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Wednesday, April 24, 2024

The Not-So-Subtle Art of the Meme Coin

“I think it’s funny—that’s it!” says Ace, an investor in meme-based cryptocurrencies from Toronto, Canada. The point of meme coins, he explains, is that there is no point. It’s all one big joke.

Ace, who asked that his surname be withheld so he could speak about personal financial matters, has been buying and selling meme coins for years. His first was Dogecoin, the original meme crypto, launched in 2013 and popularized six years later by a now infamous Elon Musk tweet. It served no purpose and promised no innovation—“Everyone knew it was a joke,” says Ace—and yet almost 5 million people have bought in.

The meme coin format has itself become a meme of sorts, replicated and riffed upon by hundreds of copycats with varying degrees of success. It’s a familiar story by now: A comedy token gains traction on forums and social media and becomes a vehicle for financial speculation, making early adopters rich and leaving others with a hole in their wallet.

In the past few weeks, this cycle has unfolded in full with a new token, PEPE, which began trading on April 15. A reference to the Pepe the Frog meme, a cartoon used to illustrate reactions by social media users—which was co-opted temporarily in 2016 by the far right—the coin was marketed by its anonymous developer as “the most memeable memecoin in existence,” “fueled by pure mimetic power.” Three weeks later, it had increased in value by thousands of percent, reaching a peak market capitalization (the total paper value of all coins in circulation) of $1.63 billion. Investors like Ace rushed to catch the wave, and, smelling the revenue opportunity, crypto exchanges did the same: Binance, Gemini, OKX, and Huobi all listed the token. But anyone who bought in at the top, in the first week of May, has since lost more than half of their investment.

Meme coins have been roundly condemned in some sections of the crypto industry as “casinos” that make a mockery of the vision for crypto as the plumbing for an alternative financial system. Of the hundreds of these coins in circulation, most are no longer traded, or are traded in negligible volumes. But although there may be no point to meme coins per se, there is an emergent logic to them—a science, of sorts. Some people have made a business of distilling the winning formula.

After Dogecoin, one of the first meme tokens to garner attention was Floki Inu, a cryptocurrency named after Musk’s pet dog, itself a Shiba Inu, the breed depicted in the Doge meme. The token survived two rug pulls—where a developer abandons a project and makes off with funds—in 2021, early in its development, to become one of the most widely traded meme coins.

One of the people who helped to salvage the project, who goes only by B (in order, he says, to protect his financial privacy), claims the success or failure of a meme coin hinges on a capacity for storytelling and community-building. “Two things tend to be the most important: narrative and community,” he says. The narrative is the “catalyst,” and the community creates a “FOMO effect.”

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The narrative in the case of Floki Inu was simple: Musk had acquired a Shiba Inu, of Doge fame, and named it Floki. “Musk became the meta,” explains B. “An army of believers rallied, expecting [Floki Inu] to be the next big thing.”

B is not blind to the absurdity of this; the juvenile spirit of online communities is a property on which new meme tokens rely. “Meme coins are supposed to defy rationality. The ideal target investor is irrational people,” he says. “You have to look at the most irrational meme that will attract the most irrational people, the most cult-like following.”

A month before Floki Inu began trading, in spring 2021, another meme token had made a splash with a provocative name: CumRocket. The token was developed by Lydia Lane, a software engineer from the UK who had grown tired of getting caught up in rug pulls, she says, and so decided to launch a coin of her own.

Making use of an existing TikTok following, built up during the pandemic with a series of stock-picking videos, Lane set about promoting the token. Her priority was to build trust in the legitimacy of the project and strengthen community engagement by making her identity clear and tending closely to the public Discord server. She also published details of any CumRocket sales she made with an accompanying justification, to reassure people that she wasn’t trying to “do anything shady” behind their backs.

But the name was the crucial ingredient, Lane says, because “controversy sells.” “With CumRocket, people either love it or hate it. They think it’s funny or find it disgusting.” In a similar spirit, she posted a video of herself pitching the new token to online image board 4chan, a notorious cesspit, in order to “anger the incels.” She elicited the desired response.

