What Is A Meme Coin In Crypto And How To Create One?

In a market where fortunes are made and lost in the blink of an eye, a peculiar breed of digital asset has captured the attention — meme coins.

These are not your typical cryptocurrencies, meticulously designed with complex algorithms and promising groundbreaking utility. Instead, meme coins are born from the depths of internet culture, fueled by memes, viral trends, and the collective amusement of online communities.

Meme coins gained massive popularity with the price surge of Dogecoin by over  23,000% in 2021, with Elon Musk’s support being a crucial element in its growth. Today (at the time of writing) the collectivemarket cap of meme coins exceeds $50 billion.

Along with the seemingly unrealistic returns that meme coins generate in a short span, numerous projects have misused this opportunity to execute rug-pulls and scams with investors' money. For this reason, as an investor or trader, it’s important to understand meme coin projects and their risks to safeguard capital.

Note: Meme coins are deemed to be a high-risk asset and it is crucial for investors to do their own research. The coins and tokens mentioned in this article are solely for educational purposes and not an endorsement of any kind.

What Is A Meme Coin?

A memecoin is a cryptocurrency that derives its value primarily from social media hype and online community engagement rather than underlying technology or utility.

It is created “for fun” based on internet memes or trends. These cryptos, which help to entertain the community, are often named after individuals, animals, characters, celebrities, pop culture, and more. 

The presence of a strong community is the major factor driving the growth of popular meme coins. Community members' activities, particularly on Discord, Reddit, X, and Telegram platforms, have played a crucial role in the growth of all major meme coins that exist today. 

For example, the popular meme coin, Dogecoin, has close to 4 million followers on X and over 2.5 million members on Reddit. Emerging meme coins are also gaining faster community support, like Ponke (PONKE), which gained over 100K followers within 6 months of its presence on X. 

According to Wu Blockchain, meme coins dominated the crypto sectors, with the most profit returns in the first half of 2024. As of 21 June 2024, meme coins had generated an average price return of over 1,800% within six months. 

Real World Asset (RWA) and Artificial Intelligence (AI) tokens were the second and third most return-generating sectors, with over 210% and 71% average profits, respectively. The profitability of meme coin tokens is almost 6.5 times that of RWA and AI tokens combined, which is interesting data for investors and traders alike.

What is the Purpose of Meme Coins?

Meme coin, while it's mostly used as humorous cryptocurrency among the crypto community, its purpose or reason for its existence can be based on factors such as:

• Developing a strong community: Meme coins are playful cryptocurrencies with more fun that allow you to build a strong and active community without the need to deal with the technical complexities of the crypto ecosystem.  
• Source for virality: Meme coins that are related to trending topics, celebrities, or pop culture allow digital creators to leverage viral content to increase their visibility and engagement across online platforms. 
• Speculative investment: Traders and short-term investors use the exponential price growth of meme coins to book profits when high demand pushes the price to higher levels in a minimal period.
• Marketing purposes: Meme coins are used as a tool to market products or services, considering the large online community presence on all major social media platforms. 
• Minimal use cases: Some projects also offer limited use cases that allow their community to use meme coins for charity, payments, etc.  

How Do Meme Coins Work?

Meme coins are a type of cryptocurrency that operate similarly to other cryptocurrencies. Blockchain technology powers meme coins, and they are available to trade on major crypto exchanges.

The price of meme coins is highly volatile compared to the other top cryptocurrencies like Bitcoin (BTC). The price of meme coins rises and falls based on the demand for them on both the market and social media platforms. 

The vast majority of meme coins have a large or uncapped token supply, leading to less scarcity or inflation. To prevent such negative impacts, meme coins such as Floki Inu (FLOKI) burn their tokens to reduce their overall circulating supply.

How To Create A Meme Coin?

The growing demand for meme coins also led to the development of platforms that allow users to create meme coins as easily as buying cryptocurrencies. To attract more individuals, including beginners, developers have curated platforms that help create meme coins in a few simple steps.

Here, we’ll create a new meme coin with the help of pump. fun, a Solana-based platform that facilitates users to create, buy, and sell meme coins.

Step 1

Go to www.pump.fun/board

Step 2

Click on “connect wallet” in the top right corner of the screen.

Step 3

Connect a Solana-supported wallet like Brave Wallet, MetaMask, Solflare, etc.

Step 4

After connecting your wallet, select “start a new coin”

Step 5

Next, name your meme coin, its ticker symbol, description, and image. Finally, check the cost of the meme coin deployment and click “ Create coin.”

Note: You can also add your X, Telegram, or website link for your meme coin.

Important Information For When Creating Meme Coins On Pump.Fun

The newly minted coin doesn't immediately go to free-for-all trading. It enters an "incubation" phase where a bonding curve mechanism is used. Bonding curves set the initial price high, and it gradually decreases as more people buy, incentivizing early adopters.

This phase protects the coin from instant "rug pulls" (creators dumping all their coins) and stabilizes its early life.

The incubation ends when the coin reaches a certain market cap (around $73,000 on Pump.fun as of now). This means enough people have bought in to show some genuine interest, making it less risky for broader trading.

Once the threshold is hit, the liquidity (the SOL you initially put in) is automatically moved to a bigger DEX like Raydium. This is the true "launch" point. The coin is now listed on a major exchange, and anyone can buy/sell it freely.

• Pre-Buy Option: During creation, you have the option to buy some of your own coin before others. This can be strategic, but it's not mandatory.
• Sniper Risk: Even with the bonding curve, there's always a risk of "snipers" buying up a lot early on and manipulating the price.
• Not Guaranteed Listing: Reaching the market cap threshold doesn't guarantee success on Raydium or other exchanges. The coin still needs community interest to thrive.

