DeFi

Meme Coin Mania

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By: Tanay Ved & Matías Andrade

  • The whole market capitalization of meme cash at the moment stands at $60B, with a rising presence throughout Layer-1 networks like Ethereum, Solana and Layer-2’s like Base

  • In March, meme cash recorded $13B in spot buying and selling volumes (7-day common) on exchanges, eclipsing main blue-chip crypto property like Ethereum (ETH) and Solana (SOL)

  • The excessive focus of property amongst holders for meme cash highlights a big focus of property amongst a couple of holders, posing dangers resembling potential market manipulation and liquidity points.

Memes type an integral a part of human tradition, reworking and adapting by varied mediums over time. The time period “meme” was coined by a British evolutionist Richard Dawkins in his seminal 1976 e-book “The Selfish Gene,” describing a meme as a unit of cultural transmission—together with “tunes, ideas, and catch-phrases”—emphasizing their similarity to genes in organic evolution.

The propagation of memes has developed considerably all through historical past, influenced by social, cultural, and technological modifications. In historical occasions, folks tales and spiritual symbols served as early types of memes, shared orally or by manuscripts. Throughout World Conflict II, the graffiti meme “Kilroy was here” grew to become standard, symbolizing the presence of American troopers. Within the digital age, memes have discovered new carriers within the type of viral movies and picture macros like “Doge,” diffusing quickly by the web and social media platforms, permitting cultural concepts to unfold extra broadly than ever earlier than.

Source: Wikipedia

Not too long ago, memes have additional expanded into phenomena resembling meme shares, exemplified by GameStop’s dramatic surge in worth on account of collective efforts on on-line boards like Reddit’s /r/wallstreetbets. Equally, meme cash like Dogecoin and Pepe have garnered great mindshare within the crypto-asset world, leveraging blockchains and on-chain communities to create types of digital worth. Memes are inherent to human nature, reflecting our craving for connection and a way of belonging by shared concepts.

On this week’s situation of Coin Metrics’ State of the Community, we purpose to carry some context into the surge of meme coin exercise on networks like Ethereum and Solana, highlighting key market tendencies pushed by the meme coin sector.

Because the introduction of Dogecoin in 2013, the meme coin sector has expanded tremendously, ballooning to a complete market capitalization of $60B as of June 2024. The sector is characterised by crypto-assets representing acquainted animals, characters and most just lately political figures with components of humor to draw consideration and drive community-driven engagement. Their development stems from extremely speculative nature, pushed largely by market sentiment fairly than intrinsic worth.

Source: Coin Metrics Network Data Pro & Coin Metrics Labs

(Observe: Solana meme cash and different SPL tokens might be launched quickly as an extension to Solana Community Knowledge)

Probably the most worthwhile meme cash right this moment embrace Dogecoin (DOGE), which operates as a standalone Proof-of-Work blockchain, and ERC-20 tokens like Shiba Inu (SHIB) and Pepe (PEPE), rising to over $100B in market worth in 2021. Not too long ago, Solana has been a hotbed for meme cash with a number of Solana Program Library (SPL) tokens being deployed on account of low transaction charges, a rising ecosystem and ease of token creation by platforms like pump.enjoyable, fueling the rise of meme cash like dogwifhat (WIF) and Jeo Boden (BODEN).

Source: Coin Metrics datonomy™ & Coin Metrics Labs

The meme coin sector has seen notable outperformance in comparison with different sectors of the crypto-asset ecosystem, as coated by Coin Metrics’ datonomy classification. Meme cash have showcased power relative to main blue-chip crypto property and likewise outpaced the Data Know-how sector, which gained floor from developments on the intersection of decentralized compute and synthetic intelligence (AI) functions. 

That is notably evident from October 2023 into 2024, with meme cash averaging 740% returns as of June. This has additionally fueled the expansion of meme coin indexes, such because the GMCI Meme Index, reflecting efforts to quantify the sectors efficiency. Regardless of being related to speculative phases of market cycles, this efficiency is reflective of the latest development in mindshare of this sector, amongst each retail and institutional investors.

