Donald Trump had emerged as a vocal advocate for cryptocurrency on his recent presidential campaign trail, presenting himself as someone who would advance the interests of the crypto community if elected to power. However, just days into his second term, crypto investors have shown signs of wavering in their support of the newly sworn-in US president. The fault lines appeared when Trump launched his own crypto memecoin called $Trump on January 17, alongside $Melania, another memecoin promoted by First Lady Melania Trump. At the launch, Trump pitched the meme coin to his supporters as a way “to celebrate everything we stand for: WINNING!”. However, the official website of the memecoin also carries a disclaimer noting that $Trump is not “an investment opportunity” or “a security”, but a way to show support to Trump. The potential for these memecoins to inflate Trump’s personal fortune has raised legal and ethical concerns among US lawmakers and former government officials. Amid the growing controversy over $Trump, what exactly is a memecoin? How is it different from other cryptocurrencies? Can anyone create a memecoin? What makes them such a risky investment? Making a memecoin Memecoins are a bizarre blend of internet humour and cryptocurrencies. They are often inspired by online memes and do not hold any intrinsic value. Despite their value being purely based on hype and public perception, memecoins can be used to build a large following and attract significant investment. Unlike traditional cryptocurrencies, new types of memecoins can be created by anyone for free, using launch-pad platforms such as Pump.fun that are hosted on blockchain networks like Solana or Ethereum. $Trump is hosted on the Solana blockchain. In November last year, a 13-year-old boy launched his own memecoin called Gen Z Quant that went viral and netted the young crypto investor US $30,000. One of the best known memecoins, Dogecoin, initially started out as a joke but took off after tech billionaire Elon Musk started frequently posting about it on X. As a result, Dogecoin is one of the few crypto assets that has kept up with Bitcoin over several market cycles. Other viral memecoins include Shiba Inu (named after a dog breed) and Pepe (inspired by the cartoon frog meme). Over 13 million new memecoins were created in 2024 with a combined market value of $100 billion, according to a report by blockchain consultancy firm BDC. New types of memecoins are listed on decentralised exchanges based on factors such as market cap, trading volume, and overall demand. Trading memecoins Memecoins do not have intrinsic economic value. But if enough people buy and sell them, their value goes up. Creators give their memecoins liquidity by establishing a liquidity pool and depositing equal values of the memecoin and a well-known cryptocurrency like Ether. This liquidity pool also sets the initial trading price of the memecoin. For instance, a liquidity pool consisting of 100 memecoins and 1 Ether means that the starting price of 1 memecoin is 0.01 Ether. Platforms such as Pump.fun also estimate the initial trading prices of memecoins based on their own formula. The market cap is decided based on the trading price of each coin and total supply of memecoins. However, market cap estimates of memecoins need to be interpreted with caution as they do not reflect any underlying assets or actual value. So what causes the market caps of memecoins to skyrocket overnight? Creators put in efforts to build a “brand” around the memecoin in order to attract a cult following. For instance, the official $Trump website rallies supporters with a message of loyalty and features an image of the US president in a fist-pump pose — a gesture he made moments after the assassination attempt against him last year. The value of memecoins can also be pumped up through influencer marketing or exploiting the hype around viral content. For example, in 2021, a memecoin inspired by the popular Netflix series ‘Squid Game’ was created by anonymous creators not linked to the show. Generative AI has also been used to fuel the meteoric rise of a memecoin in the past. Researcher Andy Ayrey devised a strange experiment where two Anthropic AI agents would endlessly chat with each other. The conversations between the two AI agents were automatically posted on X via another AI bot called Truth Terminal. Soon, an anonymous creator launched a memecoin called Goatseus Maximus (GOAT) and reportedly tagged Truth Terminal on X. The AI bot then began promoting Goat to its 1.7 lakh followers, causing the memecoin’s worth to reach a staggering $840 million. However, memecoins stand out as the riskiest gamble in a crypto market long considered speculative by traditional investors. Risks and concerns in dealing with memecoins Due to their high volatility, memecoins have become notorious as hotbeds of fraud. Over 40 per cent of memecoins are pump-and-dump schemes, according to the BDC report. Memecoins are also used for ‘rug pull’ scams, where creators simply withdraw the funds and walk, like the 13-year-old behind the Gen Z Quant memecoin. Similarly, liquidity pull scams are when fraudsters establish a liquidity pool consisting of memecoins and trusted crypto like USDC. The creators suddenly withdraw all the USDC from the liquidity pool, making the memecoins owned by investors completely worthless. This tactic was used by the creators of the Squid Game coin. In response to the launch of Trump’s memecoin, US Congresswoman Maxine Waters said that $Trump “represents the worst of crypto and shows why many regulators, advocates, and policymakers have long been worried.” “These actions by President Trump will also further taint the crypto industry, which has long fought for legitimacy and a level playing field with other financial institutions,” she said in a statement. Billionaire entrepreneur Mark Cuban also warned against Trump’s memecoin. “I’m a crypto fan. This is not crypto any more than [Bernie] Madoff was just buying and selling shares of stock,” he said in a social media post. Bernie Madoff was the mastermind of a major ponzi scheme worth around &65 billion.
