And why you should stay away from them!
“What’s the difference between a meme token and a regular token? How do you tell the difference?”
That was the question a reader had left on an article I had written about the infamous Squid Game Token heist — a cryptocurrency scam that was built on top of a popular cultural phenomenon.
What is a meme coin or meme token in cryptocurrency?
To answer the question directly: Meme tokens are primarily defined by their modus operandi of viral marketing. In this article, we look at six characteristics that all meme tokens share to help you identify one.
First, we need to have a rough idea of what we mean by meme tokens.
According to Investopedia,
As their name suggests, meme coins are inspired by a joke or a silly take on other well-known cryptocurrencies. They typically gain popularity in a short period of time, often hyped online by prominent crypto influencers and retail investors attempting to exploit short-term gains. — Altcoin Investing: What Investors Need to Know (investopedia.com)
Technical Note: In this article, the focus is on meme tokens. Although Dogecoin is probably the most famous meme cryptocurrency, technically, Dogecoin qualifies as a meme coin. The main difference between coins and tokens is simple. Coins have a native blockchain, and tokens do not. However, from a practical point of view, there is not much difference, and the terms are sometimes used interchangeably.
CoinMarketCap has a separate list for meme tokens and you can see it here: Top Memes Tokens by Market Capitalization | CoinMarketCap
We can identify a meme token using six clues. Note that this list is a guideline; a meme token does not need to fulfil all criteria to be considered a meme token, and there are always exceptions.
#1 Virality is the hallmark of a meme token.
To understand what a meme token is, you need to understand what a meme is. The concept of a meme was created by biologist Richard Dawkins in 1989 (cited in Wikipedia). He wanted to extend the idea of genes in life to the realm of culture and behavior, and the word he came up with was “meme” — A basic unit of culture that is copied and transmitted.¹
The idea is this: Memes are units of culture that spread.
Like a virus. It’s a very apt metaphor for our times. And because virality is the hallmark of meme tokens, they can gain popularity in a very short period.
#2 The “concept” or the “brand” behind the token is usually based on popular culture or a silly-sounding name
This is related to #1. Since virality must be the driver of meme tokens, the brand or the face of the token needs to be cute, funny, and memorable. In some cases, meme tokens are themselves jokes of existing meme tokens.
- Shiba Inu (a dog-themed token that apparently made someone a lot of money; inu means dog in Japanese)
- Dogelon Mars (Dogecoin + Elon + Mars… you see where this is going?)
- DogeBonk (what a name)
- Floki Inu (inspired by Elon Musk’s Shiba Inu named Floki… are you seeing a pattern here?)
- Kitty Inu (Kitty Inu means “cat-dog” — what a name for a meme token)
- CumRocket (an “adult-oriented” crypto-project, think of it as OnlyFans meets cryptocurrency)
- LoserCoin (really?)
#3 Social media is the key medium to drive hype and virality
Meme tokens achieve virality through social media promotion, and often collaborating with influencers. I have written at length about influencers promoting various cryptocurrency tokens on social media, and will not go into detail here.
Some of the promotional channels meme token promoters use include Twitter, Instagram, Discord “raids”, and others too many to list.
The marketing is so powerful because the token holders are incentivized to help promote it. Anonymous promoters use affiliated accounts on social media to generate buzz and hype and encourage new people to buy in.
DogeBonk prides itself on the fact that the community is “constantly organizing raids, designing memes and doing marketing.”
#4 They are usually traded only on decentralized exchanges (DEXs) like Pancake Swap or Uniswap
Although this is not always the case, it is quite common for meme tokens to be traded only on DEXs, and usually not listed on centralized exchanges (CEXs).
Generally, CEXs have more regulatory oversight and are more reluctant to list meme tokens. There are exceptions — CEXs like Gate.io, an unregulated exchange, tend to be more lenient to listing meme tokens. Exchanges make fees off trading, so the more tokens with trading volume they can list, the better for their topline.
In contrast, anyone can list tokens on DEX by creating a liquidity pool — no permission is required — this is referred to as “permissionless-ness” in DeFi. For more information on liquidity pools, read this:
Permissionless-ness, of course, is a double-edged sword. Uniswap, the most well-known DEX on Ethereum is full of dodgy tokens. One academic study even found that 50% of tokens listed on Uniswap are scams.
Pancake Swap is no better, having been home to several scams in 2021, including the Squid Game Token. This token initially appeared to position itself as a meme token based on the wildly popular Netflix show, but later turned out to be a scam).
Not all meme tokens are scams, but there have been a lot of cases of “rug pulls” where developers removed liquidity from markets and made off with investor money.
Since a creator of a meme token can mint all of the tokens all at once for a marginal amount, and then list it on DEXs, it is an excellent vehicle for crypto-criminals.
To avoid rug pulls, check out this helpful article:
#5 The development team openly admits that their project is a meme token, or use language to that effect
Floki Inu Token describes itself as “the people’s cryptocurrency” and that it combines the “power of memes with real utility and charitability”.
The website highlights the number of followers reached via the influencer network is highlighted as a selling point. Recall point #3: Social media is the key medium to drive hype and virality.
Another example of a meme token that declares itself to be one is Million Token, created in 2021 by the YouTuber TechLead.
Million Token literally calls itself a meme coin on the official website!
