TL;DR

Attributed to convenience and low barrier of entry, a result of the user friendly approach employed by many builders in the space, exchanging and creating custom tokens is easier than ever. This, coupled with social media and the ever growing number of retail investors, has considerably sped up the expansion of tokens that don’t provide any utility and rely solely on loyal communities and relentless, aggressive marketing to sustain it’s growth.

Introduction

Internet culture and memes have had a strong presence in crypto for a long time. A testament to that is the enormous total market capitalization of memecoins, which amounts to roughly $66.65b as of writing this article.

Dogecoin makes up ~43.81% of the entire category and is valued higher than some well-established enterprises (e.g. Vodafone, Pinterest and Logitech).

For a long time, the central hub for memecoins has been Ethereum with little competition for the title, up until recently. There has been a shift in activity related to these tokens on none other than Solana, becoming a mainstay for projects entering the market and speculators trying to get their foot in the door.

A large contributor to the Solana expansion and the surge in trading volume is it’s vibrant on-chain memecoin ecosystem that has garnered a lot of interest this year with names like “dog wif hat” and “Bonk” going mainstream and reaching sky high valuations.

While we do not condone the trading of memecoins, it’s still beneficial to be aware of what, why and how is taking place in a market that is gaining a foothold and notoriety.

At first glance it might be impossible to distinguish the reasons behind the seemingly nonsensical price action, but there may be hints if looking at it hard enough. So, in this article, we’ll be conducting a broad overview of the space as a whole by checking every nook and cranny to try and make sense of what’s going on exactly.

The Landscape

Before we get into the analysis, it’s wise to set the scene and get familiar with the environment and it’s characteristics as there is little rationality behind the whole thing and needs to be observed with an open mind.

Every niche has developed their unique culture and the on-chain happenings of Solana are no exception. The stories of missed life changing gains and overnight successes have become a recurring sight on Twitter feeds ever since the Solana season began. Aware of the potential kingmaker trades waiting to happen, a lot of people from various backgrounds have made their way to liquidity pools in search of a lucky break.

A key characteristic of memecoins on Solana is the sheer amount of tokens created on a daily basis.

Due to extremely low capital requirements to launch a memecoin, an enormous amount of new trading pairs get listed on decentralized exchanges every day. Making it a fast-paced environment where frequent rotations, changing of trends and metas are commonplace. Most, if not all new pairs have very low liquidity, resulting in high price impact and crazy volatility. The average lifespan of a project tends to be around 24 hours or less, largely due to bad actors trying to capitalize on the frenzy by orchestrating rug pulls and engaging in deceptive marketing to fool ambitious, unsuspecting investors.

If you spend enough time in Telegram groups, looking at charts and sifting through cashtags on Twitter, a pattern emerges that allows one to map most participants to specific roles that are integral to the space.

The Developer;
Hailed as a god, developers are seen as shepherds that can herd the community to financial freedom. More often than not their decisions shape the early stage price action and determine the longevity of a project since as the creator, they have full control over the fundamentals and may hold a considerable amount of the token supply.

The Influencer;
Utilizing their reach on social media, influencers share their personal investments to bring more awareness to a project with varying motives. Depending on their intentions, some are looking to strengthen the community by adding social proof, and some are simply looking for exit liquidity to turn a profit.

The Community Member;
Loyal to the bone and willing to ride it to the promised lands or zero with no in-between. These people can be frequently seen in chat groups interacting with others and tirelessly shilling their investments under the posts of popular figures whose attention can make or break the bank.

The Sniper;
By automating on-chain interactions to indiscriminately buy tokens as soon as liquidity is added to a pool, and trading is made available, the operators of these wallets are looking to capitalize on the upside momentum generated by regular traders stepping in after them. For the most part they aren’t in it for the long run and sell early as there is an abundance of opportunities.

Keep in mind that all this is taking place in a brutal and unforgiving player-versus-player setting. To remain competitive and have a fighting chance, a plethora of trading tools with useful analytics have been developed to expedite decision making and execution. Services like Photon and BonkBot are preferred by most traders and are a huge quality of life improvement over vanilla options.

Rhyme or Reason?

In the vast ocean of tokens, only a handful sustain a high valuation for an extended period of time and have a tightly-knit community that reaches relevance. This entails that there must be some quantifiable factors that contribute to their success.

Having a solid due diligence framework will make the process of filtering endless watch lists easier and save time. This begs the question — what valuable pieces of information can we use to perform effective analysis for these unpredictable coins?

Using historical data we can attempt to identify commonly occurring patterns and metrics to gauge a project’s potential to some degree. For example, by analyzing the top 50 memecoins we can get a glimpse of what attributes the out-performers have.

Trend

Since the whole space is mainly trend and narrative-driven, it’s worth checking what categories or themes are popular right now to avoid boarding a sinking ship.

By visualizing trending topics with a word map, it’s fairly simple to tell what are the main trends and sub-trends at the moment.