Red Flags in Meme Coins

Low Liquidity in Most Meme Coins

Apart from the top meme coins like Dogecoin, Shiba Inu, etc., the majority of such tokens have low liquidity in the meme coin market as they are mostly not listed on popular exchanges.

The low liquidity restricts holders from selling their meme coins at the time of any requirements.

Tax Fee Imposition

Certain projects impose tax for buying, transferring, or selling meme coins to improve liquidity, reward holders, and for marketing purposes.

For example, the meme coin MoonRat (RAT) charges a 10% transactional tax for each buy, sell, or transfer.  

Lack of Transparency

Most risky meme coins are developed by pseudonymous or anonymous founders, developers, and team members, which raises credibility issues for such projects. The lack of transparency and updates restricts investors from knowing the project’s fundamentals, founder’s ability and experience, risk potential, etc. 

Understanding Meme Coin Rug Pulls

Despite the generation of massive returns, meme coins have a bad reputation following various rug pulls, where the founders abandon their projects, resulting in massive losses for investors and traders. When a meme coin grows quickly, the founders with the majority of tokens sell off their entire holdings, leading to the crash of the token, making it worthless. 

Let’s look at a few rug pulls of the past:

1. URF: Slerf's Uncle Urf (URF), a Solana-based meme coin, was promoted by influencer Bryce Hall, who helped the team raise SOL tokens worth around $450K. Unfortunately, the team behind the URF project vanished with all the collected funds within 24 hours of the token launch.  
2. SQUID: Squid coin  (SQUID) was launched on 27 October 2021 as a meme coin inspired by the Netflix series “Squid Game.” This meme coin’s price peaked at $2,856 on 1 November 2021 and crashed to zero in seconds, losing investors assets close to $3.4 million. 
3. WSB: WSB Coin (WSB) was claimed to be the official meme coin of the Wall Street Bets community, a popular subreddit where members discussed stock and options trading. A few days after the launch of the WSB meme coin, one of its team members orchestrated a massive token sell-off, causing a drastic crash in its price and allegedly making off with $635K.

How to Reduce Meme Coin Investing Risks

Investing in meme coins undoubtedly comes with higher risk. However, you can reduce the risk by following strategies such as:

• Set Stop Loss: There exists a high potential for meme coin price crashes, and it’s not practically possible to observe its price movements. The best option is to place a stop loss order once you buy meme coins to restrict massive loss during adverse conditions.  

• Do Your Research: Social media promotions can trigger fear of missing out (FOMO) when investing in meme coins. However, as an investor, it’s important to research the product, its founders, social media activities, track record, etc., before deploying your capital. 

• Diversification: Going all in one single meme coin is a highly risky affair, and a significant price drop can wipe out the majority of your investment. It is better to pick multiple meme coin projects that you believe are worth investing in to diversify your meme coin portfolio.
• Consider Minimal Investing: Allocating one’s crypto portfolio with a large percentage of meme coins can be a terrible investment decision as there are instances of people losing their life savings on meme coins. The best option to safeguard your portfolio is to invest money that you can afford to lose in meme coins. 

Popular Meme Coins

Dogecoin (DOGE)

Billy Markus and Jackson Palmer created Dogecoin (DOGE) as a joke in 2013 to add a fun element to the serious crypto world. Dogecoin is based on a famous meme about Kabosu, a female dog of the Japanese breed Shiba Inu.

Jackson Palmer was behind the creation of Dogecoin’s official website, and Billy was the solo developer of this meme coin project for its initial four releases. DOGE reached its $1 billion market cap in January 2021 and reached a peak of around $89 billion market cap in May 2021 following its popularity on social media platforms. 

Dogecoin functions based on the Proof of Work (POW) mechanism and Elon Musk's numerous endorsements have helped this meme to gain popularity. DOGE tokens are accepted for payment by popular companies like Microsoft, Tesla, and Twitch, to name a few.  

Shibu Inu (SHIB)

Shibu Inu (SHIB), launched in 2020, is a cat-themed meme coin created by Ryoshi, an anonymous group or individual. The meme coin mania helped SHIB gain its price by over 27,000,000% within nine months in 2021.  

The total supply of the Shiba Inu project was one quadrillion SHIB tokens, and half of it (500 trillion tokens) was sent to Vitalik Buterin, out of which he eventually burned 420 trillion tokens. The SHIB token’s price surged significantly during October 2021, reaching its peak market cap of close to $40 billion in November 2021.

Shiba Inu didn't stop being a mere meme coin and started to expand its ecosystem to the DeFi platform (ShibaSwap), an incubator to support artists, and NFT collections (SHIBOSHIS). 

Pepe Coin (PEPE)

Pepe Coin (PEPE) was launched in 2023 by anonymous founders inspired by the meme “Pepe the Frog,” which gained popularity during the 2010s. The market cap of PEPE surged from $1 billion in February 2024 to $7 billion in May 2024.

This meme coin project has a maximum supply of 420.69 trillion PEPE tokens. In October 2023, the Pepecoin team announced the burning of 6.9 trillion PEPE tokens worth around $6 million, leading to a quick 20% price surge.

Pepe Coin operated using a deflationary mechanism that burns a small percentage of tokens for every transaction. Burning PEPE tokens is aimed at reducing the circulating supply and driving the meme coin’s price. 

Conclusion

A large number of meme coins have succeeded in generating massive profits for investors in a short span. However, there have also been various instances of rug pulls and price crashes that led to huge losses.

Meme coins are mainly intended for fun and humorous purposes, and investing serious money in them is risky. So, it’s best to invest a minimal amount in meme coins that will not significantly impact the overall crypto portfolio.