🌕 The Web 3.0 memecoin (“King of the Jungle of dog coins”)
Fully Web 3.0 capable, Million is a multi-chain currency supported across 6+ different blockchains leveraging modern technologies. Unlike first-gen memecoins (like Dogecoin or Shiba), Million is serious about supporting smart-contracts, DeFi, staking, NFTs, DAOs, Proof-of-Stake high scalability, fast transactions, and the gaming metaverse.
#6 Marketing is the use case of meme tokens
Many tokens in cryptocurrency owe their reason of being to a claimed attempt to solve a problem (within the cryptocurrency world).
For example, a stablecoin like USDC (USD Coin), is an attempt to solve the problem of volatility in the cryptocurrency markets and bridge the burgeoning crypto-ecosystem with the world of traditional fiat currency. It does this by introducing a token that pegged to the US dollar.¹
While non-meme tokens at least claim to solve an existing problem, a meme doesn’t necessarily have to solve one. In fact, it doesn’t even doesn’t pretend to solve a problem. The marketing is what is being sold.
Let’s look at the example of Kitty Inu. If you go to the website, you will see a cute website. It’s decked out in a deep coral background and features a cute mascot as the brand logo.
The story of Kitty Inu reads:
In the year 2021, The Shiba Inus took over the cryptoverse, threatening a world in which Kitties once reigned supreme.³ Kitty Inu, returns to take back her rightful place in the Inuverse, and establish a new era called the Kittyverse.
Join Kitty on the journey.
If this sounds more like a brand story that you might expect out of a streetwear brand, you might be on to something.
For a more technical discussion of the various types of cryptocurrencies, and how tokens fit into the overall landscape, the following article provides a very good general overview without getting too complicated. While also letting you dive into the technical details if you are interested.
Meme tokens are not a specific class of tokens. Rather, what makes a meme token is the element of deliberate viral marketing and the lack of a real purpose.
What about non-fungible tokens (NFTs)?
Non-fungible tokens are a separate class of tokens that are unique and are not interchangeable for one another. Here is a commonly used definition of an NFT, quoted directly from Ethereum.org:
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain³ — no one can modify the record of ownership or copy/paste a new NFT into existence. Non-fungible tokens (NFT) | ethereum.org
However, the devil is in the details, and even the very simple explanation on Ethereum.org glosses over a major detail, which I have explored elsewhere: NFTs Have Been Totally Misunderstood by Everyone — Even the Advocates
Viral marketing lies at the core of meme tokens. Putting aside the question of whether meme tokens are a legitimate investment, from a marketing standpoint, meme tokens are giving viral marketers a run for their money.
Are meme tokens “pure brands”?
Could meme tokens represent a new type of decentralized marketing organization? Are they a new kind of tokenized community with the brand power to mobilize people?
Could companies actually work with meme tokens through collaborations? We already have virtual influencers, so the idea of brands collaborating with meme tokens is perhaps not too far-fetched.
Are meme tokens social tokens 1.0?
Are current meme tokens the first iteration of what former Goldman Sachs hedge fund manager Raoul Pal refers to as social tokens? Many meme tokens are trying to reposition themselves as community tokens or social tokens.
All of them are suddenly making to the Metaverse, selling NFTs, and talk about offering NFT-gaming and a whole bunch of other fancy things. It’s a big experiment out there.
Are meme tokens a kind of Ponzi scheme?
Since meme tokens are all about marketing and getting people to buy in without offering a tangible product (at least for now), they sound dangerously very much like a Ponzi scheme. Worse, many meme tokens have turned out to be scams.
Are meme tokens actually just securities?
According to the United States SEC’s definition of a security, meme tokens might actually be classified as being an investment contract — a type of security.
under the Howey test, an ‘investment contract’ exists if there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others
The SEC goes on to state,
Based on our experiences to date, investments in digital assets have constituted investments in a common enterprise because the fortunes of digital asset purchasers have been linked to each other or to the success of the promoter’s efforts.
Given that meme tokens are all about promotion, and buyers only profit from the viral marketing of said tokens, meme tokens might actually be classified as securities.
Regulators around the world are starting to go after cryptocurrency. When regulators start going after meme tokens — if they do — then, the meme token market is most likely going to dump hard.
Case-in-point: Thailand’s SEC has already started to do so. In 2021, the regulator ordered cryptocurrency exchanges to delist meme coins/tokens, as well as NFTs and social tokens.
The cryptocurrency world is just getting started and it’s still difficult to predict where all of this is headed. Amara’s law tells us that we often over-estimate the effect of new technologies in the short term and underestimate the effect in the longer term.
Time will tell where meme tokens will go, but meanwhile, extreme caution is advised. I am certain a lot of them will turn out to be worthless. Like Pets.com during the Internet bubble.
Whatever happens, I expect that huge fortunes will be made and lost.
Disclaimer: This is not financial advice or legal advice. Please do due diligence and consult a financial and/or legal professional before trading in any digital and/or non-digital assets.Disclosure: At the time of writing, the author is a holder of several cryptocurrencies, including the meme token Million Token, mentioned in this article, which gives him unique insight into how a meme token operates. He doesn't expect anything out of it because he knows it's a gamble. Obviously, this is not a recommendation to buy Million Token.
The author writes on a variety of topics. His key topics are Japan, society, culture, modern work, and cryptocurrency, with the occasional fictional story, creative piece, or reflective essay. Discover his most-read stories here.
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