Memecoins: why they exist and what the risks are

A coin with the face of a dog, a frog or a celebrity can rise thousands of percent in days and lose almost everything in hours. These are memecoins, crypto-assets born from internet jokes and trends.

This article explains what they are, why they exist and multiply, and which risks regulators and researchers document. It does not evaluate or recommend any coin. The information was checked on October 8, 2026.

What a memecoin is

The most objective definition comes from the Division of Corporation Finance of the SEC, the U.S. Securities and Exchange Commission. In a February 2025 statement, the staff describes a memecoin as a crypto-asset inspired by internet memes, characters, current events or trends, promoted to attract an online community that buys and trades the token (SEC, staff statement on meme coins).

The same text lists the typical characteristics:

• it is bought mainly for entertainment, social interaction and cultural reasons, like a collectible;
• it usually has limited or no use or function;
• its value comes mainly from market demand and speculation;
• it tends to be highly volatile.

New York’s regulator, the NYDFS, uses another name: sentiment-based coins. The expression sums up the point well. The price does not rest on cash flow, backing or a service, but on collective mood (NYDFS, consumer alert).

Why memecoins exist

They started as a joke

The most cited example is Dogecoin, launched on December 6, 2013 by Billy Markus and Jackson Palmer. According to the history published on the project’s own website, it was created “as a joke,” because the two felt the cryptocurrency market was taking itself too seriously (dogecoin.com). The joke gained a community, and the formula started being copied.

Creating a token became easy

On blockchains with smart contracts, a token is a program that follows a standard. On Ethereum, the most used standard is ERC-20, proposed in 2015 as “a standard interface for tokens” (EIP-20). With a ready-made template, launching a new token becomes a matter of minutes. To understand the technical basis, see What are smart contracts and how do they work.

Today there are platforms that do this with no technical knowledge at all. The NYDFS warns that some let you create a coin “in a few clicks” and that these platforms are not licensed by the agency (NYDFS, consumer alert).

The scale is striking. A study posted on arXiv analyzed the Pump.fun platform, on the Solana network, in the fourth quarter of 2024: it accounted for up to 71.1% of all tokens created on the network in the period, and fewer than 2% of those tokens made it to the main decentralized exchanges. The author describes the picture as a “highly speculative” market structure (Mancino, arXiv).

Attention, community and betting

In the editorial team’s assessment, three motives explain the demand. The first is social: buying the coin means taking part in a joke, a community or a fan base. The second is the bet: since the price starts near zero, stories of people who multiplied their money circulate widely, and those of people who lost, hardly at all. The third is attention: memes spread fast on social media, and the price follows the noise.

These motives do not make a memecoin illegitimate in itself. But they show that its value depends on people staying interested, and that interest can vanish without warning.

The documented risks

Extreme volatility and total loss

With no cash flow or backing, there is no reference for a “fair price.” The NYDFS notes that even on regulated platforms the prices of these coins can fall sharply in a short time (NYDFS, consumer alert). A memecoin can end up worth zero, and most blockchain transactions cannot be reversed.

Concentration in a few hands

According to the NYDFS, these coins are often concentrated among a few people or groups linked to the creator and are not widely traded (NYDFS, consumer alert). Whoever holds a large share of the supply can crash the price by selling all at once. How to assess a token’s distribution, lockups and issuance is covered in Tokenomics: how to analyze it before evaluating a project.

Artificial growth and manipulation

A study by Alberto Maria Mongardini and Alessandro Mei, posted on arXiv, analyzed 34,988 memecoins on four networks (Ethereum, BNB Smart Chain, Solana and Base) over three months. Among the tokens that rose more than 100%, 82.8% showed signs of artificial growth (Mongardini and Mei, arXiv). The authors identified two techniques:

• Wash trading: the creator trading with themselves, or with coordinated accounts, to simulate activity.
• Liquidity pool-based price inflation: small, calculated purchases in shallow pools that make the price jump.

After this phase, according to the study, exit scams usually follow. The researchers counted more than 17,000 harmed addresses, with realized losses above US$ 9.3 million. Their conclusion is that the largest gains among the best-performing memecoins are often the result of coordinated activity, not natural market dynamics.

Pump and dump and rug pulls

The two scams most associated with memecoins are the pump and dump, in which a group inflates the price with hype and sells at the peak, and the rug pull, in which the creators withdraw the liquidity or sell everything and abandon the project. The NYDFS describes exactly this script: creators or associates inflate the price, sell their coins at the top and trigger the crash (NYDFS, consumer alert).

The CFTC, which regulates derivatives in the U.S., notes that these schemes target new or thinly traded coins, that the cycle can last minutes and that people who buy in because of the hype can lose everything (CFTC, pump and dump advisory). How to recognize and report these and other scams is covered in Crypto scams: how to spot and report them.

Limited legal protection

In its 2025 statement, the SEC staff concluded that, in general, buying and selling memecoins does not involve an offering of securities. In practice, this means buyers do not have the protection of U.S. federal securities laws. The statement itself includes caveats: it has no force of law, was not approved by the Commission, depends on the facts of each case, does not apply to products that merely use the memecoin label to evade regulation, and fraud remains subject to other authorities (SEC, staff statement on meme coins).

In Brazil, how a token is classified depends on the function it serves and how it is offered. The overview is in Crypto regulation in Brazil: who oversees what.

Who usually ends up with the loss

The pattern is not exclusive to memecoins. A bulletin from the Bank for International Settlements (BIS), using platform data from 2015 to 2022, concluded that most crypto app users, in almost every country analyzed, lost money on bitcoin. After the 2022 shocks, large investors sold while small ones bought (BIS, Bulletin 69). The study is about bitcoin, not memecoins, but it shows who tends to arrive late to euphoria-driven moves.

Warning signs before any decision

• Promises of fast, guaranteed or “risk-free” gains.
• Countdowns in messaging groups and requests to promote the coin.
• A large share of the supply concentrated in a few wallets, especially the creator’s.
• Small, unlocked liquidity that can be withdrawn at any moment.
• A coin created a few days ago on an unlicensed platform.
• News of a famous investor or a partnership with a large company without official confirmation.

If, even so, you decide to deal with any crypto-asset, use a wallet and platform you understand well and never share your seed phrase. The precautions are in How to protect a wallet’s seed phrase.

Key takeaways

• Memecoins are tokens inspired by memes and trends, with little or no utility; their price depends almost entirely on attention and speculation.
• They multiply because creating a token is cheap and fast, but only a small fraction ever trades in a meaningful way.
• Research and regulators record frequent manipulation, concentration in a few wallets and exit scams; total loss is a common outcome, and legal protection for buyers is limited.