Key Insights

  • PEPE has become the fastest growing ERC-20 token in cryptocurrency history, gaining $1 billion in market cap and 107,000 holders in just 23 days;

  • PEPE sparked a meme coin renaissance. As a result, both the Ethereum and Bitcoin networks have experienced congestion and rising transaction fees;

  • Although PEPE has seen record growth, its valuation is still only a fraction of DOGE and SHIB.

A common complaint about the current state of cryptocurrency is that it lacks adoption for the average person. This is a fair criticism, but there is one product that has consistently proven to be able to attract new users to the chain: meme coins. Recently, speculators have seen a resurgence in interest in meme coins thanks to the parabolic growth of PEPE, an Ethereum ERC-20 token that attracted 107,000 holders and reached a market cap of over $1 billion in just 23 days. To better understand the role of meme coins in cryptocurrency, let’s take a look at their history and progress up until the recent PEPE craze that has sparked a lot of market attention.

origin

The origins of meme coins can be traced back to Dogecoin (DOGE) in late 2013 and peaked during the 2021 bull run. In 2021, DOGE gained mainstream popularity, growing from a market cap of $700 million on January 1 to a market cap of $88 billion in early May. Following Dogecoin’s run, Shiba Inu (SHIB) reached a market capitalization of $42 billion at the end of October, having started the year with a market capitalization of less than $1 million. These dog-themed assets have no intrinsic value, but their association with viral internet memes has fueled their popularity among cryptocurrency users and retail users.

Now, PEPE is the latest Meme coin to grab the attention of the market. The coin's popularity stems from Matt Furie's creation of the Pepe the Frog character in the 2005 cartoon "Boys Club." After the original Pepe drawing and later variations achieved virality on internet platforms like 4chan and Tumblr in the 2010s, Pepe was embraced by the cryptocurrency community and quickly became part of crypto cultural lore.

The PEPE token was released more than three weeks ago on April 14, with a total supply of 420.69 trillion tokens. 93.1% of the tokens were deposited into Uniswap's liquidity pool, and the remaining 6.9% were stored in a multi-signature wallet for future centralized exchange listings. The anonymous team that released PEPE took advantage of Pepe the Frog's existing popularity on Twitter and created a meme campaign to drive early adoption. It can be said that this strategy has achieved unexpected success.

PEPE’s growth figures

PEPE’s meteoric growth is unprecedented in cryptocurrency history. Its first two days were relatively quiet, but by the third day, the number of daily holders was growing by the thousands. PEPE only took 22 days to have more than 100,000 holders on the chain.

This is even more impressive compared to the historical growth of other fast-growing Ethereum coins. When SHIB enters a period of ultra-rapid growth in 2021, it will still take 90 days for the token to reach 100,000 holders. The viral assets of the DeFi summer of 2020, like YFI and YAM, never even reached the 100,000 holder milestone. As a proxy for more organic growth rather than speculative demand, Dai provides a benchmark: it takes 225 days to reach 100,000 holders.

Arguably, the most important factor driving Pepe’s growth is that crypto players are now familiar with how rapidly Meme coins have grown from their initial cycles in 2021, led by DOGE and SHIB. Being first in line is profitable, and this self-reinforcing power attracts more buyers as the popularity of the meme increases. If we look at the average value per holder of PEPE and SHIB, measured by market capitalization of holdings per holder, we see that PEPE shows a similar growth pattern to SHIB, but at a much faster rate.

The rapid listing on centralized exchanges added fuel to PEPE's hot start. It took only six days for PEPE to land on MEXC, its first centralized exchange; and 22 days to land on Binance, the world's largest cryptocurrency exchange. These integrations not only lower the threshold for users to speculate, but also enable large capital providers to provide off-chain market making services. In the past week, we have seen most of PEPE's trading volume move from Uniswap to these centralized platforms.

The adoption of PEPE on centralized exchanges has also opened the door to PEPE derivatives trading. Now, exchanges like Binance and Bybit have offered PEPE perpetual futures, enabling users to invest in PEPE's price with 100x leverage. In just a few days, the trading volume of PEPE derivatives has exceeded daily spot trading volume.

Because derivatives create leveraged exposure to the underlying asset, they also introduce greater volatility to the asset. This volatility is now spilling over into Ethereum’s DeFi ecosystem, where a sharp swing in PEPE prices over the weekend pushed Ethereum gas fees to a new yearly high. Users are once again faced with transaction fees of more than $100 to exchange PEPE on-chain.

Unlike the meme coin craze of 2021, the Ethereum ecosystem now has fully functional second-layer solutions that can help alleviate mainnet congestion. However, PEPE’s creators chose to launch on the Ethereum mainnet to maximize their access to liquidity. While Ethereum, Arbitrum, and Polygon all offer similar numbers of daily active users, Ethereum’s total value locked is $29 billion, Arbitrum’s $2.5 billion, and Polygon’s $1 billion. Choosing to launch on an Ethereum scaling solution creates greater friction and reduces the likelihood of a PEPE outbreak.

Meme coins may not be making a splash as a scaling solution for Ethereum, but they are scaling to Bitcoin with the novel BRC-20 standard built on the Ordinals protocol. These “tokens” are fungible batches of metadata, inscribed into individual satoshis on the Bitcoin network. Since the launch of PEPE, the BRC-20 meme coin has exploded in popularity and caused severe congestion on the network—enough to force Binance to suspend BTC withdrawals twice in one day to reconfigure their fee processing.

Finally, the resurgence of activity on the Ethereum mainnet has brought benefits to ETH holders. The supply of ETH is shrinking at the fastest speed since The Merge occurred in September 2022. While on the surface PEPE is the clear winner of the recent meme cycle, the "Ultrasound Money" meme shows its strength on the fundamentals.

Looking to the future

Both SHIB and DOGE experienced a 90% price correction after their parabolic growth in 2021. Will PEPE face the same outcome? The history of speculative markets would say yes. However, this is not to say that PEPE’s rise is over.

At the peak of the frenzy in October 2021, SHIB's market capitalization briefly surpassed DOGE, peaking at a market capitalization of $45 billion. At a market capitalization of $1 billion, PEPE is now one-fifth of SHIB's market capitalization and one-tenth of DOGE's market capitalization. It wouldn't be surprising to see it surpass both of those at some point, even if only briefly.

Another data point worth watching is the number of daily active users of Uniswap on Ethereum. This number has more than doubled since the release of PEPE and is now rapidly approaching the all-time high of 90,000 daily users in May 2021. Integrations with Uniswap mobile wallets have improved since 2021 and could set a new daily user record if PEPE continues to gain traction.

Finally, stories are circulating of early PEPE buyers becoming wealthy from small initial investments. These stories make speculative investments in other newly launched meme coins more attractive to fringe users. In the first two weeks of Pepe’s launch, we started to see substantial interest in other meme coins such as WOJAK, TURBO, and AIDOGE. However, the excitement and growth of these alternative meme coins are all hallmarks of the final phase of the 2021 meme binge.