Many retail investors are flocking to new Memecoins, which are often more likely to result in losses rather than gains.

Author: Stacy Muur

Compiled by: Deep Tide TechFlow

In the past few weeks, Memecoins have overshadowed all other Web3 topics, making ordinary users feel that riding the wave of Memes is the only way to achieve high returns. With the surge of Memecoins like $PNUT, $PEPE, $BONK, and $BRETT, along with the increasing popularity of the Meme category, the daily trading volume of Memecoins has reached an all-time high, drawing significant attention. So, is this risk worth the rewards? Is the Memecoin market overhyped?

The Current State of Memecoins

Is Meme really the theme of this year? If you ask someone with at least five years of experience in the Web3 market how to define 2024, they are likely to say it is the "Year of Memecoins."

Many believe that Memecoins are the best-performing assets this year, supported by charts and rankings. But does this truly reflect reality?

1 Month Industry Performance

Source: Artemis

If we analyze the industry performance from the beginning of the year to now, the data may present a different picture. For example, on Artemis, the RWA index (including Ondo, Mantra, Clearpool, and Maple) leads with a growth rate of 1,900%, while Memecoins have a growth rate of 258%, and Bitcoin stands at 104%. Additionally, it is important to understand which Memecoins are included in the consideration. Currently, the Memecoin index on Artemis only tracks the 19 largest Memecoins.

The category rankings on CoinGecko face another issue: many Memes belong to multiple categories, so a few strong performers can significantly exaggerate the 7-day performance across multiple categories.

Source: CoinGecko categories

Considering the Pump.fun ecosystem, which tracks 520 tokens, it helps to understand why I see this as a problem. It has performed very strongly, being the second largest gainer this week, triggering significant FOMO (fear of missing out).

However, upon closer inspection of the rankings, it turns out that fewer than 20 tokens had a 7-day gain exceeding 110% (the average for the category), accounting for only 3.8%. Furthermore, fewer than 60 tokens (11.5%) had a positive weekly gain.

This no longer seems like "WAGMI" (we're all gonna make it), does it?

From a performance tracking perspective, the main issue with Memecoins is that their industry performance is often measured by the largest or most popular assets in the category.

This creates the illusion that Memecoins are outperforming all other Web3 sectors. In reality, it is more accurate to say that only the leading Memecoins outperform other categories.

This raises an important point: we need to distinguish between mature Memecoins and new Memecoins, as they represent two entirely different markets.

New Memecoins

CoinGecko currently tracks 520 Memecoins on its Pump.fun dashboard. Since the launch of Pump, 3 million tokens have been created.

This means that 99.982% of tokens are not tracked on CoinGecko, so we cannot obtain information about their performance.

Data Source: Dune

This means that 99.982% of tokens are not tracked on CoinGecko, so we cannot obtain information about their performance.

Data Source: Dune

Here are some background insights I researched at the end of August:

• Most of the most profitable addresses are the token deployers

• Only 3% of Pump.fun traders made over $1,000

• Only 0.8% made over $10,000

• Over 60% of traders lost money

Data Source: @newtoneinsteinx on X

For the average new Memecoin trader, the biggest problem is the inability to distinguish between "emerging" and "mature" Memecoins.

Most novice traders chase early protocols, hoping to replicate the cases of that 0.001% that successfully achieve mass adoption, like $PEPE or $BONK.

I don't want to disappoint you, but the odds of being struck by lightning are higher: 0.011%.

Mature Memecoins

For mature Memecoins, the outlook is much more optimistic. They gain market share not due to venture capital support or specific valuation factors, but rely on their community, a bit of luck, and strategic market management.

This may sound like a conspiracy theory, but I believe that most Memecoins with solid market share are not created by random developers. Typically, behind these successes are professional Memecoin development teams with ample resources for market making and marketing.

I want to clarify that I am not saying all popular Memecoins are the result of perfect planning, but this may apply to most cases.

Several reasonable factors make mature Memecoins perform better than many other Web3 sectors:

• 100% of the supply is in circulation (no low circulation or high FDV)

• No venture capital support (eliminating additional sell-off pressure)

• An organic and active holder community

• No product risk (no vulnerabilities, poor execution, or inadequate user acquisition)

• Memecoin rotation model (profits from one Memecoin surge flow into other Memecoins)

• Strong correlation with the overall market cycle

• Lower dependence on marketing

Data Source: Kaiko

The trading of Memecoins is primarily speculative, and this year's trends have become more predictable, forming certain patterns that attract significant trading volume and liquidity, thereby diverting the market from "classic" coins, especially in the current context where Web3 lacks dominant or novel narratives.

Notably, according to the 1% market depth data from U.S. exchanges, the liquidity of Meme tokens reached an all-time high last week, hitting $110 million. Large-cap Meme tokens like SHIB and DOGE still dominate, holding over 70% of the market depth.

However, their market share is gradually declining, indicating that investor interest in smaller tokens is increasing.

What is our current situation?

Currently, over 50% of the trading volume on Solana comes from Memecoins. On BNB, this proportion is close to 45%, while on Base, it is about 25%. This is already a significant percentage.

Data Source: Dune

However, history tells us that when the market is busy pushing a narrative after price fluctuations, it is often too late.

In my view, the Memecoin market has reacted to the rise of Bitcoin. As long as the price remains around $90,000, I believe that mature Memecoins are unlikely to see a new surge—we can refer to them as "cult coins" to avoid confusion with the 3 million tokens created on Pump.fun this year.

However, retail investors always follow trending topics and are still hopping on this train, hoping for a journey to Valhalla.

Source: @_kaitoai on X

The main issue is not just that most people are getting on board too late, which is common in all narratives. The real problem is that many retail investors are flocking to new Memecoins, which are often more likely to result in losses rather than gains.

As a result, new users suffer losses, leading to a stagnation in further user acquisition. For the average Web2 user, the distinction between Memecoins and classic coins is almost negligible; to them, they are just code. Therefore, this negative experience affects all areas of Web3.

It should be noted that I do not oppose the "cult coins" that already have market share—that is, the mature Memecoins. They do have many advantages. However, I believe we should stop conflating excellent projects with the poorly designed lotteries on Pump.fun. Let’s correct this issue.

Final Thoughts

• If you are an experienced Memecoin trader, you can continue executing your strategy, but be aware that the market may be overheated.

• If you are new to Memecoins and feel strong FOMO, consider allocating a small portion of manageable funds in your portfolio for experimentation, focusing on those already mature "cult coins."

• Unless you know how to win in the market, you should avoid participating in new coin launches. There is an important principle: If you don’t know how to win the game, don’t participate.

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