What is a Memecoin?

If you're feeling weary of conventional cryptocurrencies like Bitcoin, Ethereum, or even Litecoin, and are craving something fresh, Memecoin offers an exciting alternative.

These digital assets, characterized by their humorous themes, operate on various blockchain networks. Memes, the ubiquitous funny images circulating the internet, serve as the inspiration for Memecoins.

One such iconic figure is Pepe, the melancholic frog from the bygone era of memes. Pepe Coin, a Memecoin based on this image, enjoys widespread popularity today.

Well-known Memecoins include Shiba Inu, Dogecoin - a personal favorite of Elon Musk - and the recently trending asset, Dogwifhat.

Aside from their satirical and amusing nature, Memecoins also present significant investment opportunities. Their hallmark is rapid percentage growth within short time frames.

In this blog, we'll delve into the essential parameters to consider if you're contemplating investing in Memecoins, ensuring you steer clear of deception.

Parameter I – How Many People Own the Asset

While cryptocurrencies may seem like a complex and tech-driven industry, their adoption is predominantly fueled by ownership rather than their underlying blockchain or technical intricacies.

A critical factor to consider when purchasing crypto is the distribution of ownership among the top investors. For instance, if a cryptocurrency is owned by 100 individuals and a significant portion, say 70%, is concentrated in the hands of just 10 investors, it raises red flags.

Such concentration opens the door to speculation and market manipulation, which can subsequently impact the cryptocurrency's price.

In the case of Dogwifhat, we can examine the percentage distribution of the cryptocurrency on platforms like Solana.fm to ensure that market control isn't dominated by a handful of major players.

This type of information is accessible across various platforms and varies depending on the blockchain network on which a particular cryptocurrency or Memecoin operates.

Parameter II – Liquidity Pool Burning

Liquidity serves as a cornerstone for the credibility of cryptocurrencies, regardless of whether they're traditional or meme coins. Having a robust liquidity pool is essential as it ensures the security of your assets against potential theft.

Liquidity Pools play a vital role in facilitating the seamless buying and selling of cryptocurrencies by ensuring that sufficient resources are available for transactions, without any delays or interruptions.

In return for staking liquidity, a contract deployed on the Solana network or a traditional smart contract automatically generates an LP (Liquidity Provider) token as evidence of staked liquidity.

When a liquidity pool undergoes a burn, it signifies the permanent removal of tokens from circulation, including the LP token, which acts as a key to the invested assets. This serves as a safeguard against the project's creator absconding with investors' funds.

In summary, liquidity pools offer the following benefits:

• Security - Embedding liquidity provides assurance that the cryptocurrency and the project are legitimate, and the project's creator has no intention of absconding with investors' funds.
  
• Supply-Demand Regulation - As tokens are burned, the supply of assets in the pool diminishes, potentially driving up the price of the cryptocurrency.

Platforms like Photon or Dexscreener showcase newly created meme coins and cryptocurrencies with liquidity burns. These platforms feature a special indicator that informs users whether liquidity burning is occurring.

Parameter III – Mint Authority

Minting refers to the creation of new cryptocurrencies and their introduction into circulation. When a developer creates a digital asset, they outline the minting process within the blockchain.

Opening and authorizing minting grants developers the ability to introduce an unlimited supply of cryptocurrency, which can lead to asset depreciation and high inflationary risks.

To mitigate fraudulent activities and risks, it's crucial to ensure that minting is restricted, preventing the addition of new cryptocurrencies into circulation.

However, some major cryptocurrencies, such as USDT, actively employ minting without encountering issues. In the case of USDT, a new unit of cryptocurrency is minted in exchange for an equivalent amount of dollars, thereby maintaining a dollar reserve.

Similar to checking liquidity tank configurations, you can verify minting settings in advance on platforms like Dexscreener and Photon.

Parameter IV – Liquidity

While liquidity might not be the sole determinant of a crypto project's health, it remains a significant factor worth considering.

Higher liquidity correlates with a healthier crypto ecosystem. Liquidity measures how easily you can exchange your crypto assets, whether buying or selling.

Exchanges are primarily responsible for creating liquidity, with traders playing a pivotal role. They are rewarded for their efforts, contributing to the smooth operation of the cryptocurrency ecosystem.

Parameter V – Buyers and Sellers Number (Market Makers)

An essential aspect to evaluate when purchasing a newly launched cryptocurrency, or any other, is the presence of market makers—both buyers and sellers—in the market.

A higher number of participants engaging in buying and selling activities signifies increased interest from both major investors and individual buyers.

The presence of numerous market participants enhances the credibility of the cryptocurrency. It's generally more favorable to invest in assets that have a broad base of market makers rather than those dominated by a small number of players.

You can assess the level of trading activity and the number of participants involved in cryptocurrency trading through platforms like Photon.

Summary – Buying Memecoins is risky but Profitable!

While investing in Memecoins, especially newly launched ones, carries inherent risks, it's crucial to adhere to fundamental criteria for making informed decisions.

Firstly, scrutinize the distribution of investors owning the total cryptocurrency to avoid speculative behaviors. Ensure that liquidity-burning mechanisms are in place to safeguard your assets from potential misappropriation. Additionally, verify that minting, or the creation of new cryptocurrencies, is restricted.

In assessing the health of a cryptocurrency, prioritize factors such as liquidity and the level of trading activity, which reflects the engagement of investors in buying and selling the asset.

While these measures don't offer foolproof guarantees for the health of a cryptocurrency or Memecoin, they provide valuable insights into the asset you intend to purchase.