The Biggest Winner of Q1 2024, The Logic Behind the Surge in Meme Coins

01 What is Meme

The term “meme” was first introduced by British scholar Richard Dawkins in his book “The Selfish Gene,” where he proposed that just as genes are the fundamental unit in biology that carry genetic information, culture too has a basic unit that carries the information of cultural transmission.

The term “meme” originated from the Greek word “mimema,” meaning “something imitated.” Biologist Richard Dawkins first mentioned it in his 1976 book “The Selfish Gene,” where he adapted it into a word similar in sound to “gene.” He applied the concept of evolution to the study of cultural change, formally defining a meme as a small cultural unit that replicates and spreads among people through copying and imitation. Chinese scholars He Ziran and He Xuelin translated “memes” into “模因” in 2003.

Richard Dawkins compared the process of cultural inheritance to biological evolutionary rules. The scope of memes is extensive, including religion, rumors, news, knowledge, ideas, habits, customs, slogans, proverbs, phrases, jokes, and more. The replication of memes is not as precise as genetic replication in nature; it involves not only imitation but also autonomous re-creation, following the principle of survival of the fittest.

Just as genes jump from one person to another in the gene pool, memes reproduce themselves by jumping from one person’s mind to another through imitation. When a meme occupies a person’s mind, it’s like a virus infecting a cell, turning the mind into a tool that carries the meme. Just like not all genes successfully reproduce, some memes have a widespread impact while others quickly fade away.

02 How Meme spreads

Richard Dawkins identified three key factors that affect the survival capability of memes: longevity, fecundity, and fidelity of replication.

Longevity seems less crucial among the three factors because the survival of a meme largely depends on the survival of its carriers. When the brain that harbors the meme dies, or when the “CD” that carries the information is destroyed, the meme vanishes.

Fecundity is relatively more important. If the meme is a scientific discovery, its chances of survival largely depend on how many people understand this discovery. This can be roughly estimated by counting how many times it has been cited in well-known academic journals and the circulation of these journals. The stronger a meme’s ability to reproduce, the wider its spread and the greater its chances of survival.

Fidelity of replication refers to whether a meme can be replicated and spread without alterations. Due to differences in education, interests, age, and gender between the replicator and the receiver, the copied and received meme might differ. There are also instances where the replicator intentionally alters the meme during transmission. A typical example is in academic papers, where authors may choose to discuss only certain aspects of a meme to support their points, analyze it from a new perspective, or combine it with other memes to form new ones. High fidelity ensures that the meme is preserved intact during replication.

03 What makes Meme popular?

Simply put, it relies on “the laws of communication” to spread rapidly. Thus, to study memes, one must first delve into the laws of communication, understand market sentiments, and grasp “how to stir people’s emotions.” This brings us to the SIR model of transmission.

Originally a model for epidemic spread, it applies equally well to information dissemination. In the model, the red line represents susceptible individuals, the green line represents those infected, and the blue line represents those who have recovered. The horizontal axis represents time. The essence of information spread is to ensure that the rate of infection exceeds the rate of recovery, thus continuously expanding the number of infected individuals. By combining communication and psychology, the goal is to expose more new individuals to the information, increasing the chances of further spread.

Next, by integrating psychology and communication studies, we identify the regularities in meme issuance based on these four core elements: MEME content, environmental atmosphere, KOL promotion, and the wealth creation effect.

Content: Essentially, memes tell stories through images, conveying emotions. For instance, $Doge appeals to dog lovers due to its affinity and sustained interest, attracting many with its cute and amusing portrayal. $PEPE, the sad frog, was a beloved emoticon even before becoming a meme. The sloth from Zootopia is another widely adored character. In terms of emotional conveyance, the more straightforward and understandable, the better. As a saying about the novel “The Three-Body Problem” goes, “Every additional equation loses ten thousand viewers.” The easier it is to relate to, the more widely it will spread, as overly technical content only attracts peers. In summary, memes that are cute, well-liked in the traditional world, and simple tend to become popular.

Environmental Factors: This includes macro-environments and economic cycles. The recent bull market has brought in many outsiders to the field, who find complex technologies like oracles, re-staking for security, or smart contracts incomprehensible. However, memes are easily understandable and affordable, with a few thousand units purchasable for 10U, potentially leading to significant returns. This bull market’s meme craze is also influenced by the economic downturn. In simpler terms, as economies weaken, public interest in new technologies diminishes, akin to animals hibernating with low-energy, easy-to-digest behaviors, making the meme market even more vibrant.

