From social experiment to retail ‘value extraction’ tools

Memecoins, once seen as community-driven digital assets, are increasingly being used to exploit retail investors, with a growing number of scams and failed celebrity-backed tokens raising regulatory concerns.

The $4 billion collapse of the Libra (LIBRA) token, which was endorsed by Argentine President Javier Milei, is the latest blow to the sector after eight insider wallets cashed out $107 million in liquidity, leading to a price decline of 94% within hours of its launch.

The rise of memecoin-related scams presents significant regulatory challenges, according to Anastasija Plotnikova, co-founder and CEO of blockchain regulatory firm Fideum.

“Memecoins have evolved from community-driven social experiments into a chaotic landscape dominated by value extraction from retail investors,” Plotnikova told Cointelegraph, adding:

“Insider rings, pump-and-dump schemes, and sniper groups have replaced the organic, collectible nature of original memecoins, creating an unhealthy playing field.”

Investors will also need to distinguish between memecoins that can be seen as genuine “collectibles” and “outright fraudulent activities” like rug pulls which are “not only unethical but also clearly illegal, with case law to support enforcement.”

“In my view, these activities should fall firmly within the jurisdiction of law enforcement agencies,” she added.

More troubling revelations have emerged since the meltdown of the Milei-endorsed Libra token, notably that Libra was an “open secret” in memecoin insider circles and that some members of the Jupiter decentralized exchange knew about the token launch two weeks in advance.

Memecoin scandals unlikely to impact US crypto legislation

While the recent memecoin meltdowns are a negative hit for investor sentiment, they may not impact emerging cryptocurrency regulation in the long term, according to Dmitrij Radin, the founder of Zekret and chief technology officer of Fideum.

This is because crypto legislation is built with a “long term” perspective, not just based on recent events, he told Cointelegraph.

It’s also important to understand that the Libra rug pull was different compared to the launch of the Official Trump (TRUMP) and the Official Melania Meme (MELANIA) tokens, with the latter two unlikely to trigger a regulatory response in the US, Radin said, adding:

“David Sacks, the US crypto czar, mentioned that memecoins are more of a collectible. So it shouldn’t be regulated as security or anything like that.”

“That’s why I believe that Trump and Melania coins might be taken in a different way than Libra,” he added.

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