“Controversy Surrounds Legitimacy of Meme Coins in Cryptocurrency World”

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When Elon Musk jokingly promoted dogecoin during the last market surge, it was seen as a humorous move by a prominent businessman playing with digital currency. However, the perception has since changed as real institutions, such as the Avalanche Foundation and Franklin Templeton, are recognizing meme coins as a valid use of blockchain technology.

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On the Solana network, there are meme coins like dogwifhat, sillycat (SILLYCAT), and popcat (POPCAT). On Ethereum, dogecoin (DOGE) remains the top player. Additionally, the emerging field of “PoliFi,” or political finance, has its own roster of coins such as MAGA (TRUMP), jeo boden (BODEN), and elizabath whoren (WHOREN).

According to a recent report by Franklin Templeton’s Digital Assets team, these joke coins have gained popularity in the past year due to their unique nature. The market rally that began in late 2023 has only intensified with the release of U.S. bitcoin exchange-traded funds (ETFs).

In a sense, meme coins are gaining momentum. The Avalanche Foundation has launched a “Culture Catalyst” program, which involves purchasing meme coins to support what they consider to be culturally significant Web3 projects. Additionally, Franklin Templeton, which formerly displayed “bitcoiner’s laser eyes” on Twitter, attributes the growing use of Ethereum and Solana to the potential for quick profits offered by meme coins.

However, meme coin projects are also taking risks by investing time and money into making their projects stand out. For example, shiba inu (SHIB), a competitor to the first and most well-known meme coin dogecoin, is building its own tech ecosystem, including Shibarium scaling layer, ShibaSwap decentralized exchange, Shiboshis NFTs, and a digital identity initiative and project incubator.

Another meme coin, dogwifhat (WIF), has gained over 600% in value in the past month by adding a pink beanie to its canine mascot. The project raised over $600,000 in USDC to advertise on the side of the Sphere megaproject in Las Vegas.

However, these projects may be inviting scrutiny from the U.S. Securities and Exchange Commission (SEC) by promoting or developing their tokens. U.S. law professor Brian L. Frye explains that advertising can make it more likely for a court to classify an investment as a security, which is determined by the Howey test. Neeraj Agrawal, director of communications at Coin Center, also points out that many meme coins are not truly decentralized and may be controlled by a small team that promises to increase the token’s value.

There is typically a critical threshold of 3,000 holders for a project to gain traction, followed by a phase where new buyers outnumber existing traders and whales become involved without causing extreme market swings. While dogecoin has a not-for-profit foundation coordinating its development, most meme coins today are dominated by a few large holders who got in early.

Some argue that these joke coins are just that – jokes or performance art – and there is no real expectation of profit. However, Frye argues that people are still buying them in the hopes of making a profit. Even though the likelihood may be low or nonexistent, the possibility of value increase is still a driving factor for investors.

Columbia Business School professor Austin Campbell suggests that projects cannot simply label themselves as “Dog Co.” with a humorous logo and engage in legitimate business practices without facing scrutiny from securities regulators. However, there is room for interpretation as the SEC’s theory of why these tokens are securities is disputed. Just because a token resembles a security or was issued under an investment contract does not necessarily make it a security. Ultimately, it is an open legal question.

Overall, while meme coins may have started as a joke, they are now being taken more seriously by institutions and investors alike. However, these projects must navigate the potential legal implications of their actions carefully to avoid facing consequences from securities regulators.

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