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Tuesday, June 11, 2024
HomeCryptoThe memecoin craze has sparked a scalability arms race

The memecoin craze has sparked a scalability arms race

Following TradFi’s notable breakout period, new ATHs, and intense optimism in the crypto industry, selling pressure for most major cryptocurrencies is slowly starting to ease, with volumes transactions achieve more stable growth. Amid this storm of growth, a group of category-defying tokens have seen continued success regardless of the current market landscape. Yes, that’s memecoin. Often criticized for its lack of utility and sarcasm, memecoin emerged from hibernation in Q1 2024 and has deviated from the bullish hype cycle curve, against all odds.

According to VanEck’s report on the state of the cryptocurrency market in March 2024, “the market capitalization of all crypto tokens increased 13% to $2.89 trillion.” This comes amid a narrative focus on expanding service capabilities, capacity and performance (SCP), as well as “memecoin dominance” of on-chain activity. This can best be demonstrated by how memecoin speculation in March caused the TVL of Coinbase’s layer 2 protocol “Base” to double while revenue increased by 200%.

What is Memecoin?

Memecoins are tokens created and inspired by famous memes that are humorous and entertaining. The value of these memecoins often depends on the community and is highly risky.

Memecoin was originally created not to contribute to the cryptocurrency space, but for some non-serious reason. For example, at the end of 2020, there was a Foodcoin trend and from there, a series of trending tokens were born such as SushiSwap, Kimchi.Finance. By the time Safemoon was popular with a pump level of more than 3,000 times, there were Safemars, SafeGalaxy and perhaps most notably, a series of “dogs” born when Doge rose in 2021 with ShibaSwap, CorgiCoin…

The boundary between “serious” and “not serious” mentioned above is quite vague. For example, ShibaSwap started out as a memecoin, but as they gained support from the community, they worked as a real project.

From the second half of 2023 to the first half of 2024, a series of memecoins with countless themes such as frogs, cats, Gamestop, celebrities, politicians… have been born and spread across blockchain networks, creating into a frenzy that causes congestion in some ecosystems.

How protocols react to the memecoin craze

The surge in memecoin trading activity coupled with the inherent irrationality and unpredictability of memenomics demonstrates that memecoin has emerged as the perfect “stress test” for leading blockchain protocols. There is no better way (and perhaps no more harmless way) to expose scalability and congestion issues on existing DeFi-enabled blockchain networks. One of the typical cases is Solana.

While experiencing unprecedented demand for memecoins, Solana observed a spike in failed transactions, at one point recording a 75% failure rate for two consecutive days, coinciding with a spike in traffic. Solana’s on-chain traffic increased dramatically. While Solana co-founder Anatoly Ykovenko was not impressed with memecoin’s absurdity, it became clear that the protocol was unable to meet scalability constraints. With that said, we cannot deny the fact that Solana’s lightning-fast speeds, low barriers to entry, and ecosystem-wide liquidity have helped it continue to grow as a competitive memecoin enabler. important painting. The remarkable growth this chain has seen has solidified its path to becoming the next DeFi after Ethereum.

Why should we care?

Before delving into the causes, effects, and lessons learned from March’s memecoin craze, let’s step back and consider why a traditional (more conservative) investor might now tend to invest in memecoins which are always known to be volatile.

Originating from internet memes, memecoins are cryptocurrencies inspired by jokes, puns and satirical photos popular on social networks – for example the Jeo Boden memecoin. The project that started the memecoin trend, Dogecoin, started as a joke in 2013, referring to a meme called “Doge” (a picture of a cute Shiba Inu dog using broken English to express its inner thoughts).

These crypto tokens often have no technical advantage over pioneers like Bitcoin or Ethereum or even any utility at all – which, surprisingly, makes them so attractive. guide. The average memecoin investor is amused by the concept of owning a coin that has no practical purpose.

For this reason, the memecoin market has long been filled with skepticism and indeed criticism from traditional (risk-averse) investors. While concerns about lack of adoption, scams, and misallocation of resources are valid, to fully understand the value proposition of the memecoin asset class, one must actually understand the principles of money and how society assigns value.

Memecoin breaks traditional notions of rationality in investment. They highlight the power of collective emotions and cultural relevance in shaping financial markets. In a world of growing skepticism about the “true” value of things, memes represent an interesting departure from the conventional valuation metrics and investment principles that govern traditional finance. system. This is emblematic of an even broader cultural movement. This reliance on culture and community implies that memecoin prices tend to rise and fall with fluctuations in the sentiments of the communities involved. FOMO can push prices up so quickly, but panic selling can cause a crash.

So what impact does memecoin have on the chains they rely on? According to analysts, before the Dencun upgrade took place, the significant rise of ERC20 tokens, including memecoins, caused Ethereum transfer fees to increase significantly. This pushed the average fee to $22.19 per operation (a 2-year high for the protocol).

On the other hand, thanks to its widespread reputation for low transaction fees, Solana experienced massive network growth during the first half of this year’s memecoin craze. The industry hype circulating the “Book of Meme” and “SLERF” memecoins on Solana translated into Solana’s TVL surpassing Ethereum’s trading volume on March 15. That said, while costs , Solana’s speed and uncompounded access means user transaction fees are virtually unaffected by increased transactions, network congestion results in about half of transactions failing in peak time.

This is when things started to change. After the Ethereum Dencun upgrade rolled out in mid-March, Base, Coinbase’s Layer 2 network, began to take over as the protocol of choice for memecoin traders. The goal of this “hard fork” is to strengthen the consensus layer on Ethereum (which determines how network participants agree on the state of the protocol) and improve the way transactions are managed and processed on the execution layer. .

As a result, transaction speeds have become faster and transaction costs on Ethereum’s L2 blockchains are significantly lower. For Base, this means the average fee has dropped from about 10 cents to 1 cent or less. One person’s loss is another’s gain, and as in this case, faster transaction times and lower costs on Base enabled the protocol to compete with Solana in the second half of the cycle. period of exaggeration.

The upgrades don’t stop here. Coinciding with the Bitcoin halving event, the Runes Protocol was launched to provide a roadmap for the issuance of native Bitcoins on the Bitcoin network. Created by the founder of the Ordinals protocol, Runes Protocol allows Bitcoin developers to mine and trade fungible tokens (including memecoins) on the network, thereby advancing the bitcoin mining industry. However, similar to Solana, this network also experienced mass congestion due to the increased number of transactions.

Memecoin’s potential to test a blockchain’s ability to withstand spikes in activity is clear to see. Inflection points in market cycles, like what we saw with the recent memecoin craze, help protocol developers identify previously undiscovered weaknesses in blockchain protocols.

Memecoins are helping existing projects prepare for the future of Web3 adoption, where trillions of dollars in cryptocurrencies and stablecoins are traded daily. It is likely that the market will see continued changes in the memecoin protocol playing field, as developers work to refine and enhance their onchain transaction capabilities and go through similar phases of exchange activity. High and then low again. Therefore, judging a protocol based on its current scalability outputs would be an unfair assessment in the long run. One thing we can be sure of, however, is that when it comes to considering the problem of protocol design… memecoin is a great place to start.

You can see coin prices here.

Itadori

According to NewsBitcoin

Mark Tyson
Mark Tyson
Freelance News Writer. Always interested in the way in which technology can change people's lives, and that is why I also advise individuals and companies when it comes to adopting all the advances in Apple devices and services.
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