Word map of the most frequently occurring themes and sub-themes

In this case, animal-themed coins are the most relevant, with cats being the most popular sub-topic. The second biggest cluster in this visualization is “internet culture”, usually encompassing Crypto Twitter and mainstream memes.

An interesting detail about this visualization is the use of the “copy” keyword, that includes projects spawned from original concepts with their own unique twist. These pop up consistently and serve as a second chance for those that missed out on the predecessor.

Metrics

After narrowing down promising categories, some technical details can and should be assessed before continuing.

% of projects with Mint Authorization Disabled:
100

Every project should disallow the minting of additional tokens to avoid infinite selling pressure. Period. In our observation group, all subjects has this setting disabled.

% of LP burned:
average — 78.7
median — 98.0

The burning of LP tokens, received upon adding initial liquidity by the deployer, reduces the risk of liquidity being pulled by the creator. The median percentage here indicates that usually most of the initial LP is burnt.

% of tokens held by the Top 10 wallets:
average — 27.51
median — 21.79

In most cases the top token holder distribution is in the 20% range and varies from project to project. The lower the percentage, the lower the chances that a few individuals could wreak havoc with substantial sell pressure.

Days since trading began:
average — 23.52
median — 6.66

Since a majority of memecoins don’t last more than a few days, signs of life (volume) past the 100 hour mark are usually a good indicator. The fact that the median age of a top 50 memecoin is slightly less than a week, showcases how quickly the market moves. The upper echelon of memes however tend to stay relatively stable and hold their ground in terms of leaderboard positioning.

Community

Probably the most difficult, but crucial aspect to examine is the cornerstone of every memecoin — the community. An active, vocal community with their own niche culture is mandatory for spreading the word and attracting new members to fuel it’s growth in an extremely saturated market.

To facilitate any discourse in the first place and market themselves in the early stages, projects need to have a presence on media platforms (e.g. a website, Twitter, Telegram and Discord) for verifiable credibility and maximal reach.

Amount of unique platforms per subject:
1 platform — 2%
2 platforms — 10%
3 platforms — 78%
4 platforms — 10%

More than two thirds of memecoins we’ve observed have at least 3 outlets, so the absence of a Telegram and Twitter chat should immediately raise some red flags.

Using these gateways we can survey the community to look for positive indicators, which usually tend to be (but not limited to):

• No in-fighting;
  People constantly arguing in the group chats or on Twitter is never good for optics and could be unappealing to speculators interested in the project. Positive sentiment and active, wholesome discussions are more inviting.

• Strong Twitter presence;
  Having a solid brand with distinguishable features (e.g. inside jokes, common theme for memes) on Twitter is a necessity to maximize the odds of becoming memorable, recognizable and going viral to attract as much attention as possible.

• Well-respected influencers;
  Reputable social media figures backing and frequently mentioning the memecoin are a huge plus, whereas association with infamous influencers with tendencies to pump and dump should be avoided.

Final Assessment

The last stage of the analysis will be converging all of our thoughts and inspections to reach a conclusion by using an assessment matrix. Everyone should have their own approach to this, based on personal parameters and risk tolerance. In this section, we’ll be using an in-house solution that was kindly provided to us by the quants at On Chain Times.

The Solana Memecoin Red Flags x Community Assessment Matrix

In case you are wondering why the “red flags” axis starts at a 4, the answer to that is: memecoins on Solana void of red flags simply don’t exist. By establishing a ratio between the community ranking and the amount of negative factors present, we can loosely assign every token into a category and take it from there.

The goal should always be to identify and interact with coins that have a high community rating and minimal warnings sign as the likelihood of them succeeding is greater.

There are however some frequent phenomena that should be taken into account, while trying to categorize a project:

• Community Takeovers;
  In some instances the developer of a promising and well-liked concept decides to exit by selling all of their tokens, and in response the community creates new communication channels to essentially restart the project without the risk of developer shenanigans.

• Influencer Revival;
  These are hard to predict, but there are edge cases where a dead project experiences second-wind due to a popular creator being involved at some point and shining a bright spotlight on it.

• Snipers Exiting;
  Often leaving a nasty stain on the chart with their behavior, early snipers leaving can increase the chances of a marketing push taking place on social media as it’s less probable for them to undo the community’s efforts with large selling pressure that can easily scare people away.

Finding gems is a daunting task, but as history has shown, they do exist and show up once in a while on our radars.

Conclusion

Reaching a level of relevance that can not be ignored, memecoins are here to stay for good despite it’s ridiculousness. Even without intent to participate, fading an important sector of the market should be considered a cardinal sin for any well-rounded and informed crypto investor. Armed with the knowledge from this analysis boot camp, navigating the world of tradable memes should hopefully feel less like stumbling in the dark and grasping at straws.

Disclaimer：

1. This article is reprinted from [onchaintimes], All copyrights belong to the original author [HYPHIN AND THOR]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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