Rising consideration across the meme coin sector has additional pushed exercise in digital asset markets. Whereas buying and selling volumes have typically moved in tandem with the broader market, in March, meme cash recorded $13B in spot buying and selling volumes (7-day common) throughout centralized exchanges, even eclipsing main property like Ethereum (ETH) and Solana (SOL). Decentralized exchanges (DEXs) additionally play a vital function within the meme coin ecosystem, offering important infrastructure for pool creation and asset buying and selling, fostering liquidity and accessibility for a variety of customers.

Source: Coin Metrics Market Data Feed

When considered by the lens of relative buying and selling volumes, the affect of older meme cash like DOGE and SHIB appear to be waning, whereas PEPE and a set of recent Solana meme cash have gained recognition, representing over 50% of buying and selling quantity collectively. This displays the latest investor choice in the direction of newer memecoins, stemming from rising communities, blockchain ecosystems and the potential for greater returns. Regardless of this, the liquidity and longer observe file of incumbent meme cash stays a big issue for potential buyers.

Source: Coin Metrics Market Data Feed

Equally, excessive futures open curiosity underscores their vital market presence and signifies heightened speculative buying and selling exercise. Open curiosity for DOGE reached a file $1.8B just lately, whereas open curiosity for PEPE spiked by almost 50% to $850M in Could. This surge in open curiosity, collectively reaching over $3B, factors to elevated worth volatility and highlights that buyers are progressively leveraging futures positions to hedge their publicity to meme cash. Preserving observe of open curiosity stays one of many basic instruments to know the flows of speculative capital, particularly in risky devices which could be indicative of shifting market curiosity or harbinger of liquidations.

Source: Coin Metrics Market Data Feed

Whereas the market presence and consumer development of meme cash have risen in tandem, it is necessary to notice the dangers related to the sector. The Gini coefficient is a measure of revenue or wealth distribution inside a inhabitants, starting from 0 (good equality) to 1 (maximal inequality). Within the context of meme cash, the Gini coefficient can be utilized to evaluate the distribution of token holdings amongst completely different addresses.

Excessive focus of token possession will increase the chance of market manipulation. Giant holders, also known as “whales,” can considerably affect the token’s worth by shopping for or promoting massive quantities without delay, creating bouts of volatility. Moreover, if a couple of addresses maintain many of the tokens, it could result in liquidity points, which could be exacerbated by focus within the provision of liquidity by addresses managed by few entities throughout decentralized exchanges. 

Source: Coin Metrics Network Data Pro & CM Labs

The excessive Gini coefficient of ~0.8 for these meme cash highlights a considerable centralization of token holdings. This centralization poses varied dangers, together with potential market manipulation, liquidity points, and investor warning, all of which needs to be fastidiously thought of when evaluating these tokens. Earlier than contemplating any investments into the memecoin sector, understanding these dynamics is essential for assessing the soundness and potential dangers related to these digital property.

The meme coin sector has demonstrated vital development and affect throughout the cryptocurrency market, discovering a powerful foothold on blockchains as a result of viral nature of memes and their ease of propagation. The sector’s sturdy efficiency, alongside Bitcoin because the launch of spot ETFs, underscores its rising enchantment amongst each retail and institutional buyers. Nonetheless, the excessive Gini coefficient of ~0.8 signifies a considerable centralization of token holdings, posing dangers resembling market manipulation and liquidity points, along with a level of volatility that’s insupportable for many buyers. Because the sector continues to evolve, understanding these dynamics is essential for assessing the evolution and potential dangers related to meme cash.

Supply: Coin Metrics Community Knowledge Professional

The switch worth (adjusted) on the Bitcoin community decreased by 28% and decreased by 21% on the Ethereum community over final week. Lively addresses on Bitcoin rose by 6%, together with lively addresses on Ethereum, which rose by 3%.

This week’s updates from the Coin Metrics crew:

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