When Elon Musk half-jokingly endorsed Dogecoin during the last bull run, many thought it was nothing more than a joke: a prominent business figure playing around with so-called fun money. But now, no one is laughing about it anymore.
Today, from the Avalanche Foundation to Franklin Templeton, more and more formal institutions are beginning to recognize Meme Coin as one of the legitimate applications of blockchain technology.
On the Solana platform, tokens such as dogwifhat (WIF), sillycat (SILLYCAT) and popcat (POPCAT) are becoming increasingly popular; on Ethereum, dogecoin (DOGE) remains popular. In the emerging "PoliFi" (abbreviation for political finance) field, currencies such as MAGA (TRUMP), jeo boden (BODEN) and elizabath whoren (WHOREN) have emerged.
These projects, originally viewed as jokes, have gone viral over the past year due to their uniqueness. Franklin Templeton’s digital assets team mentioned in a recent report that since the launch of U.S. spot Bitcoin exchange-traded funds (ETFs) in late 2023, related enthusiasm has continued to rise.
In a sense, meme coins are gradually reaching their escape velocity. The Avalanche Foundation has launched a project called Cultural Catalyst, purchasing Meme coins to support Web3 projects it deems culturally important. Franklin Templeton became interested in Meme coins in part because these tokens offered the opportunity to make quick profits due to the widespread adoption of Ethereum and Solana.
Despite conventional wisdom that meme coins have “no fundamental value,” more and more meme coin creators are investing time and money to make their projects stand out, which is undoubtedly a risky investment.
For example, Dogecoin’s Ethereum competitor Shiba Inucoin (SHIB) is building a complete technology ecosystem, including its own scaling layer Shibarium, decentralized exchange ShibaSwap, Shiboshis NFTs, and even digital identity plans and Project incubator.
Dogwifhat (WIF), which has put a twist on the “Dogecoin” trend by adding a pink toque to its canine mascot, is up 600% in the past month, raising more than 10% in U.S. crypto (USDC) $600,000 to advertise on the side of the Sphere megaproject in Los Vegas.
Whether the sponsors of these projects realize it or not, by developing or marketing their tokens, they may attract the attention of the U.S. Securities and Exchange Commission (SEC). This is not ridiculous, given the SEC's tendency to use unglamorous projects as examples.
In an exchange with CoinDesk, American law professor Brian L. Frye noted that “advertising campaigns could theoretically make it more likely that a court would consider an investment to constitute a security because ‘marketing’ is A key factor in conducting the Howey test." This is the standard test used by the SEC to determine whether an asset is a security.
Neeraj Agrawal, director of communications at Coin Center, expressed skepticism about the “community-driven” argument often made by many meme coin projects. "Remember, these meme coins are not decentralized in any real sense. They may be attached to a decentralized network, but it wouldn't be surprising if you learned that the contracts are actually controlled by a few people," he said. Adding that the basic criterion for security is "whether there is a team in control of the project and committed to taking steps to increase its value."
Projects may become decentralized over time and attract stakeholders. Messari researcher Ally Zach wrote a guide, Riding the Meme Mania, which tracks three key metrics: the rate of change in the number of holders, and the daily ratio of new to returning buyers. and the type of buyer.
There is a critical threshold of 3,000 holders, which usually marks the beginning of a project gaining traction. The next stage is usually marked by the number of new buyers exceeding existing traders, the number of holders increasing to 10,000, and the market involving a large number of traders without extreme volatility.
Since Dogecoin was launched in 2013 and abandoned by its founder, its distribution has been relatively fair, and development activity has been critical to maintaining the security of the network. While the largest DOGE holder controls over 22% of the token’s circulating supply, there are nearly 7 million Dogecoin-holding addresses (compared to the 9 million wallets holding Solana (SOL)).
The Dogecoin Foundation is a non-profit organization that coordinates development efforts, and the project has benefited from its launch in the proof-of-work era, where many people were able to earn the token through home mining. The current variety of Meme coins is dominated by large numbers of holders who entered the market early.
Dismissing these as baseless jokes or acts of performance art with no real expectation of profit is not an appropriate legal shield. "Although the likelihood of profitability may be low or non-existent, people buy them at least in part because of their likely popularity and increased value," Fry noted.
Austin Campbell, a professor at Columbia Business School, believes that it is not enough for a project that calls itself “Dog Co.” and uses the Meme logo to engage in legitimate business practices to avoid scrutiny from securities regulators. However, some subtle differences do exist.
“There are indeed problems with the SEC’s theory of treating these projects as securities, for example, mere purchase is not enough,” he said. Just because a token resembles a security, or is even issued under an “investment contract,” does not necessarily mean that the token is a security. The issue remains legally unresolved.
