The Memecoin Casino
What do Moo Deng the pygmy hippo, social media sensation Hawk Tuah, and the President of the United States all have in common? They’ve all inspired highly valuable, highly volatile memecoins. The humble memecoin began as a satirical send-up of speculation within the crypto world. But this joke soon became very real.
In the decade since Dogecoin’s 2013 launch, cultural shifts and technological leaps fueled an explosion in the number of new memecoins. This explosion has not only minted millionaires but also led to hordes of unlucky investors and untold scams.
On today’s show, we’ll delve into the world of memecoins: what they are, their transformation from a one-off joke to a speculative frenzy worth tens of billions of dollars, and the winners and losers in this brazen new market.
This episode includes a kid cursing.
This is Planet Money, and we’re diving deep into the memecoin phenomenon. Over the past decade, these coins have evolved from a joke to a speculative frenzy.
The Genesis of the Joke
Let’s rewind to the beginning because there’s a story behind all this. The story starts with Bitcoin, launched in 2009 as a Utopian alternative to government currencies. But soon after its launch, copycats and fraudulent operations started popping up, promising great returns.
This is the seed state of crypto that inspired what is widely considered to be the first meme coin, Dogecoin.
In 2013, Jackson Palmer, an Australian product manager at a tech company, saw the initial promise of crypto turning into a cash grab where some people were running pump-and-dump schemes.
Programmers created a new coin, hyped it up as the next Bitcoin, and then employed questionable means to manufacture demand and get people to buy it. Once enough money flowed in, they would sell off their coins, the price would collapse, and buyers would be left holding the bag.
Palmer thought crypto was becoming a joke. So why not turn it into an actual joke? He was inspired by the popular Doge meme, featuring a quizzical-looking Shiba Inu dog with grammatically challenged captions like “such wow” and “much amaze.”
Palmer and a friend coded up a new coin, marrying memes with crypto.
Dogecoin was an attempt to make crypto enthusiasts make more rational decisions, but the internet decided to embrace Palmer’s joke coin. They started buying more and more of them. Palmer was surprised. He and a group of crypto enthusiasts donated Dogecoins to charity, and for a while things were going well.
Whenever you have something that’s going really successful, you have a successful community like that, and there’s a monetary element to it, it’s like blood in the water, right? Like, sharks can, like, smell it from miles away.
Fraudsters quickly began using Dogecoin in the pump-and-dumps it was meant to critique, which was the opposite of Palmer’s intention.
Dogecoin spawned dozens of copycat cryptocurrencies. These became the norm as technical expertise was needed to make one, requiring you to copy and tweak the code as the underlying principles of Bitcoin.
Ethereum and the Second Revolution:
Zeke Faux, an investigative journalist at Bloomberg and author of the book, Number Go Up, Inside Crypto’s Wild Rise and Staggering Fall, explained that the second revolution was a technological leap with the invention of Ethereum.
A blockchain keeps track of how many tokens someone has of a cryptocurrency. Before Ethereum, to make a new cryptocurrency, you had to code up a new blockchain. Bitcoin and Dogecoin had their own blockchains. But Ethereum allowed multiple cryptocurrencies to be tracked on the same blockchain. You could create a new coin right on top of Ethereum’s infrastructure.
This set off a surge in new cryptocurrencies, starting around 2017. They were called Initial Coin Offerings, or ICOs. These coins were often framed as useful new technologies– cryptocurrencies that would have some utility.
This was the time when people were still really pitching blockchain as, like, the solution to all the world’s problems. So in general, these ICOs were like, it’s the blockchain for dentists, or this is going to be the blockchain that helps track agriculture.
People were trading them based on hype and market volatility. Studies afterwards found that something like 3/4 of all the ICOs were scams or fraud.
However, the majority of investors did not understand the basics of transacting on the blockchain, like how to set up their own crypto wallet or trade coins. This limited the impact.
Crypto’s Cultural and Technological Shift
The third revolution, involving both a cultural and technological element, explains the current meme coin moment. The cultural part involves the meme stocks phase during the COVID-19 lockdowns, when day-traders banded together to buy meme stocks from companies like AMC and GameStop. This was the marriage of meme culture and the entire stock market.
The technological part was the rise of mainstream crypto exchanges like FTX and Coinbase. They made it easier for retail investors to buy and sell cryptocurrencies, helping to swell the market.
During the crypto bubble of 2021-’22, meme coin trading wasn’t the focus of cryptocurrency traders. Most crypto enthusiasts focused on mainstream cryptocurrencies like Bitcoin and Ether, and the most radical speculators were obsessing over things like Non-fungible Tokens, or NFTs, like those weirdly expensive Bored Ape cartoons people were buying.
