- Wilson Elser attorney analyzes the memecoin phenomenon
- Coins can thrive if users, exchanges, regulators manage risks
Memecoins are a subset of altcoins, which encompass all cryptocurrencies other than Bitcoin. While altcoins span a wide range of uses—from decentralized finance and science to privacy-focused tokens—memecoins gain value from humor, internet culture, and community engagement.
Within the past few weeks, numerous public figures, including President Donald Trump, First Lady Melania Trump, and even countries, have launched their own tokens, further fueling the frenzy surrounding these crypto assets.
The memecoin market's rapid growth in volume—and notoriety—underscores the pressing need for tailored approaches by community members, developers, exchanges, and regulators. Each group is vital to foster a secure, innovative ecosystem where memecoins can thrive while risks are mitigated within this volatile, unregulated asset class.
Memecoins, emerging from the playful nexus of internet humor and digital finance, have become a cultural and financial phenomenon. They derive value from a mix of viral appeal, engaged communities, and speculative momentum. Their worth often surges when communities rally around memes, themes, or endorsements, creating exponential growth fueled by collective sentiment.
Preconfigured applications and low-transaction-fee blockchain networks such as Solana and Base have lowered barriers to entry, making experimenting with memecoins nearly risk-free. However, this accessibility has enabled schemes such as "rug pulls," where developers promote a project only to abandon it with the funds, and "pump-and-dump" scams, where insiders artificially inflate prices before cashing out, and crashing the value.
Despite these risks, memecoins are thriving as cultural exemplars, leveraging humor, nostalgia, and collective action to redefine value in the digital age.
Market manipulators use pump-and-dump and rug-pull schemes to inflate coin prices. As volume and empty promises grow, the team or insiders exploit new members as exit liquidity—selling their holdings to new members at inflated prices before abandoning the project. Platforms such as Pump.Fun, Pump/s token platform, designed to help newcomers launch tokens, have become hubs for these schemes.
With fewer than 2% of tokens achieving sustainable market caps, most projects on Pump.Fun leave members with significant losses. Thousands of tokens claim strong communities but often fail to deliver, further eroding trust.
A lawsuit filed Jan. 16 alleges Pump.Fun was central in enabling token creators to inflate prices through coordinated marketing and pump-and-dump tactics, causing alleged losses. While the complaint acknowledges Pump.Fun doesn't trade tokens directly and operates as a way to create and trade digital assets, it claims the platform misled plaintiffs by promoting unrealistic returns, such as "100x your money."
Pump.Fun's terms of use warn users of trading risks, cap liability at transaction fees, and disclaim any role as a broker or adviser. Plaintiffs argue these disclaimers don't absolve Pump.Fun of liability for facilitating market manipulation and unregistered securities offerings.
The proliferation of memecoins has raised intellectual property concerns. Many tokens launched through apps such as Pump.Fun use trademarked images, characters, and cultural symbols without authorization, sparking disputes over ownership and usage rights. These conflicts are further complicated by questions surrounding the first-use defense, as many memecoins derive their themes from old social media posts.
In response, a growing number of projects and developers are recognizing that securing proper IP rights can serve as a cornerstone for sustained value and legitimacy. Creators are taking action against unauthorized uses, with many seeking licenses or co-branding opportunities.
For Community Members
Those wishing to join memecoin communities must approach with caution, perform thorough due diligence, and adhere to the principle of buying only what they're willing to lose because memecoins are highly speculative.
For those with lower risk tolerance, tokens listed on reputable exchanges provide added security, because these platforms rigorously vet projects before listing them. Understanding the token's purpose—whether utility-driven, charitable, or purely speculative—can help members navigate risks and set realistic expectations.
For Developers
In addition to creating transparent and secure smart contracts, developers must:
- Prioritize securing IP rights
- Create a separate legal entity specific to the altcoin's purpose
- Research potential conflicts involving the project's name, logo, or ticker symbol
- Resolve conflicts through licensing agreements or other legal protections
- Incorporate token-lock mechanisms that build member trust by showcasing long-term commitment and preventing sudden selloffs that destabilize prices
- Notify communities of planned token sales in advance or conduct them in ways that minimize market disruption
Transparency in tokenomics, which refers to a project's token supply, as well as distribution, use, and governance, is crucial for credibility and building a sustainable community.
For Exchanges
Exchanges serve as gatekeepers in the memecoin market and must adopt robust vetting processes to ensure listed projects meet transparency and legitimacy standards. They should:
- Proactively address IP concerns, drawing on examples such as Sony, which actively monitors IP Infringement of memecoins that are able to enter its protocol
- Mandate that projects disclose tokenomics, governance structures, and associated risks before listing
By promoting transparency and ethical practices, exchanges can deter fraudulent schemes and establish trust among members and projects alike.
For Regulators
Regulators must strike a balance between protecting members of memecoin projects and fostering innovation by:
- Implementing clear reporting requirements, know-your-customer protocols, and anti-fraud measures for exchanges to enhance market accountability
- Establishing regulatory sandboxes, such as the European Commission's Blockchain Sandbox
- Providing a flexible framework for memecoin projects to come into compliance while encouraging creativity
- Further incentivizing socially beneficial projects, such as those with charitable aims, by offering reduced compliance burdens for initiatives that serve verified public interest goals
The legitimacy of memecoins hinges on collaboration and accountability among all stakeholders. Transparency, ethical practices, and education will help create a secure and thriving ecosystem.
By tackling challenges and seizing growth opportunities, memecoins can evolve from their whimsical origins into meaningful assets that drive cultural, social, and economic impacts.
Originally published by Bloomberg Law, 29 January 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