The eye-catching branding caught the attention of Musk, who published a tweet that drove a 400 percent increase in the price of CumRocket in the space of 10 minutes. The token has also since been featured on HBO in segments of Last Week Tonight With John Oliver and Real Time With Bill Maher.

Whatever one might think of the method, there is an entrepreneurial quality to the way token creators cultivate myth and brand. In the case of both CumRocket and Floki Inu, the creators have tried to use their early success as a foundation on which to build non-frivolous use cases for their tokens. Lane is readying a crypto-centric alternative to OnlyFans, designed to address issues of financial discrimination for performers in the adult entertainment business, while the Floki Inu team has developed a constellation of games, NFT marketplaces, and other services around its coin.

The inconvenient truth that frames these projects, though, is that meme coin trading is a zero-sum game. For every winner, there must be a loser; the joke must come at somebody’s expense.

There is an extent to which the game is rigged against the average investor from the start, says Ace, because by the time regular people catch wind of a new meme token, the peak has already passed. “Crypto is all about the underground internet—the stuff normies don’t know anything about,” he says. “If I’ve got more knowledge of the fundamentals, I’m already leagues ahead. That’s the problem.”

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This dynamic creates a moral quandary. Darrien Justice, community manager for Garlicoin, another joke token, says he would never recommend anyone purchase a meme coin as an investment—including his community’s own—for precisely this reason. “The regular investors are absolutely the exit liquidity, but they don’t quite understand that,” he says. “I don’t want people to lose money buying Garlicoin. It sucks.”

Lane grappled with the same issue when the value of CumRocket soared. She cashed in enough of the profits on her own token holdings to allow her to quit her  job and cover the expenses of developing a use case, but she felt conflicted about the losses she might inflict on others in doing so. “I felt bad dumping. I didn’t want to be greedy,” she says. “When it’s your own chart, it’s your baby. I wanted everyone to win.”

The propensity for meme coins to increase rapidly in value also creates fertile ground for scam tokens that prey on FOMO. Simply by perpetuating the meme coin tradition—by breeding a recklessness in investors that comes from a sense that buying into a coin early will lead to riches—even harmless projects create cloud cover for rug pulls and other scams.

Among the several meme coin investors who spoke to WIRED, most said they make some attempt to assess the risk of fraud before buying into a new token. But there’s a limit, according to Dyma Budorin, founder of crypto auditing firm Hacken, to the due diligence someone can do with the public tools available.

While the underlying code is generally unsophisticated (and therefore easy to check for security flaws or hidden mechanisms for defrauding buyers), little verified information is available on the distribution of meme tokens at launch. This means developers could quietly award themselves a large batch of their own coin, which they could later sell in large volumes, tanking the price—a textbook pump-and-dump.

“The lack of information creates a huge risk for every meme coin; you could be rugged at any second,” says Budorin. “The code can be fantastic, without any hidden vulnerabilities, but because there is no tokenomics audit, the token can be rugged.”

The creators, for their part, insist that meme coins play an indispensable role by attracting new faces to crypto. The accessible branding, says Lane, creates a route in for people who might otherwise be alienated by the technical learning curve or crypto’s ideological groundings. “Not everyone can win, obviously,” she says, “but that’s the nature of it.”

The people most deeply steeped in meme coin trading tend to share the belief that investors don’t need to be coddled, wrapped in cotton wool. Seth Zaraki, a longtime investor in meme coins, says the unapologetic emphasis on profit over utility is part of what he cherishes most about meme coin culture. It’s a refreshing honesty and level of self-effacement not found elsewhere in the sector, he says.

Zaraki says he couldn’t stop laughing when he and his wife purchased their first meme coin back in 2018.

“PEPE is obviously not designed for low-risk investors,” he says. “Pretty much everyone willing to put money into something like this knows what they're doing is gambling. They’re doing it simply because it makes them feel good.”

Ace, who himself was once “played” by a fraudulent project, takes a similar view. “If as a regular person you’re putting more than $50 into a meme token, you’re stupid,” he says. “You're just not cut out for this shit.”

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