31st March 2024 > > A cat in a hat!

tl;dr

A look behind the scenes of the memecoin madness on Solana blockchain, with one very important guiding principle if the urge to become a meme degen grabs hold of you. Or an alternative take is that our world has just fundamentally changed, so much so that we cannot yet conceive of the consequences.

And yes, a cat in a hat can do that to you.

Market Snap

Market Wrap

Mark Yusko, hedge fund manager, has predicted a price of $150k per BTC this year. You shouldn’t take price predictions at face value (he is talking his own book) but he made another interesting comment – that investors should have up to 3% of their portfolio in BTC. That isn’t far off my 5% or so long-term target.

Curious Cryptos’ Commentary – Memecoin madness

The explosion of memecoins, especially on Solana, has been quite extraordinary to watch.

FOMO is the key motivator here with social media full of stories of turning a couple of hundred bucks into tens of thousands or more. That is possible, but memecoins are a prime example of a zero-sum game – with the exception of DOGE, they literally have no utility. That doesn’t mean they should not exist, we are all consenting adults and, contrary to popular opinion, what we do in private is no-one else’s business.

A bit like the horses, or betting on one’s football team (Watford have had such a bad season that my annual £50 Betfair budget got blown before November was out) then memecoins are as valid as any other outlet for your entertainment dollars.

However, though the house always wins, I am not sure that a casino offering a dollar or less back for every 100 or 1,000 dollars would be particularly successful. These are the odds stacked against you in the memecoin world right now.

But there is one simple way to rectify that problem. I cannot promise you will beat the house, but you stand a fighting chance of coming out the other side with at least your self-respect intact.

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Lesson Number One

I am not exaggerating when I say there are hundreds of thousands of memecoins, possibly more, that have been created. You want proof? Head over to DexScreener (a Solana based information portal), click on “New Pairs”, then “Rank by Pair age” and “Ascending”. This is a random sample of what you will see:

In the course of less than three minutes, EIGHTEEN new memecoins have been created. Call that 500 a day.

It is actually a simple task to create your own memecoin. You need no technical knowledge, coding skills, or even much imagination given the predictable names of most of the dross that is created. We will add a module to our training course showing how easy it Is to do, but this is neither the time nor the place to go into those specifics. If you really want to make your own memecoin today, contact me, and I will talk you through the whole process step by step.

The cost of creating your own memecoin is tens of dollars at most, sometimes less.

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Lesson Number Two

Almost none of these coins have a twitter account, discord, telegram, or website.

I am not saying that having all four of those attributes means that a coin isn’t a scam (the original SQUID coin had a very impressive website), but having none of them must surely be a large red flag?

Apparently not, as we will shortly see.

After creating a coin, you need to set up a liquidity pool to sell it. What this means is that you add the memecoin to one side of the pool, and another coin – SOL or wETH are very popular – to the other side. This determines the starting market cap of your coin, and allows memecoin degens to exchange SOL or wETH for your new meme.

This is how you actually sell the coin. The cost of setting up an LP is around $150 given current network congestion.

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Lesson Number Three

This is a classic case study of a new memecoin rug pull in super-quick time. The coin is called “Wifey 1” with the nickname melunye tremp. The numbers involved are very small, but the speed is very impressive.

We are joining the action two minutes into the life of this coin:

What we can see underneath the chart is that the creator has added a liquidity pool (I filtered out all the buys to make things clearer) of 300mm Wifeys against 0.699 wETH, just over $2,000.

Note that in the top right corner there is no social media presence, not even a logo, that would normally look along these lines (we will come back to CatWifHat later for another key learning point):

Anyway, back to Wifey. Despite two massive red flags, the meme degens are buying anyway. Not a lot of action, but that isn’t the point, I am trying to demonstrate what is happening behind the scenes.

Buyers come in, take Wifey out of the pool, adding wETH and causing that green spike in the price in the chart above.

Then this happens:

Don’t be fooled by the graph showing the price is up 10% in just a few minutes. Focus on the trade log below. The coin creator has removed all the liquidity from the pool. He originally added 300,000 of a worthless coin and now owns 284,000 of that worthless coin.

On the other side of the balance sheet, he added 0.69 wETH and has now removed 0.7268 wETH, a very small gain. The remaining owners of this coin now hold a piece of worthless junk as the liquidity pool is valued at less than a dollar.

The numbers are tiny, but that isn’t the point. Here is another example that played out over a longer time period:

This shows the complete lifespan of the coin – a mighty twenty minutes – with all the buys and sells filtered out. You can see that 8tn coins were added against 2.95 wETH. When the coin creator rugged, he took out 7.43 wETH and just 3.2tn of the worthless coin. That’s $12k earned (in the broadest sense of the word) in less than 25 minutes including coin creation time.

Again, now the pool has less than $1 left in it, so the holders of nearly 5tn of this coin have lost their entire investment.

Lesson Number Four

This is where we have to get a little techie, but bear with me, it is important.

If you wish to add liquidity to established pools on Uniswap, in say USDT vs ETH, or any of the multitude of permutations available, you receive LP (liquidity pool) tokens that determine your share of the pool and your share of the trading fees. You can cash these in any time in exchange for your original pool contribution (minus the impermanent loss, which is always permanent but that is a discussion for another day) plus fees payable to you or indeed you can tootle off elsewhere and use them in other DeFi protocols. The flexibility of DeFi is breathtaking at times.

What you can also do, as you can with any crypto, is burn the LP tokens.

That would not make sense if you are simply adding liquidity to an established pool on Uniswap (you would lose your entire investment), but it is something that an honest memecoin creator would do when initially setting up the pool, having kept say 10% of the new memecoin in a separate wallet.

If he does not burn the LP tokens, then that is a statement to the world that a rug-pull is planned. If we go back to CatWifHat look at the sign next to the size of the liquidity pool:

That little lock sign in a green circle means that the original LP tokens were burnt. The coin-creator cannot do a rug-pull.

Key takeaway – you are guaranteed a rug-pull if the LP tokens have not been burnt. There cannot be a rug-pull if they have been burnt.

Here endeth the Easter Sunday lesson.

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*** STOP PRESS ***

Having spent most of my Saturday night watching the action with these new memecoins (CCC Towers rocks all the time, doncha know) I think there is one simple explanation for much of the activity.

The buyers are all bots.

Some of the trades are in and out for 72c or some other minor number, many are less than $10. I think there must be a bunch of bots out there trying to scalp memes, and every now and again they get lucky. The rest of the time the meme creator – who by the way, is not doing anything illegal – makes a few hundred bucks to a few thousand occasionally.

Fascinating stuff.

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Another thought.

The coin creators could be the ones who have sold the scalping bots to the unwary. That way they win on both sides.

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Or an even more scary thought.

Perhaps the coin creators are all bots too. Perhaps the battle of the machines has truly begun.