(Bloomberg) -- One of the biggest winners of crypto’s memecoin craze is a project with a design similar to the anonymous social media platform 4chan.
Since its launch in January, more than one million memecoins have been created on Pump.fun, a crypto project based on the Solana and Blast blockchains, according to data compiled by Subin An, data analyst at crypto venture firm Hashed. The rising popularity of Pump.fun as the go-to place for retail investors to create and trade memecoins has brought over $50 million in estimated revenue in just about six months, based on data aggregated by An and calculated by Bloomberg.
Like memecoins themselves, the rise of Pump.fun has faced criticism. Skeptics say the platform reinforces the perception of crypto as a casino, distracting from the potential real use cases of the technology. Crypto has also been plagued by “pump-and-dump” scams since its early days, where a buyer of a token convinces others to do the same to inflate the price, and then dumps their holdings at the higher price before the value collapses.
Pump.fun’s goal is simple: to allow anyone to launch memecoins easily, quickly, and cheaply, while avoiding potential rug pulls, its anonymous co-founder, who goes by Alon on X, said during a podcast interview in March. A rug pull is a type of cryptocurrency scam where a developer attracts investors with a project and then disappears with the funds, leaving investors with a worthless asset. Alon declined to be interviewed for this story.
“If you find something funny, then why not actually financially share it with your friends, right?” Alon said during the podcast. “Why wouldn’t you all have a stake in the success of the meme?”
Pump.fun achieves its goal through an automated process: by uploading your favorite meme or JPEG, along with a name and a ticker for the token, a token can be created instantly for less than $2 in fees. The project uses a mathematical model to determine the price of the memecoins, with the value increasing as more users purchase the coin. New tokens on Pump.fun are created through a so-called fair launch method, where all tokens are minted at once without presales, often at a fraction of a cent.
“What Pump allows for is anyone to launch coins,” said Jason Kam, a founder of crypto venture firm Folius Ventures. “Given most people don’t have the ability to inject any utility behind the coins, these coins can be nothing but memecoins.”
Spending just a few minutes on Pump.fun can be mesmerizing – the memecoins keep appearing every second with weird, funny, or absurd names and photos. The design of the website is inspired by stripped-down style of 4chan, according to Alon, because Pump.fun’s initial target market was people who are already on 4chan. Most recently, Pump.fun has also captured attention of celebrities including rapper Iggy Azalea, who launched her token dubbed MOTHER on Pump.fun.
Alon and their co-founder were inspired by the resurgence of the Solana blockchain in the past year, they said in the podcast interview. The price of Solana’s SOL token has increased by 1,300% since the collapse of Sam Bankman-Fried’s FTX exchange. Pump.fun is also influenced by SocialFi platforms such as Friend.tech, which are seen as crypto’s answer to X and other social media giants, according to Alon.
Rachel Lin, chief executive of decentralized derivative exchange SynFutures, said that Pump.fun’s success shows increased appetite from retail investors in memecoins.
“In the crypto space, aside from institutional funds flowing into BTC and ETH and other major assets, there hasn’t been much new money coming in,” Lin said, referring to Bitcoin and Ether. “People prefer trading memes to potentially reap large returns.”
The memecoin and Pump.fun phenomenons are also driven by a retail fatigue post-FTX. Many retail investors are tired of investing in tokens that are backed by venture capitalists, especially after many were burned out post 2022 by several industry-wide blow ups such as TerraUSD and FTX, according to Austin Campbell, an adjunct professor at Columbia Business School and a consultant for blockchain firms.
“A lot of people feel like the VC projects are rigged in the favor of the VCs and the projects, so they prefer memecoins as they are seen as more ‘honest,’ for some definition of honest,” he said.
But Campbell questioned the long-term value of most of memecoins and projects around them such as Pump.fun.
“I don’t think they are evil, so much as just pointless,” he said.
Michael Selig, partner at law firm Willkie Farr & Gallagher LLP, said that the rise of memecoins is also in part “attributable” to the US Security and Exchange Commission’s approach to policing crypto markets. The SEC has been cracking down the crypto industry and most recently, it sued crypto firm Consensys Software Inc. for failure to register as a brokerage and improperly having collected millions of dollars in fees.
“Memecoins are seemingly the antithesis of investment contract securities,” Selig explained. “People buy memecoins to express a viewpoint, be a part of a community, speculate on the attention value of cat pictures or for other entertainment reasons.”
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