Solana Has Become the Source of 'Gang' Memecoin Pump And Dump: Bloomberg

The memecoin craze that started two years ago on the Solana blockchain seems to be natural. However, since then, the blockchain has attracted famous individuals, including U.S. President Donald Trump and his wife, Melania Trump, as well as Argentine President Javier Milei. These high-profile individuals have driven the rapid growth of memecoins on Solana. This has led to an increase in a significant number of secret participants controlling a substantial portion of the multibillion-dollar memecoin market. As a result, insiders or knowledgeable individuals can make the highest profitable trades while the majority of retail investors incur losses. The Repetition of Previous Cryptocurrency Cycles Memecoin first appeared a few years after Bitcoin was created when developers began mocking internet memes as a joke. The first successful memecoin on Solana was Bonk, launched right after the collapse of FTX and the empire of Sam Bankman-Fried. At that time, investors were desperately looking to make quick money after the cryptocurrency market crashed. Since then, Solana, which advertises itself as faster and cheaper than Ethereum, has become the preferred blockchain for launching memecoins. For example, both Trump and Melania launched their official memecoins on Solana. Both memecoins have significantly depreciated since their launch. Libra, a memecoin, has sparked political controversy over Millei's endorsement, and is also launched on Solana. Market participants told Bloomberg that Solana is attracting an increasing number of controversial memecoins due to the network of participants behind the creation, launch, and sale of tokens. In fact, market participants view this as a repetition of previous cryptocurrency cycles. The Advantage of Insiders Retail investors pay a heavy price when they invest too late. For example, Trump's memecoin has lost nearly 85% of its value, dropping from about $74 the day before his inauguration to about $11, according to CryptoSlate data. Similarly, Melania's memecoin has dropped nearly 95% from its peak of around $13.5, according to data from CryptoSlate. Libra also lost most of its value shortly after its launch. These losses are mainly borne by those investors who entered too late. Jordi Alexander, the founder of the digital asset trading company Selini Capital, which created a market for various tokens including memecoin, told Bloomberg: "The launch of Memecoin is advertised as a counterpoint to 'utility' coins where insiders of VC can invest at valuations lower than 100 times and sell to retail investors after the launch... In reality, the launch of Memecoin often has many advantages for insiders — if not more." Some people in this event are called KOLs, or key opinion leaders, often individuals with significant influence on social media and a large following. They are clearly a part of memecoin projects before launch and often receive large amounts of memecoin or buy them at deep discounts in exchange for promoting them and attracting their followers to purchase. While most memecoin projects claim to implement a "fair launch" model where all tokens are simultaneously available to the public, this rarely happens in reality, said Mohamed Ezeldin, head of tokenomics at Animoca Brands, to Bloomberg. Memecoin Group Engages in Pump and Dump Activity 'Cabals' are groups that specialize in launching memecoins. It is these groups that help influencers connect with memecoin creators. Joseph Edwards, the research director at Enigma Securities, believes that these groups often participate in creating and are accused of manipulating memecoin prices to exploit investors. In other words, the groups creating pump-and-dump memecoins focus on attracting buyers for the launch but lose most of their value shortly thereafter. Hayden Davis's Kelsier Ventures, a company involved in the launch of Libra, is one such group. Edwards stated: "Many market makers did similar things in 2021 — dark pool liquidity… They will help these tokens launch, and there will be a pump and dump each time." One of the mechanisms often used by these groups to outsmart retail investors is 'sniping'. Sniping means using trading bots to buy memecoin during the launch period and quickly sell them to take advantage of the short-term profits of these worthless tokens. Snipers became the most prominent during the launch of Trump's memecoin, as certain wallets bought the tokens at negligible costs. These wallets quickly sold off the tokens after the launch, causing the price to drop sharply. Moreover, the rise of platforms on Solana has facilitated the creation and launch of memecoin, making the issue worse. The most notable platforms include Pump.fun and Meteora. Trump, Melania, and the memecoin Libra were all launched using Meteora. Ezeldin of Animoca Brands said: "With the development of platforms like Pump.fun, what it really allows people to do is focus on those who are only focused on ROI and not on the fundamentals or utility," when referring to return on investment, he added: "They [memecoin investors] are only focused on 'how can I get in as early as possible and how can I get out as close to the top as possible?' By doing so, we have created a zero-sum game." Lessons for Retail Investors In February, the staff of the United States Securities and Exchange Commission (SEC) clarified that the agency does not consider memecoins as securities. They likened memecoins to digital collectibles that have no function or utility. Therefore, creators and sellers of memecoin are not required to register with the SEC. More importantly, this excludes memecoin investors from the protections of federal securities. However, Ark Investment Management's Cathie Wood believes that "the message from regulators is very clear" and retail investors will learn from the losses of memecoin. She stated: "There will be some scary drops in the prices of some of these meme assets. And, you know, there’s nothing like losing money for people to learn."