Meme coins

Meme coins are fairly simple creations - simply put, a token based around a popular meme. Beyond their definition, we wanted to cover how to navigate the world of meme coins, and if you’re truly hell-bent on “degen’ing” into some of them, how you might best do your due diligence on them

Fundamental considerations

Some fundamentals that you should try to consider when approaching the $meme coin of the day:

1. Team / Collaborators

If a crypto team is completely anonymous, it's usually a red flag. This doesn't necessarily mean the team needs to reveal their personal information, but if someone isn't willing to associate their crypto Twitter pseudonym with the project, there's likely a bad reason behind it. Either they don't want to see the project through, or they're planning on doing something unethical that they don't want to be associated with their name.

Trustworthy projects are those in which the teams put their reputation on the line.

It should be noted that many Twitter profiles with larger followings spend a lot of time engagement farming or simply buying a large following to provide social proof for themselves and their projects.

If the team is comprised of these types of members, you should consider the other points more closely below.

2. Community engagement

Poor communication and lack of transparency are common signs of rug pull projects. Two ways of observing a project's community engagement are to look at the team's engagement on social media and the activity level and quality of community members.

From the team's perspective, it's important to determine whether they know what they're doing with their community. Meme coins typically have a short lifespan, and if the team is not actively engaging with the community and providing reassurance, it's a red flag. The team must maintain momentum by consistently engaging with the community throughout the day, or they risk losing their audience.

From the community's perspective, it's crucial to determine whether the community is genuine and engaged. Some people make money by selling Telegram members and 'fake engagement', but it's difficult to convincingly carry out this service. If a community is predominantly composed of these types of fake members, it's usually pretty obvious. To determine whether people are genuinely interested in the project, look at whether people on Twitter are posting about it, what people are saying in the Discord/Telegram channels, and if they have some kind of reputation or produce legitimate content.

Ultimately, the community can make or break a meme coin. They can help it reach the top 100 cryptocurrencies or cause major bag holders to pull out early.

3. Tokenomics

Before discussing tokenomics, it should be noted that any percentages mentioned are approximate, and each project's tokenomics should be considered on a case-by-case basis, depending on what the project aims to achieve.

If a project involves burning tokens, this must be taken into account when looking at the token distribution as a whole. For example, if 50% of the supply is being burnt and 40% is going to the team, after the burn the team will have 80% of the total supply.

Memecoin tokenomics are often very simple. Usually, there is no utility associated with the coin. It is only when the coin achieves some level of success that the team implements different use cases. For example, Shiba and their product suite.

The main thing to consider is the distribution of tokens:

• Presale

  A presale now often occurs on PinkSale and serves to generate liquidity for the launch. It's a quick way for meme coins to launch with backing, and allows investors to withdraw their funds safely at any time before the sale ends and to claim the tokens they bought at the end of the sale.

  Participating in a presale is relatively safe, but it's important to be aware that you can still get "rugged" after the sale ends.

  A reasonable presale allocation might be around 10-30%, depending on the project's goals and token distribution.
  

• Liquidity

  Liquidity is the ease with which an asset can be bought or sold in a market without causing significant price fluctuations.

  When looking for projects to invest in, prioritize those with high liquidity. This means there are enough buyers and sellers, low price slippage, and fast order execution.

  Low liquidity can lead to larger price swings and difficulty in executing orders.
  

• Team

  The team distribution is self-explanatory. It’s how much that team gets in their pocket. An allocation of around 10-20% is reasonable for long-term projects because it acts as an incentive for that team to stick around and commit. It’s always a green flag as well when there is a vesting schedule, which means that the team does not have instant access to their entire allocation, which prevents them from dumping it all at any moment.

  However, memecoins are notoriously short-term projects. We personally look at memecoins strangely if they’re giving more than 2-5%, especially with a burn because that will increase their relative holding.
  

• Marketing

  This is the most important aspect of a meme coin; how well they can market. It’s appropriate to allocate 5-15% or even higher, depending on the project and their plans.

  These coins rely heavily on social media presence to gain traction. If they don’t have a marketing budget, they’re either very ambitious or they’ve got a decent team token allocation that they’re going to use. Paid advertising is a common way for meme coins to get out there, and if they’re not using this avenue, they at least need to be extremely active on their socials.
  

• Advisors

  Consider the same points as mentioned above in “Team”. The advisors for a meme project are more often than not going to be influencers or other related projects.

  Consider their credibility, and in particular, the points made in the first section regarding team/collaborators. If these advisors are reputable, they can offer valuable connections and exposure for the project, if not, it may be a red flag.
  

• CEX

  Every CEX will have different rules associated with how much of the token they require for a listing. As such, it’s hard to specify a range, because the CEX will need a % of the token itself to act as liquidity, as well as a listing fee to be covered. The team may be combining the two or just thinking about one.

  Generally speaking, it is a green flag to see a project aiming to eventually get on a CEX. But it isn’t a guarantee and can be misused, as with all allocations, so again, it’s important to look at the project holistically.
  

• Unlocked

  This refers to the % that is unlocked at launch. Effectively, the number of tokens that will be circulating initially.

