Rising Skepticism Surrounds Memecoins Amid Declining Solana Trading Volumes and Investor Losses

This week, skepticism about memecoins has grown, fueled by a drop in trading volumes for Solana-based memecoins and recent data suggesting that many investors are losing money. Mike Kremer, a data engineer at Messari, has joined the chorus of critics, labeling memecoins as the “most extractive crypto phenomenon” since the ICO boom of 2017.

In his August 19 newsletter, Kremer argued that while speculative bubbles are common in the crypto world, previous trends like DeFi Summer offered lasting value through projects that provided real utility. For instance, protocols launched during DeFi Summer, such as those by Uniswap Labs, maintained value because they were tied to functional services. In contrast, Kremer describes memecoins as having a “far more destructive dynamic.”

The Problem with Memecoins

Kremer explained that memecoins often involve insiders or groups creating tokens, hyping them up, and then offloading their holdings once the price inflates. This process results in tokens with no real value or utility, leading to a situation where value is not merely redistributed but destroyed. The rapid proliferation of memecoins and their subsequent collapse contribute to this zero-sum game.

Recent data highlights the severity of the memecoin issue. Since its launch in January, the memecoin deployer pump.fun has introduced a staggering 1.7 million new tokens, with fewer than 1.5% ever achieving a total value exceeding $63,000. Additionally, around 60% of pump.fun traders have reported financial losses, while only 3% have earned over $1,000.

Despite ongoing debates about the accuracy of these statistics—some claim they don’t account for realized gains—the trend is clear. Moreover, Solana-based memecoin trading volumes have plummeted by up to 80% in the past two weeks. Last week, Solana exchange-traded products experienced a record $39 million in outflows, reflecting a broader decline in market interest.

Potential Benefits of Memecoins

Amidst the criticism, there are voices arguing that memecoins may have positive aspects for the crypto ecosystem. Alon, the pseudonymous developer behind pump.fun, suggested that lower deployment costs for memecoins are beneficial, pointing to the high activity on the platform. Alon argued that previous issues like liquidity pool scams and honeypots have been mitigated, making the sector more accessible to newcomers.

Furthermore, Avalanche founder Emin Gün Sirer has defended memecoins, describing them as a valuable entry point for new users despite their inherent risks. Sirer highlighted that memecoins contribute to social signaling and help build strong crypto communities. In December, Avalanche announced plans to use its $100 million community fund to buy memecoins, originally intended to support NFT artists, further indicating the sector’s potential positive impact.

The debate over memecoins continues as the crypto community grapples with their impact. While some view them as a troubling trend with minimal long-term value, others see them as an opportunity to bring new users into the crypto space and foster community engagement. As the market evolves, the true role of memecoins in the broader crypto ecosystem remains to be fully understood.