But as we’ve learned in the cyclical history of crypto, ups must eventually come down, which happened in November 2022, when it was revealed that the founder of crypto exchange FTX, Sam Bankman-Fried, had been secretly using billions of dollars of customer funds to make massive, risky bets.
Pump.fun and the Latest Craze
So, how did we go from crypto’s lowest point to the proliferation of meme coins? Zeke Faux says that the latest meme coin craze was really enabled by this new trading platform, called pump.fun that made creating a meme coin a point-and-click experience.
Pump.fun was created in January 2024 by three entrepreneurs in London. The idea behind the platform was basically to demolish the barrier to entry for people making new meme coins, to create a place where people could launch and then promote their own coins as a sort of social media experience.
Zeke described the website: It looks a bit like a throwback to the flash websites of the ’90s– all bright neon text and JPEGs of memes. It allows people to launch and promote their own coins like a social media experience.
Pump.fun has made it incredibly easy to make new meme coins, updating constantly with images of recently launched coins.
The leaderboard of established and upcoming meme coins looks like an internet meme: Dogecoin is still top dog, closely followed by Shiba Inu. Others include Pepecoin, and several others.
Fartcoin is the hottest meme coin right now.
Pump.fun has transformed juvenile internet jokes into financial instruments. You could see the stream of new coins as the cutting edge of what wannabe meme coin millionaires think might go viral.
Launching or Failing?
The process is shockingly easy: by filling out details and uploading an image, you become the parent of a new meme coin. But raising it to a profitable adulthood is not so easy.
Pump.fun is a hyper-literal attention economy. If a coin creator can’t generate excitement, they won’t be able to attract buyers and help it take off.
Attracting attention comes down to the clout an individual person has. For those with no clout, pump.fun offered a solution. It had a livestream function, so a new coin creator could try to build a following by promoting their coin in real time.
Pump.fun had a built-in feature where the creators of the tokens could livestream themselves to promote their coins, and this went downhill fast. People were doing, like, really gross things to try to get attention. There was someone claiming that they had kidnapped the developer of the coin and would torture them.
Pump.fun removed the livestream function from its website in response to this mayhem.
There’s a second group: the ones who are already famous. C listers and influencers do this, such as Iggy Azalea.
The third and final group are the well-resourced insiders who know how to play the game. They are the shadowy groups, influencers on places like Discord, X, TikTok, YouTube, who, once they start talking about a coin, their followers will start to buy it, because these people have a track record of talking about coins kind of early on, and the coins go on to attract even more attention.
In crypto, these influential people are called KOLs, which stands for Key Opinion Leader. And those people are often paid to promote the coins. And some people will tell their followers, I’m getting paid to promote this coin, and other people will not.
The real power players are the KOLs.
Elon Musk, the market mover-in-chief, is considered of utmost importance to the potential success of meme coins.
Regardless of the coin creator, the goal is to blast off. The site acts as a launchpad, like Cape Canaveral, but many coins fail to take off.
Something like 99% of coins are dead on arrival.
If a coin creator can get key opinion leaders on board, they stand the chance to get an initial price liftoff.
If the price takes off, coins can graduate from pump.fun to bigger platforms like Moonshot, to bigger exchanges like Binance and Coinbase.
Pump.fun gets a 1% cut of every transaction on the platform.
Yeah. And pump.fun, this platform, in just a year or so– Dune Analytics, which is a blockchain analysis company, says that it’s made $400 million in fees.
Zeke says that is exactly the fear of missing out that fuels this whole market.
What everyone wants is that next one that’s going to go up 10x, 100x, 1000x.
Dune Analytics studied blockchain data and found that only 3% of traders on pump.fun ever made $1,000.
Meme coin trading is a zero-sum game. This minority of winners makes their fortunes off the vast majority of meme coin investors.
Why do so many people continue to invest?
I definitely would say this is just gambling. Everyone involved would agree with that, I think. But it’s a really weird form of gambling. And oftentimes, by the time that you or I hear about any coin, you know, the insiders have probably accumulated a big supply at a low price, and they’re just waiting for losers like us to hear about it and buy some, so that they can sell theirs and get real money.
A lot of what’s going on feels like a new twist on the classic pump-and-dump scheme.
Instead of people promising gains based on some underlying value, many meme coin boosters are just promising that there will be enough other chumps out there to cash you out when the time.
Call it a chump-and-dump.
I don’t think that most of the people who buy this, like, they’re not being fooled by the coins. They just think that, hey, I am not the last person who’s going to buy this coin. Someone else will come along later and buy this coin for more.
If you want to hear what it’s like to have your whole life taken over by the meme coin casino, we have another episode coming out next week.
