Key Points

• Currently, the total market value of meme coins is $60 billion, growing on layer-one networks like Ethereum and Solana, as well as layer-two networks like Base.
• In March, the average 7-day spot trading volume for meme coins on exchanges reached $13 billion, surpassing major blue-chip crypto assets like Ethereum (ETH) and Solana (SOL).
• Meme coin assets are highly concentrated among a few holders, posing potential risks of market manipulation and liquidity issues.

Introduction

Memes are a crucial component of human culture, evolving and adapting through various media over the years. The term “meme” was first coined by British evolutionary biologist Richard Dawkins in his 1976 classic, The Selfish Gene. Dawkins described memes as units of cultural transmission, including “tunes, ideas, and catchphrases,” emphasizing their similarity to genes in biological evolution.

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The dissemination of memes has seen significant development throughout history, influenced by social, cultural, and technological changes. In ancient times, folklore and religious symbols were early forms of memes, spread orally or via manuscripts. During World War II, the graffiti meme “Kilroy was here” became popular, symbolizing the presence of American soldiers. In the digital age, memes found new mediums in viral videos and image macros, such as “Doge,” rapidly spreading through the internet and social media platforms, making cultural ideas more widely disseminated than ever before.

Recent Phenomena: Meme Coins and Meme Stocks

Recently, the meme phenomenon has further expanded into meme stocks, exemplified by GameStop’s value surge driven by collective efforts on Reddit’s r/wallstreetbets forum. Similarly, meme coins like Dogecoin and Pepe have gained significant attention in the crypto world, leveraging blockchain and on-chain communities to create digital forms of value. Memes reflect our inherent desire to connect and belong through shared ideas.

In this week’s Coin Metrics State of the Network report, we aim to provide context for the surge in meme coin activity on networks like Ethereum and Solana, highlighting key market trends driven by the meme coin sector.

Overview of Meme Coins

Since the inception of Dogecoin in 2013, the meme coin sector has seen massive expansion, with a total market value reaching $60 billion as of June 2024. This sector features crypto assets representing familiar animals, characters, and recent political figures, attracting attention through elements of humor and driving community engagement. Their growth is primarily speculative, driven by market sentiment rather than intrinsic value.

Source:Coin Metrics Network Data Pro & Coin Metrics Labs

Top Meme Coins and Emerging Trends

Currently, the most valuable meme coins include Dogecoin (DOGE), an independent proof-of-work blockchain, and ERC-20 tokens like Shiba Inu (SHIB) and Pepe (PEPE), which surpassed $100 billion in market value in 2021. Recently, Solana has become a hotspot for meme coins, with several Solana Program Library (SPL) tokens being deployed due to low transaction fees, a growing ecosystem, and convenient token creation platforms like pump.fun, leading to the rise of meme coins like Dogwifhat (WIF) and Jeo Boden (BODEN).

Source:Coin Metrics datonomy™ & Coin Metrics Labs

Meme coins have shown significant performance compared to other sectors in the crypto asset ecosystem. This is particularly evident from October 2023 to June 2024, with average meme coin returns reaching 740%, driving the growth of meme coin indices like the GMCI Meme Index. Despite being associated with speculative market cycles, this performance reflects recent growth in retail and institutional investor interest.

Meme Coin Market Activity

The meme coin sector has increasingly garnered attention, further driving activity in the digital asset market. Although trading volumes typically move in sync with the overall market, in March, the average 7-day spot trading volume for meme coins on centralized exchanges reached $13 billion, surpassing major assets like Ethereum (ETH) and Solana (SOL). Decentralized exchanges (DEXs) also play a key role in the meme coin ecosystem, providing the necessary infrastructure for pool creation and asset trading, facilitating liquidity and accessibility for a broad user base.

Source:Coin Metrics Market Data Feed

From the perspective of relative trading volume, older meme coins like DOGE and SHIB have seen a decline in influence, while PEPE and a group of new Solana meme coins have gained popularity, collectively representing over 50% of trading volume. This shift reflects investor preference for newer meme coins, driven by growing communities, blockchain ecosystems, and the potential for higher returns. However, the liquidity and longer track records of existing meme coins remain important considerations for potential investors.

Source:Coin Metrics Market Data Feed

Similarly, high open interest in futures contracts highlights the significant market presence of meme coins and indicates a high level of speculative trading activity. DOGE’s open interest recently reached a record $1.8 billion, while PEPE’s open interest surged nearly 50% in May to $850 million. The total open interest exceeding $3 billion indicates increased price volatility, showing that investors are gradually using futures positions to hedge risks associated with meme coins. Tracking open interest remains a fundamental tool for understanding speculative capital flows, particularly in volatile instruments, which may indicate shifts in market interest or precursor to liquidations.

Source:Coin Metrics Market Data Feed

Meme Coin User Growth and Risks

The market presence and user growth of meme coins have risen in tandem, but it’s important to note the risks in this sector. The Gini coefficient, a measure of income or wealth distribution within a population ranging from 0 (complete equality) to 1 (maximum inequality), can be used to assess the distribution of token holdings among different addresses in the context of meme coins.

A high concentration of token holdings increases the risk of market manipulation. Large holders, often referred to as “whales,” can significantly influence token prices by buying or selling large amounts at once, causing volatility. Additionally, if a few addresses hold the majority of tokens, it can lead to liquidity issues, potentially exacerbated by decentralized exchanges’ liquidity being controlled by a few entities.

Source: Coin Metrics Network Data Pro & CM Labs

These meme coins’ high Gini coefficients (around 0.8) highlight significant concentration in token holdings. This concentration brings various risks, including potential market manipulation, liquidity issues, and investor caution, which should be carefully considered when evaluating these tokens. Understanding these dynamics is crucial for assessing the stability and potential risks of these digital assets before considering any investment in the meme coin sector.

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Conclusion

The meme coin sector has shown significant growth and influence in the cryptocurrency market, finding a solid foothold on the blockchain due to memes’ viral nature and ease of dissemination. Since the launch of spot ETFs, this sector has performed strongly alongside Bitcoin, highlighting its appeal to both retail and institutional investors. However, the high Gini coefficient of around 0.8 indicates significant concentration in token holdings, posing risks of market manipulation and liquidity issues, along with volatility that most investors find challenging. As the sector continues to evolve, understanding these dynamics is essential for evaluating the development and potential risks of meme coins.

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