Despite its topsy-turvy price dynamics charts, the crypto market is still a powerhouse of an alternative financial industry that keeps growing year-on-year. With Bitcoin and Ethereum acting as the main supporting pillars of capitalization, the market is rapidly evolving as new types of digital assets are being deployed and appreciated by investors, both retail and institutional. But while Bitcoin has become inaccessible to the vast majority of market participants with price highwall, one of the most attractive alternatives with impressive traction wielding immense popularity is the meme token phenomenon. The given article will delve into the concept of meme tokens and explore both their virtues and pitfalls, weeding out the wheat from the chaff.
Meme tokens are a subclass of tokens that have emerged in recent years on the market, piggybacking on the popularity and success of humorous meme images. By personifying a meme, such as Pepe the Frog, the confused Shiba Inu dog in various forms, or even Disney’s Scrooge, meme tokens attract users with their application and price accessibility. Such tokens are largely used for active trading, amassing liquidity by leveraging the meme audience and its inherent tech-savviness, which drives them onto the crypto market. In essence, meme tokens can be used for any of the operations that coins and tokens perform, but it is the liquidity and user base that determines their success as a market asset.
Given the abundance of meme tokens in circulation, crypto investors should scrutinize every asset before engaging in it and adding it to their portfolios. The following are some of the most important factors to consider when selecting a meme token for investment.
Security
A frightening number of digital assets deployed on the market are built on the basis of flawed smart contracts copy-pasted from open sources. The security of the underlying coding is critical for ensuring the safe operation of a crypto asset, since hackers are adept at exploiting various vulnerabilities. Therefore, investors must always check the availability of security audit reports issued by reputable firms about assets under consideration. Such audits provide credible proof that the meme token is relatively safe and no hidden threats lie in wait.
Liquidity
The availability of liquidity in the exchange pools maintaining the meme token in open trading is vital since it is a clear indication of demand and trading volumes. Demand is indicative of the reliability and applicability of the token, which translates into its potential in terms of both use cases and price traction. Meme tokens that attract large amounts of liquidity early on are assets to consider, as they have clearly been anticipated and demanded. A good example is Scrooge Token, which managed to attract over $72,000 into its liquidity pools at launch – an extremely high indicator for the asset subclass.
Allocation
The allocation of meme tokens among all parties to the project is an extremely important factor to consider, as it is an early indication of possible rug pull. If the tokens are distributed in an unfair proportion in favor of the development team, there is a high chance (based on market practice) that the project is a scam and will be shut down. Once an amount of liquidity has been attracted that is sufficiently high, the team may pull out of the asset and sell it off on exchanges, essentially resulting in a dump. The most a development team should retain is 5% of the total supply with vesting and lockup for at least a year or more. Such distribution schemes allow users to judge the intentions of the team and the share of rewards they can hope to get.
Community
The users are the source of liquidity and application for a project. The availability of a wide enough user base and the potential of its scaling are vital factors to consider. By and large, the popularity of the meme itself can be a determining aspect in this regard, as well-known memes attract users with their humorous nature and relevance to real-life situations. However, insufficiently active marketing or poor application scenarios in dApps can undermine even the most popular meme token. The presence of support from prominent individuals or trading platforms is also a powerful factor of community attraction, as evidenced by DOGE, which was promoted by Elon Musk in his tweets.
Application
The most important factor for any cryptocurrency that translates directly into demand and subsequent price action is its real-life applicability. Digital assets were initially designed as an alternative to fiat and have to be applied as such, forwarding transactions and acting as a means of payment. Rewards are just as important, as Scrooge, for instance, distributes 9% from every transaction with the token among its holders, thus stimulating retention and decreasing supply in circulation. However, most meme tokens are used solely for trading on exchanges, as few retail outlets are willing to accept them as a means of payment. As such, potential investors have to analyze the asset’s adoption across decentralized applications like GameFi platforms, or services. In a recent statement, Elon Musk urged McDonald’s to start accepting DOGE as a means of payment, only to be rebuffed by the fast food giant, which replied that it will do so once Tesla starts accepting the nonexistent ‘Grimacecoin’. Surprisingly, the newly minted Grimacecoin surged by 285,000% in price after McDonald’s response.
Considering the swath of meme tokens on the market and the unpredictable nature of their price dynamics, investors should take their time and examine every asset before adding it to their portfolios. But if liquidity, security, application, and any of the other factors are of any importance, rather than following tweet wars and the fun of holding a meme, then the promise of multiple Xs is quite feasible if the right asset is selected and held wisely.
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