Solana memecoin debacle raises questions about crypto utility, reputation

The Solana blockchain is currently outpacing 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.

Last month, the Solana blockchain saw the launch of thousands of new memecoins worth billions of dollars. Several new memecoins have made headlines and reached new market highs within days, while others have been accused of malicious users and even racism.

Memecoins are digital currencies that take their name from internet memes and have no practical application other than being a pop culture reference. These cryptocurrencies are usually supported by a strong online community.

Memecoins are not a new concept – during the last bull cycle, memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) grabbed the mainstream attention as their prices skyrocketed.

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 rose to new highs for an extended period and were mainly fueled by a strong online community.

Dogecoin has seen a big push from Tesla CEO Elon Musk, who has added DOGE payments to Tesla's trading store to show his support.

But in the current cycle, memecoins are popping up at an unprecedented rate, and the tokens have accumulated millions of trades and billions in market capitalization within hours.

The rise of Solana memecoins

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

Notable results include BRETT, which is up 7,727.6%. Dogwiffhat (YFF) is up 2,721.2% in the quarter, while Book of Memes (BOME) is up more than 40,000% in just a few days.

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

Within days of its launch, it reached a market cap of $1.45 billion. Within a week, it was supported by several major exchanges, including Binance, Bybit and KuCoin.

In the year Launched in November 2023, Dogwift is one of the top 50 cryptocurrencies with a market capitalization of nearly $50 billion in the first quarter of 2024.

Memecoins distorts the image of crypto

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

Additionally, many new memecoin projects are scams – where developers shut down the project and steal the money they've raised from investors.

Many crypto veterans have warned against investing in memecoins because of the lack of resources and the casino-like atmosphere that permeates the memecoin markets.

A spokesperson for the research group at crypto exchange Bitrue told Cointelegraph that the market turmoil could “distort the image of cryptocurrencies, which could undermine their credibility and the widespread adoption of blockchain technology.”

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

Proponents believe that memecoin's frenzy has attracted a large number of newcomers to the cryptocurrency space and has resulted in huge profits for some investors.

However, it is important to be aware of the risks associated with speculative assets such as memecoins, as they have no intrinsic value and are highly volatile. While some may make profits, others may incur significant losses, highlighting the importance of responsible investment practices and education for all involved.

Bitget's chief research analyst Ryan Lee believes that the rapid increase in the price of Ether (ETH) and SOL (SOL) – the native assets of the two main blockchains on which memecoins are launched, Ethereum and Solana, respectively – is one factor that is driving the memecoin sector. up.

“An important factor contributing to the rise of these memecoins is that they are deployed on the ETH and Solana chains, typically the value of ETH and SOL decentralized exchange platforms. The upward trend in the prices of ETH and SOL will therefore drive the price appreciation of memecoins,” Lee told Cointelegraph.

The Era of Ethereum ICO-Like Madness

The memecoin frenzy on Solana followed a trend similar to other success stories in the crypto market, where the blockchain was flooded with dog- and cat-themed memecoins that garnered millions of transactions, followed by popular memecoins based on world leaders. Former US President Donald Trump and current President Joe Biden.

At the same time, many developers and users are raising money to launch new memecoins through social networks. At a time when major crypto companies are struggling to raise funding from venture capitalists, X users have raised hundreds of millions of dollars in early seed funding within hours. However, not all pre-seed projects have been launched as many of them have been disrupted.

Observers have compared memecoin's funding frenzy to thousands of new tokens being scammed and unusable in the real world during 2017's initial coin offering (ICO) on the Ethereum network.

During the ICO rush, projects raised millions of dollars, only to deliver useless tokens. But even then, it was at least a pretense of offering a real product.

During the 2017 ICO boom, the capacity of the Ethereum network was thoroughly tested as daily transactions increased 24x in one year.

Similarly, Solana saw a 2.5x increase in daily active addresses, from around 600,000 on January 1, 2024 to more than 1.5 million by the second week of April.

The ugly side of memecoins

During the memecoin frenzy, several signs containing racist and homophobic symbols were also released, with dog and cat-themed memecoins buying up Solana's blockchain.

Some of these tokens have achieved market capitalizations in the billions of dollars.

The proliferation of these coins has prompted many from the crypto community to call for intervention from Solana's developers.

During the Buidl Asia 2024 event, Solana Foundation's Austin Federa argued that wallet developers should have the right to establish block lists. He added that every wallet in every ecosystem filters out “spam NFTs” and “spam tokens”. “Users always have the ability to reveal something if they want to,” he said. […] But the main network should remain unlicensed.

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On the contrary, Nansen's 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 in the world. The ability to create tokens and the ability for traders to actively trade those tokens are all enabled by the benefits of crypto. They're inherently good or bad.” They are not.

The memecoin frenzy has paid off the crypto community. On the one hand, many crypto veterans who have seen these meme cycles believe that they paint cryptos in a bad light, as most memecoins serve no purpose and are effectively gambling.

On the other hand, supporters say that memecoins are bringing new traders into the world of crypto and show the values ​​of a free market where anyone can create a token to trade.