seem positive, the speculative nature of memecoins raises concerns about the maturity and integrity of the crypto market.”

Proponents believe the memecoin frenzy has attracted a significant number of newcomers to the crypto space and generated substantial profits for some investors.

However, it’s essential to recognize the risks associated with speculative assets like memecoins, as they lack intrinsic value and are highly volatile. While some may profit, many others may incur losses, highlighting the importance of responsible investment practices and education for all participants.

Bitget chief research analyst Ryan Lee believes the rapid rise in the prices of Ether and SOL — the native assets of two major blockchains on which memecoins are launching, Ethereum and Solana, respectively — is one component propelling the memecoin sector upward.

“One significant factor contributing to the surge in these memecoins is their deployment on the ETH and Solana chains, typically priced in ETH and SOL on decentralized exchange platforms. The upward trend in ETH and SOL prices consequently drives the price appreciation of memecoins,” Lee told Cointelegraph.

The Ethereum ICO era-like frenzy

The memecoin frenzy on Solana has seen a trend similar to other crypto market success stories, wherein the blockchain was flooded with dog- and cat-themed memecoins that raked in millions in trading volume, which was followed by popular memecoins based on world leaders such as former United States President Donald Trump and current President Joe Biden.

At the same time, many developers and users are raising money to launch new memecoins via social media. At a time when major crypto firms are struggling to raise funding from venture capitalists, users on X have raised hundreds of millions of dollars within hours in pre-seed funds. However, not all pre-seed projects were launched, as several were rugged.

Observers have compared the memecoin funding frenzy with thousands of new tokens, characterized by scams and no real-world use cases, to the 2017 initial coin offering (ICO) bubble on the Ethereum network.

During the ICO rush, projects raised millions of dollars, only to deliver tokens with little to no use. But even then, there was at least a pretense of offering a genuine product.

During the 2017 ICO boom, Ethereum network’s capacity was tested thoroughly as daily transactions increased 24x within a year.

Similarly, Solana has seen a 2.5x increase in daily active addresses, from around 600,000 on Jan. 1, 2024 to over 1.5 million by the second week of April.

The ugly side of memecoins

While dog- and cat-themed memecoins ruled the Solana blockchain during the peak of memecoin frenzy, a load of tokens containing racist and homophobic epithets was also unleashed.

Some of these tokens were able to garner market capitalizations into the billions of dollars.

The proliferation of these coins saw many from the crypto community call for intervention from Solana developers.

During the Buidl Asia 2024 event, Austin Federa of the Solana Foundation argued that wallet developers should have the right to institute block lists. He added that practically every wallet in every ecosystem filters out “spam NFTs” and “spam tokens.” He said that “users always have the ability to reveal something if they want to, […] but the core network needs to remain permissionless.”

Conversely, Nansen chief data journalist Martin Lee told Cointelegraph that memecoin trends are a function of the crypto market, which is “the most open and free market there is in the world. The ability to create a token and traders being able to actively trade those tokens are all enabled by the benefits of crypto. They’re not inherently good or bad.”

The memecoin frenzy has divided the crypto community. On the one hand, many crypto veterans who have seen these meme cycles believe it paints crypto in a bad light, as most memecoins offer no utility and are effectively gambling.

On the other hand, proponents claim that memecoins are bringing new traders to the crypto world and showcase the values of a free market where anyone can create a token to trade.

Source: https://cointelegraph.com/news/solana-memecoin-crypto-utility-reputation