  The lower the better. A high percentage can be a cause for concern as it may result in price manipulation or rapid sell-offs. If there is an unlocked allocation, there should be a release schedule, because, in most instances, the other allocations will enter the circulating supply at some point. This should be communicated to the community and if it isn’t, then that is a red flag.
  

• Burnt

  This allocation refers to the number of tokens that will be permanently removed from circulation. Token burns can support and stabilize a token’s price over time.

  If the burns are part of a schedule, then it will be a case-by-case basis for you to consider when those burns are happening and how they’re justified by the project. If they are a one-time thing, as they often are, at the beginning of the project, then, as previously mentioned, you just need to factor this in when looking at other allocations because the token’s distribution will become inflated.

Technical considerations

In this section, we’ll look at common rug pull traps, helpful tools to look into coins, and more.

1. Smart contract

There are so many ways for a developer to abuse their duty of care to a community that, if you’re not a developer yourself, can easily be overlooked.

This is where Web3 tools come in handy.

There are two in particular that will make your life a lot easier.

• De.Fi

  De.Fi has a product suite called “SAFE” within which there are two products called “Scanner” and “Shield”.
  

  ”Shield” will basically look at your own wallet once you connect it to their dApp and outline any risky business happening with any contract you’ve interacted with or tokens you are holding.
  

  The golden one for our context is “Scanner”, what it does is ‘scan’ through whatever contract address you give it and assess any risk associated with it. It will specifically tell you what issues it finds in an easy-to-read way and if you’re not smart-contract savvy, it also gives you a simple score rating out of 100 to tell you how safe it is.
  

  The Scanner will cover things like whether the owner can:

  • Verification - if the blockchain explorer has verified the smart contract to be showing the same as what is on the actual blockchain
    

  • Owner type - if the owner of the smart contract is an Externally Owned Account (“EOA”), or another contract
    

  • Multiple major EOA holders - if multiple wallets are holding a significant amount of the tokens total supply
    

  • Abandoned - if the project has had no transactions in the last 30 days
    

  • Paused - if a smart contract can be paused, users wont be able to access any funds handled by it until the pause ends
    

  • Minting functionality - if the smart contract owner can mint more tokens
    

  • New - if the smart contract is freshly made within the last 7 days
    

  • Proxy - a way for owners to implement a way to make changes to a smart contract at a later date

These are just some of the things the scanner will cover, more have been added since the product launched.

• Bubblemaps

  If a token is listed on this platform, that means the token applied to get on. This likely wont be available for fresh tokens, but if you see a token on here, it’s often a green flag because the project is trying to be completely transparent with its community in respect of the token distribution.

  This web app is a way for you to visualise the top 150 holders of a token. Each holder will be represented by a bubble and its size will be proportionate to the wallet’s holdings. If there is a transfer between wallets, they will be linked together.

  In the above tokenomics section, we covered how important it is to understand where tokens are allocated. With this web app you can easily see the largest holders and who they are connected to.

  You can find wallet-splitting, wallet-manipulation, private sales, pre-sales, and exchanges wallets here.

  For instance in regard to wallet-splitting, if you find numerous wallets connected cumulatively hold a significant % amount of tokens, this is a red flag. This is often a tactic to feign interest in the project and increase the unique token holder amount.

2. Rug Traps

There are MANY ways to manipulate a smart contract and set it up for a rug pull. We’ll cover some of them, many of which are scanned for in the De.Fi product suite!

1. Honey-pot contracts

   These are smart-contracts that appear to be legitimate and often resemble typical DeFi projects or token contracts. They contain hidden functions that prevent users from performing certain actions, such as selling or withdrawing tokens, basically trapping your funds.
   

2. Inadequate liquidity pool lock

   When the tokens contributed to a liquidity pool are not locked or have an insufficient lock duration.

   This means that the team can pull all of the liquidity at any moment and cause a massive price dump. Lowering liquidity so much will also make it very difficult for people to sell their tokens after the fact.

   It is often a green flag if the liquidity pool is locked for a lifetime.
   

3. Ownership not renounced

   As the name suggests, the original owner or creator of a smart contract retains control over it, enabling them to make changes to the contract or execute specific functions.

   Renouncing ownership is a green flag and a way for the team to demonstrate their commitment to the community.
   

4. Minting function abuse

   When a team takes advantage of a hidden or undisclosed minting function in the smart contract that allows them to create new tokens at will. If the team is acting maliciously, they may very well mint an excessive amount of tokens and sell off as many as they can.
   

5. Front-running and sandwich attacks

   These attacks aren’t directly related to rug pulls but they can effectively facilitate an indirect rug pull.
   

   Front-running occurs when an attacker spots a pending transaction and submits their own transaction with a higher gas fee to ensure it gets executed before the targeted transaction. This allows the attacker to benefit from the price movement caused by the original transaction.
   

   Sandwich attacks are a more advanced version of front-running. This occurs when the above front-running scenario happens, usually, the transaction being a large buy order, the attacker after successfully front-running that and increasing the price, will immediately put a sell-order - “sandwiching” the target transaction. This allows the attacker to profit from the price difference at the expense of the user who placed the original large buy order.
   

   Both attacks cause slippage and artificial price fluctuations. Malicious teams can take advantage of positive price movements resulting from these fluctuations to execute their rug pull, or to carry out the rug pull gradually over time.