KOL Promotion: The creation and distribution of a meme, establishing pools, and engaging KOLs for promotion and community advocacy are essential components. Regardless of their expertise, KOLs tend to produce compelling content that persuades audiences to believe and engage. Much of the price in the coin realm is driven by speculative bubbles, which stem from consensus. Therefore, marketing for memes inevitably involves KOL-driven and community-based strategies.

Risk Warning: You might find several community leaders urging to invest in a particular coin while being bombarded by numerous influencer channels convincing you of a meme’s value. Jumping in might lead to losses, with bots harvesting transactions, buying at peak prices, or witnessing rapid declines. Paying attention to KOLs from English-speaking and various countries helps in assessing the cultural value behind a meme, as a cross-cultural consensus is the true consensus.

Wealth Creation Effect: Memes have become a mainstream track partly because they easily create wealth-creation myths, accompanied by the FOMO (Fear of Missing Out) panic. This involves pumping the market to awe investors, propagating tales of overnight riches—like someone making thirty million dollars in two hours—and spreading FOMO fear through the community, aligning well with the principles of communication.

04 What is Meme Coin?

The mapping of Meme culture in the encryption field is undoubtedly various memecoins and various meme NFTs. Memecoins are a subcategory of cryptocurrencies that focus on popular internet memes, pop culture references and viral internet trends. Famous examples of this type of meme include different versions of the Japanese Shiba Inu Kabosu and Pepe the Frog cartoons, and even extend to celebrities like Elon Musk.

According to a recent report from CoinGecko, the memecoin industry has become the most profitable sector so far this year.

The report shows that among the coins with the highest market capitalization, memecoin has the highest average return at 1,312.6%. By the end of the quarter, Memecoin, which launched in March, had joined the list of the top 10 Memecoins by market capitalization, including Book of Meme (BOME), Brett, and Cat in a Dogs World (MEW). Far beyond RWA and AI tracks.

The creators of Memecoin utilize various themes to attract the attention and trading volume of crypto market speculators. In many cases, well-known KOLs and forums such as Reddit have also joined the Memecoin craze. Unlike other cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH), which are primarily digital currencies, developers often create memecoins only as light-hearted social experiments that bring limited technical value.

Many consider memecoins a refreshing departure from the seriousness of traditional cryptocurrencies. Memecoins invites a new generation of users to engage with blockchain technology in an approachable and unconventional way. However, others believe that Memecoins are an extremely risky asset that will undermine the legitimacy of ambitious blockchain projects. Whether you’re meme-chasing or not, it’s still important to understand how memecoins work, where they are most commonly used, and some of the risks you should be aware of before jumping into the space. Today we will discuss the analysis of Meme and cryptocurrency.

05 The History of Memecoins

The concept of memecoins dates back to the early stages of cryptocurrency. Initially, they did not garner much attention from the market until 2013, when Dogecoin (DOGE), the first memecoin, emerged and brought memes into the public eye. Dogecoin was created as a joke by software engineers Billy Markus and Jackson Palmer. It featured the popular Shiba Inu “Doge” as its logo. Despite its humorous origin, Dogecoin quickly became popular in the crypto community due to its low price and fast block generation speed.

In essence, Bitcoin itself is the largest memecoin, with its value derived from a collective consensus based on the belief in decentralization, supported by cryptographic technology. Today, we typically refer to cryptocurrencies that rely solely on such consensus, jokes, and rapid dissemination, but lack technological innovation, as memecoins. From online tipping on Western community websites like Reddit.com to charity donations by international non-profit organizations, Dogecoin has become a commonly used medium of exchange, not just a joke. Following the success of Dogecoin, a series of memecoins inspired by internet trends and jokes, such as Pepe (PEPE) inspired by the Sad Frog meme, and Shiba Inu (SHIB), have emerged and gained attention for their own merits, becoming popular in the cryptocurrency community. The rise of decentralized finance (DeFi) and the boom in non-fungible tokens (NFTs) have provided fertile ground for further experimentation with memecoins.

06 memecoin and NFT

Memecoins have also capitalized on the NFT craze, transforming viral internet characters into unique digital assets that users can own and trade. For example, a Memecoin project might create limited edition NFTs featuring popular elements related to their tokens. Users can buy, sell, or trade these NFTs on various NFT marketplaces. This allows Meme enthusiasts to not only retain a piece of internet history but also support their favorite Meme projects. Early examples of NFT projects developed from viral internet Memes include Rare Pepes and the subsequent Fake Rares series.

Shiba Inu Coin (SHIB), one of the most popular Memecoin projects in the cryptocurrency space today, has also launched its own “Shiboshis” NFTs. This series includes 10,000 cartoon characters inspired by Shiba Inu dogs, which holders can use to battle in Shiba Eternity—a popular play-to-earn game associated with the SHIB project.

