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Meme coins are everything wrong with web3 | Opinion

Opinion
Meme coins are everything wrong with web3 | Opinion

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.

Ah, meme coins. The glittering trinkets of the crypto world. Once, they were just a fun joke, a playful side project for crypto enthusiasts. Now, they represent a staggering $56 billion sector—outshining more serious innovations like decentralized physical infrastructure networks, DePINs, $23 billion, and real-world assets, RWAs, $4.5 billion

It’s as if we’ve collectively decided that shiny, ephemeral coins are more valuable than the solid, long-term infrastructure projects that could truly revolutionize our world.

Let’s get one thing straight: meme coins are the antithesis of web3. They’re not about decentralization, freedom, or the next iteration of the internet. They’re about quick money, hype, and—more often than not—disappointment. As we now have 5.7 times the number of tokens compared to 2021, it’s high time we recognized the unsustainability of this trend.

Why does this matter? Because meme coins are clouding the credibility of web3. They distract from serious projects, suck liquidity from ecosystems, are harmful to retail investors who are late getting into the hype, and turn potential long-term investors away from the industry altogether. To steer the conversation back to the true mission of Web3, we need to address this phenomenon head-on.

A false promise of innovation

Remember when Dogecoin was just a joke? It was a fun, lighthearted experiment that somehow gained traction and captured the internet’s imagination. Then came BONK, PEPE, and a slew of others. The initial appeal was understandable: they were accessible, they were fun, and they promised quick returns.

But when did it all get out of hand? Somewhere along the way, meme coins went from being funny internet jokes to an unsustainable industry where newcomers are losing lots of money. Historical trends show we might be nearing the peak of this bubble. Or maybe it will inflate even more before it inevitably bursts. Either way, the trajectory is troubling.

The celebrity obsession with meme coins only exacerbates the problem. Take, for example, Iggy Azalea’s MOTHER token and Hulk Hogan’s HULK token. Despite Azalea’s attempts to legitimize the token, it has been plagued by insider trading scandals. Blockchain data revealed that insiders bought 20% of the token supply before the official announcement and quickly dumped their holdings for a $2 million profit, leaving regular investors holding the bag.

Hogan’s HULK token experienced a similar fate; the token’s market capitalization skyrocketed to $17 million shortly after launch following promotional posts allegedly from Hogan’s Twitter account. However, the market cap plummeted to just $8,000 within hours due to large quantities being sold off by insiders.

These incidents highlight how meme coins can manipulate investor trust and divert resources from more deserving projects. 

Practical use cases for meme coins? Virtually non-existent. Trustworthiness? Even less.

Social media abuses

Insiders often exploit their social media status to manipulate the meme coin market for personal gain. A notable example is the scandal involving Ian and Dylan Macalinao, founders of Saber Labs on Solana. The brothers created a web of interconnected defi protocols using 11 pseudonymous identities. By stacking these protocols on top of each other, they inflated the total value locked (TVL) on Solana, making it appear more robust than it was. This artificial inflation attracted more investors, boosting the value of Solana’s native token, SOL. At its peak, Saber and associated protocols accounted for $7.5 billion of Solana’s $10.5 billion TVL, with billions of dollars being double-counted. The scheme unraveled when one of their protocols, Cashio, was hacked, losing $52 million. The US Department of Justice is investigating the Macalinao brothers for their deceptive practices, highlighting the need for transparency and regulation in the crypto space.

Such manipulations not only deceive investors but also undermine trust in the broader cryptocurrency ecosystem. This case exemplifies the risks posed by influencers who use their platforms to mislead followers for financial gain.

