Memecoins as an №1 industry in 2024.
The 2024 bull cycle can be confidently characterized in one word – memecoins. Since the end of last year, the Solana blockchain has experienced a real boom: dozens of tokens with only a funny idea and name as their product have started reaching market capitalizations in the hundreds of millions of dollars.
The community quickly determined that this was the fastest way to multiply their capital, but at the same time, it was also the riskiest.
Here, perhaps, lies the first factor for the increased interest in these assets: due to their enormous volatility, especially at the start of a project, the token’s price is not subject to classic analysis methods, turning trading into a form of gambling.
Amid the growing interest in memecoins, the price of $SOL rose from $25 to $200, and the number of new addresses increased from 4,760,000 in November to 28,890,000 in March of this year.
It has now become clear that memecoins are a tool not only for blockchain users but also for projects as a method of capturing attention and attracting a community.
Blockchains, in turn, find it highly beneficial to support this industry since the increasing number of transactions raises the collected fees and, overall, attracts new users.
A memecoin has no goal, only path, and memecoin’s path is … ?
In essence, the lifecycle of a memecoin can be divided into three parts:
1. Launch: Whether it’s a standard launch on a DEX, a pre-sale, or pump.fun, this is the most crucial stage for any memecoin. Here, its potential is determined: the concept, community interest, the behavior of the founders, including the percentage of supply in their hands. All these factors serve as the foundation for subsequent growth, and if this foundation is “shaky,” the future of such a token will correspondingly be uncertain. At this stage, due to low liquidity, the upside potential and possible profit are the highest.
2. “Liquid” Token Stage: The stage where the majority of the community has already taken notice, and the token’s deep liquidity prevents sharp price movements as seen during the launch.
3. Listing on CEX: Certainly, listing on tier-2 and tier-3 centralized exchanges can occur at the previous stage. However, listing on tier-1 exchanges signifies the project’s recognition, having passed Due Diligence, and active development. Here, the token can gain new momentum through an influx of new organic purchases. At this stage, perpetual listing also occurs, which gives users the ability to short the token, even with leverage.
Thus, the greatest attention from users is observed during the first and third stages of a memecoin’s lifecycle. But how can users be given the opportunity to maximize the potential of a token that is in the second stage?
Leverage. On-chain. A new breath of air.
Most users, when thinking about on-chain leverage, are likely to recall perpetual DEXs. However, to date, only a small fraction of all protocols operate entirely on-chain. When it comes to memecoins, because DEXs track token prices through oracles from centralized exchanges, the listing of memecoins on such protocols usually occurs during or after their listing on CEXs. Therefore, this does not solve the problem described above.
Today, there are already protocols that provide leverage trading conducted entirely on the blockchain and include memecoins in their listings. Such projects include: Wasabi on the Blast blockchain, Dumpy.Fun by Solend Protocol, The Arena by Margin.Fi, and Pure by Gearbox (although this protocol does not have memecoins in its list).
From a conceptual standpoint, these protocols are developed based on lending. Any leveraged trade is a loan taken by the trader from liquidity providers. At the same time, the implementation of leverage can occur in several ways. Let’s take a closer look at the trading process:
As previously mentioned, leveraged trading is achieved through borrowing. When opening a position with 200 USDC and 2x leverage, the trader borrows 400 USDC from the lender (LP provider), and the funds are transferred to a special smart contract (which we’ll refer to as isolated), that can only interact with DEX smart contracts. This ensures that the LP provider’s funds are protected from misuse by the trader. In return, the trader pays an annual interest rate on the loan to the LP provider, similar to how it works in traditional lending platforms.
After opening the trade, the isolated smart contract purchases the memecoin. When closing the position, the smart contract sells the memecoin, returns the borrowed amount plus interest to the LP provider, and the remaining amount goes to the trader. In the event of liquidation, a special bot monitors the price on the DEX and liquidates the position if necessary.
Short positions work in a similar manner: 
When opening a short position, the trader borrows the memecoin from the LP provider and provides a collateral. The isolated smart contract then sells the memecoins and receives the base asset, such as USDC, in return.
When closing the trade, the isolated smart contract buys back the memecoin using USDC. If the asset’s price has fallen, the same number of memecoins can be purchased for a lower amount of USDC, resulting in a profit for the trader. Then, smart contract repays loan and sends the funds to the trader.
In the event of liquidation, the isolated smart contract buys back the memecoin using USDC to repay the loan to the LP provider in full, but the trader incurs a loss.
So what?
The emergence of on-chain leverage platforms for memecoins is an organic and logical development of the industry. Users urgently need such tools that provide flexibility and the potential for high returns.
In turn, projects developing these protocols gain a vast user base with incredible open interest.