Like many other popular NFTs, Meme NFT holders have established private communities for their collections. Some of these communities allow holders to participate in exclusive offline events and have opportunities to obtain related merchandise.

07 Memecoins and DeFi

DeFi refers to a range of blockchain-based financial applications that recreate traditional financial services in a decentralized manner. Memecoins leverages DeFi protocols to create innovative ways for users to participate in the use of their tokens, not just through simple speculation, but also through staking, mining, and providing liquidity.

DeFi (Decentralized Finance) refers to a collection of blockchain-based financial applications that reconstruct traditional financial services in a decentralized manner. Memecoins have utilized DeFi protocols to innovate ways for users to engage with their tokens, moving beyond mere speculative trading to include activities like staking, mining, and providing liquidity.

Staking: Memecoin holders can stake their tokens on DeFi platforms to earn rewards. These rewards may come in the form of additional memecoins or other types of tokens, providing an incentive for users to hold and actively participate in the memecoin ecosystem. A prime example of a memecoin project thriving by incorporating DeFi elements is the Shiba Inu Coin project. SHIB token holders can swap ERC-20 tokens and perform various tasks on its ShibaSwap platform to earn SHIB and two other native tokens, BONE and LEASH. Additionally, DoggyDAO, a decentralized autonomous organization (DAO), empowers token holders by granting them voting rights on key protocol decisions, further enhancing their potential earnings.

Mining: In the context of memecoins, mining typically involves lending your memecoins to others through smart contracts in exchange for interest. DeFi platforms for memecoins use these loans to facilitate various activities, including trading or providing liquidity. Users earn rewards for their memecoins as compensation for their contributions to these activities.

Providing Liquidity: Memecoins can also be used to create liquidity pools. Users contribute their memecoins for others to trade on decentralized exchanges. This operation allows users to earn a portion of the transaction fees and contributes to the liquidity and efficiency of the memecoin market, while also earning corresponding rewards.

08 Risks of memecoin investment

Due to the viral nature of Memecoins, many projects have previously seen significant increases in value, but some have also experienced sudden crashes. Here are some of the risks associated with investing in Memecoins:

1. Extreme Volatility: The value of a Memecoin can skyrocket one moment and plummet the next, posing a high risk of substantial financial loss for investors. They are highly speculative and thus particularly susceptible to sudden market changes influenced by key figures (like Elon Musk), news, or online trends, which can lead to rapid increases and decreases in value.

2. Overreliance on Sentiment: Many new Memecoins often lack solid technology or practical use cases, potentially leading their value to be wholly dependent on market sentiment. While some Memecoins have found creative ways to integrate NFTs, decentralized finance (DeFi), or community-driven initiatives, many projects primarily focus on humor and satire, which carries emotional value. This absence of fundamental technological value makes it easy for Memecoins to become baseless.

3. Market Manipulation: The concept-driven nature of Memecoins may attract bad actors looking to profit from hype. Sometimes, false market news and community splits are deliberately created to inflate coin prices and then sell off holdings at high points, usually causing significant losses to unsuspecting investors. These schemes exploit the speculative and emotional trading of Memecoins, so investors need to be very cautious and conduct thorough research when heavily investing in them.

4. Prevalence of Scams: Many Memecoin projects are launched by developers using pseudonyms or anonymously, making it difficult to assess the credibility and intentions behind the tokens. There are also numerous instances of pre-sale Memecoins where, once a certain amount of money is raised, the development team disappears. Furthermore, there have been cases of official account details being altered to change pre-sale payment addresses, posing great risks.

09 Conclusion

In summary, memecoins represent an intriguing fusion of digital currency, internet culture, and humor. As memecoins continue to captivate attention and evolve, questions arise about how they will shape the broader cryptocurrency landscape. Moreover, beyond their comedic origins, what astounding applications might they find, and how can they unlock early value? When is the optimal time to enter the market to balance risk and reward? The AU Research team will continue to provide detailed explanations of more tools and technical lines.

Disclaimer:

1. This article is reprinted from AN Universe, originally titled “AU Research Report | 2024Q1 Biggest Winners, the Logic Behind the Memecoin Surge,” and the copyright belongs to the original authors, Ling Yun and Miss Mao. If there are objections to the reprint, please contact the Gate Learn team. The team will handle it promptly according to the relevant procedures.

2. Disclaimer: The views and opinions expressed in this article are those of the authors and do not constitute any investment advice. Other language versions of the article have been translated by the Gate Learn team, and without mentioning Gate.io, no part of the translated articles may be copied, transmitted, or plagiarized.