Meme coins clash with web3 values

At their core, meme coins clash with the fundamental values of web3. Web3 is built on principles of decentralization, transparency, and empowering individuals over central authorities. It aims to create a more open, equitable, and user-controlled internet. Here’s how meme coins undermine these values:

  • Decentralization and trust: Web3’s primary goal is decentralizing power and eliminating the need for trusted intermediaries. However, meme coins often rely heavily on centralized influencers and marketing campaigns to generate hype. This centralization of influence contradicts web3’s decentralized ethos. When influencers or celebrities can significantly impact the value of a meme coin with a single tweet, it undermines the trust and decentralization that web3 aims to achieve.
  • Transparency and accountability: Web3 values transparency and accountability, ensuring that all transactions and activities are publicly verifiable on the blockchain. Meme coins, however, are notorious for their lack of transparency. Many meme coin projects are launched anonymously, with little to no information about the developers. This lack of accountability leads to frequent rug pulls and scams, where developers disappear with investors’ funds.
  • Empowerment and innovation: Web3 seeks to empower users and developers to create and innovate freely. Meme coins, on the other hand, often divert attention and resources away from innovative projects. The focus on quick profits and speculative trading hampers the growth of projects that aim to bring real-world utility and advancements to the blockchain space. For example, significant funds and attention are drawn away from defi projects that offer meaningful financial services to underserved communities and instead flow into the volatile and speculative meme coin market.
  • Sustainability and long-term vision: Web3 is about building sustainable, long-term solutions for the internet. Meme coins, however, are often short-lived phenomena driven by momentary hype and speculation. This short-term focus can be detrimental to the overall health and sustainability of the blockchain ecosystem. Projects that could provide long-term benefits are overshadowed by the quick profits promised by meme coins, leading to a lack of sustained investment in truly transformative technologies.

Meme coins and liquidity drain

One of the most insidious impacts of meme coins is their effect on liquidity across all blockchain ecosystems. Meme coins often divert capital that could be used to support more stable and innovative projects. For example, during periods of high meme coin activity, significant amounts of liquidity are drawn into speculative trading, leaving less available for legitimate decentralized finance projects and other blockchain innovations.

This phenomenon creates a volatile environment where genuine projects struggle to maintain steady liquidity. The erratic flow of capital driven by meme coin hype can destabilize entire ecosystems. On platforms like Solana, meme coins have integrated with defi and GameFi, attracting speculative investments but also increasing the risks of rug pulls and scams. This not only harms individual investors but also undermines the stability and credibility of the entire blockchain space.

For instance, in the first quarter of 2024, meme coins recorded the highest returns among crypto narratives, leading to a massive influx of speculative trading. However, this speculative frenzy has come at the expense of more meaningful projects. The extreme volatility associated with meme coins can cause sudden drops in liquidity, making it difficult for serious projects to find and retain the necessary funds for development and growth.

Moreover, the rampant creation of new meme coins often leads to an oversaturated market. As highlighted by a recent report, there were 19,000 new meme coins created in a single week, with many of them being potential scams. This not only spreads the available liquidity thin but also damages investor confidence, further destabilizing the market. 

The negative experiences from thousands of meme coins flooding the system are unimaginably vast as they make investors wary of new projects and siphon away the life savings of individuals who join too late, often leading to their financial ruin. The Twitter (X) account Coinfessions posts hundreds of anonymous submissions from web3 community members lamenting the loss of their life savings and, in many cases, mental health as they desperately try to salvage what they can from the dumpster fire that is the meme coin frenzy.

Are meme coins setting us back as an industry? Absolutely. Will the hype die down? One can only hope. Are meme coins the “killer use case” of the next bull run? Let’s pray they aren’t.

The meme coin hype is a net negative for web3. They represent everything that’s wrong with the current state of crypto—short-term thinking, greed, and a lack of real innovation. To salvage the reputation of our industry, we need to focus on projects that offer real value and embody the true principles of decentralization and freedom.

It’s time to move away from the allure of shiny, worthless coins and steer the conversation back toward building a solid, decentralized foundation for the next iteration of the internet. Only then can we hope to achieve the transformative potential that web3 promises.

Meme coins dominate 2024: over 1800% surge – what’s next?

Frank Mathis
Frank Mathis

Frank Mathis, co-founder and CEO of GenesysGo, has a diverse career that spans creative writing, day trading, and a 12-year stint in financial planning. After experimenting with blockchain and being an early adapter to the Solana ecosystem, Mathis co-founded GenesysGo in 2021 to create a faster, more reliable, and more secure decentralized data storage protocol. Their flagship product, shdwDrive, is built on Solana and aims to bridge the gap between blockchain technology and traditional business infrastructure. GenesysGo is powered by a new type of decentralized data storage consensus mechanism built from the ground up by the GenesysGo team.