Author: Tanay Ved & Matías Andrade Source: Coin Metrics Translation: Shan Ouba, Golden Finance
Key Takeaways:
Currently, the total market value of meme coins is 60 billion US dollars, and it occupies an increasing market share in layer 1 networks such as Ethereum and Solana and layer 2 networks such as Base.
In March, the meme coin’s spot trading volume on exchanges (7-day average) reached $13 billion, surpassing major blue-chip crypto assets such as Ethereum (ETH) and Solana (SOL).
The high concentration of meme coins indicates that the assets are mainly concentrated in the hands of a few holders, bringing potential market manipulation and liquidity issues.
introduction
Memes have become an important part of human culture, evolving and adapting over time through various media. The term "meme" was coined by British evolutionist Richard Dawkins in his seminal 1976 book The Selfish Gene, describing it as a unit of cultural transmission, including "tunes, ideas and catchphrases", emphasizing their similarity to genes in biological evolution.
The spread of memes has changed significantly throughout history, influenced by social, cultural, and technological changes. In ancient times, folktales and religious symbols were early forms of memes, transmitted orally or in manuscripts. During World War II, the graffiti meme "Kilroy was here" was widely circulated to symbolize the presence of American soldiers. In the digital age, memes have found new vehicles through viral videos and image macros (such as "Doge"), quickly spreading across the Internet and social media platforms, allowing cultural ideas to spread more widely than ever before.
More recently, memes have expanded further into phenomena such as meme stocks, with GameStop’s value skyrocketing as a result of collective efforts on Reddit’s /r/wallstreetbets forum. Similarly, meme coins like Dogecoin and Pepe have gained huge traction in the crypto asset world, creating digital forms of value through blockchains and on-chain communities. Memes are part of human nature, reflecting our desire to seek connection and belonging through shared ideas.
In this week’s Coin Metrics State of the Network report, we aim to explore the surge in memecoin activity on networks like Ethereum and Solana, highlighting the major market trends driven by the memecoin industry.
The Current State of Meme Coin
Since the advent of Dogecoin in 2013, the meme coin industry has expanded rapidly, with a total market capitalization of $60 billion as of June 2024. The industry is characterized by crypto assets representing familiar animals, characters, and more recently, politicians, with an element of humor to attract attention and drive community engagement. Their growth is largely due to their highly speculative nature, driven primarily by market sentiment rather than intrinsic value.
(Note: Solana’s meme coin and other SPL tokens will soon be released as an extension of Solana network data)
The most valuable meme coins today include Dogecoin (DOGE), which runs as an independent proof-of-work blockchain, and ERC-20 tokens like Shiba Inu (SHIB) and Pepe (PEPE), whose market value exceeded $100 billion in 2021. Recently, Solana has become a hot spot for meme coins, spawning meme coins like dogwifhat (WIF) and Jeo Boden (BODEN) due to low transaction fees, a growing ecosystem, and easy token creation through platforms such as pump.fun.
The memecoin sector has outperformed other sectors of the cryptoasset ecosystem, according to Coin Metrics’ datonomy™ classification. Memecoins have shown strong relative strength compared to major blue-chip cryptoassets, and have also outperformed the information technology sector, which has gained ground due to developments at the intersection of decentralized computing and artificial intelligence (AI) applications.
Meme coins have been particularly notable, with an average return of 740% from October 2023 to 2024. This has also driven the growth of meme coin indices, such as the GMCI Meme Index, reflecting efforts to quantify the performance of the sector. Although correlated with the speculative phase of the market cycle, this performance reflects the recent growth of the sector’s mind share among retail and institutional investors.
Meme coin market activity
The growing attention surrounding the meme coin space has further boosted activity in the digital asset market. While trading volumes are generally in line with broader market trends, in March, meme coin spot trading volume (7-day average) on centralized exchanges reached $13 billion, even surpassing major assets such as Ethereum (ETH) and Solana (SOL). Decentralized exchanges (DEXs) also play a key role in the meme coin ecosystem, providing the basic infrastructure for pool creation and asset trading, facilitating liquidity and accessibility for a wide range of users.
From a relative volume perspective, the influence of established meme coins like DOGE and SHIB appears to be waning, while PEPE and a host of new Solana meme coins are gaining popularity, collectively representing more than 50% of volume. This reflects investors' recent preference for new meme coins, stemming from their growing communities, blockchain ecosystems, and potential for higher returns. Nonetheless, the liquidity and long track record of existing meme coins remain important factors for potential investors to consider.
Likewise, high futures open interest indicates a significant market presence and indicates a high degree of speculative trading activity. DOGE's open interest recently hit a record $1.8 billion, while PEPE's open interest surged nearly 50% in May to $850 million. This surge in open interest, which totals more than $3 billion, demonstrates increased price volatility and highlights the growing use of futures positions by investors to hedge their exposure to meme coins. Tracking open interest is one of the fundamental tools for understanding speculative capital flows, especially in volatile instruments, which can be a precursor to shifts in market interest or liquidations.
Meme coin user growth and risks
While the market presence and user growth of meme coins go hand in hand, it is important to be aware of the risks associated with this space. The Gini coefficient is a measure of the distribution of income or wealth across a population, ranging from 0 (perfect equality) to 1 (maximum inequality). In the context of meme coins, the Gini coefficient can be used to assess the distribution of token holdings among different addresses.
High concentrations of token holdings increase the risk of market manipulation. Large holders, often referred to as "whales," can significantly influence the price of a token by buying or selling large amounts at once, causing volatility. Additionally, if a few addresses hold a majority of tokens, it can lead to liquidity issues, which can be exacerbated in decentralized exchanges where a few entities control liquidity provision.
The high Gini coefficient of these meme coins (around 0.8) highlights the significant concentration of token holdings. This concentration creates a variety of risks, including potential market manipulation, liquidity issues, and investor vigilance, which should be carefully considered when evaluating these tokens. Before considering any investment in the meme coin industry, understanding these dynamics is critical to assessing the stability and potential risks of these digital assets.
in conclusion
The meme coin industry has shown significant growth and influence in the cryptocurrency market, finding a strong foothold on the blockchain due to the viral nature of memes and the ease with which they spread. The sector has performed strongly alongside Bitcoin since the launch of spot ETFs, underscoring its growing appeal among retail and institutional investors. However, a Gini coefficient as high as 0.8 indicates significant concentration of token holdings, bringing risks such as market manipulation and liquidity issues, in addition to volatility that most investors will not tolerate. As the industry continues to evolve, understanding these dynamics is critical to assessing the evolution and potential risks of meme coins.
Network Data Insights
Compared to last week, the amount of transactions (adjusted) on the Bitcoin network fell by 28%, and the amount of transactions on the Ethereum network fell by 21%. The number of active addresses on Bitcoin increased by 6%, and the number of active addresses on Ethereum increased by 3%.
