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 said, 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 said.
