Solana Memecoins Plunge 85% to 95% as Insiders Profit

Solana, a blockchain known for its speed and low cost, has become a hotbed for memecoins, digital assets inspired by internet memes. The craze began a few years ago and has since attracted high-profile individuals, including former U.S. President Donald Trump and his wife, Melania Trump, as well as Argentina President Javier Milei. These individuals have contributed to the rapid growth of memecoins on the Solana blockchain, leading to the emergence of covert participants who control a significant portion of the multi-billion dollar memecoin market.

This has resulted in a situation where insiders or those with prior knowledge can execute the most profitable trades, while the majority of retail investors bear the losses. The memecoin phenomenon first gained traction a few years after the creation of Bitcoin, when developers started using internet memes as a joke. The first somewhat successful memecoin on Solana was Bonk, which was launched shortly after the collapse of FTX and Sam Bankman-Fried’s empire. At the time, investors were eager to make quick profits after the crypto market collapse.

Since then, Solana has become the preferred blockchain for launching memecoins. For instance, both Trump and Melania launched their official memecoins on Solana. Both memecoins have depreciated significantly since their launch. Libra, the memecoin that generated political controversy over Milei’s endorsement, was also launched on Solana. Market participants have noted that Solana is attracting more and more controversial memecoins because of the interlocking network of participants behind the creation, launch, and sale of the tokens. This situation is seen as a repeat of earlier crypto cycles.

Retail investors often pay a heavy price when they are too late in investing. For example, Trump’s memecoin has lost nearly 85% of its value, down from around $74 the day before his inauguration to around $11. Similarly, Melania’s memecoin is down nearly 95% from its peak of around $13.5. Libra also lost most of its value immediately after its launch. These losses are mostly borne by those who were too late to invest.

Jordi Alexander, founder of a digital-asset trading firm, noted that memecoin launches were promoted as an antithesis to ‘utility’ coins where venture capital insiders could invest at much lower valuations and sell to retail after launch. In reality, memecoin launches often have as much, if not more, of an insider advantage. Some of these insiders are referred to as key opinion leaders, or KOLs, who are often social media influencers with large followings. They are visibly part of memecoin projects prior to their launch and often receive large numbers of the memecoins or get to buy them at deep discounts in exchange for promoting them and enticing their followers to buy.

While most memecoin projects claim to practice the “fair launch” model where all tokens are made available simultaneously to the public, this is rarely the case. ‘Cabals’ are groups that specialize in launching memecoins. These cabals help influencers connect with memecoin creators. It is believed that these cabals are often involved in creating and allegedly manipulating the price of memecoins to exploit investors. In other words, cabals create pump-and-dump memecoins that focus on attracting buyers for the launch but lose most of their value almost immediately after. One such group is Kelsier Ventures, which was involved in the launch of Libra.

One of the mechanisms commonly used by cabals to outsmart retail investors is ‘sniping.’ Sniping refers to the use of trading bots to buy memecoins during launch and selling them quickly to capitalize on the short-term gains of the otherwise worthless tokens. Snipers gained most prominence during the Trump memecoin launch, when certain wallets acquired the token at negligible costs. These wallets quickly dumped the tokens after launch, causing the price crash. Furthermore, the rise of platforms on Solana that facilitate the creation and launch of memecoins have made the problem worse. The most prominent platforms include Pump.fun and Meteora. Trump, Melania, and the Libra memecoins were all launched using Meteora.

In February, the U.S. Securities and Exchange Commission (SEC) staff clarified that the agency does not consider memecoins to be securities. They likened memecoins to digital collectibles that have no functionality or utility. Therefore, memecoin creators and sellers are not required to register with the SEC. But more importantly, it excludes memecoin investors from federal securities protections. Cathie Wood, CEO of Ark Investment Management, believes that the “message is loud and clear from the regulators,” and that retail investors will learn their lesson from their memecoin losses. She said, “There will be some fearsome declines in the prices of some of these meme assets. And, you know, there’s nothing like losing money for the people to learn.”