By Messari - Chase Devens
key insight
key insight
PEPE has become the fastest growing ERC-20 token in cryptocurrency history, gaining a $1 billion market cap and 107,000 holders in just 23 days;
PEPE sparked a memecoin renaissance. As a result, both the Ethereum and Bitcoin networks experienced congestion and rising transaction fees;
While PEPE is growing at a record pace, its valuation is still a fraction of that of DOGE and SHIB.
A common complaint about the current state of cryptocurrency is that it lacks applications for ordinary people. This is a fair criticism, but there is one product that has been proven to attract new users onto the chain: meme coins. More recently, there has been a revival of speculator interest in meme coins thanks to the parabolic growth of PEPE, an Ethereum ERC-20 token, which attracted 107,000 holders in just 23 days and reached 10 market capitalization of over US$100 million. To better understand the role of meme coins in cryptocurrencies, let’s take a look at their history and progress up to the recent PEPE frenzy that sparked intense market attention.
origin
The origin of the meme coin can be traced back to Dogecoin (DOGE) in late 2013 and peaked in the 2021 bull market. In 2021, DOGE gained mainstream popularity, growing from a market cap of $700 million on January 1st to $88 billion in early May. Following Dogecoin’s run, Shiba Inu (SHIB) reached a market cap of $42 billion at the end of October, up from less than $1 million at the start of the year. The dog-themed assets have no intrinsic value, but their association with viral internet memes has fueled their popularity among cryptocurrency users and retail users.
Now, PEPE is the latest meme coin to grab the attention of the market. The coins popularity stems from the Pepe the Frog character created by Matt Furie in the 2005 cartoon Boys Club. After the original Pepe painting and later variants went viral on internet platforms such as 4chan and Tumblr in the 2010s, Pepe was embraced by the crypto community and quickly became part of crypto cultural lore.
The PEPE token was launched a little over three weeks ago on April 14, with a total supply of 420.69 trillion tokens. 93.1% of the tokens were deposited into Uniswap’s liquidity pool, and the remaining 6.9% were stored in a multi-signature wallet for future centralized exchange listings. The anonymous team that released PEPE took advantage of Pepe the Frogs already established Twitter popularity and created a meme campaign to drive early adoption. It can be said that this strategy has achieved unexpected success.
Growth figures for PEPE
The meteoric rise of PEPE is unprecedented in the history of cryptocurrencies. Its first two days were relatively quiet, but by the third day, the number of holders grew by the thousands every day. It took PEPE just 22 days to have over 100,000 holders on-chain.
This is all the more impressive when compared to the historical growth of other fast-growing Ethereum coins. When SHIB enters a hyper-growth period in 2021, it will still take 90 days for the token to reach 100,000 holders. The viral assets of the DeFi summer of 2020, like YFI and YAM, never even reached the 100,000-holder milestone. As a proxy for more organic growth rather than speculative demand, Dai offers a benchmark: 225 days to reach 100,000 holders.
Arguably the most important factor driving Pepes growth is that crypto players are now familiar with how the meme coin will grow rapidly from its initial cycle in 2021 led by DOGE and SHIB. Being one step ahead is profitable, and this self-reinforcing force attracts more buyers as the memes popularity increases. If we look at the average value per holder of PEPE and SHIB, measured by the market capitalization of holdings per holder, we see that PEPE shows a similar growth pattern to SHIB, but at a much faster rate.
The rapid launch of centralized exchanges added fuel to PEPEs hot start. It took only six days for PEPE to land on MEXC, its first centralized exchange; it took 22 days to land on Binance, the worlds largest cryptocurrency exchange. These integrations not only lower the threshold for users to speculate, but also enable large capital providers to provide off-chain market-making services. In the past week, we have seen the majority of PEPE volume move from Uniswap to these centralized platforms.
The adoption of PEPE on centralized exchanges has also opened the door for trading PEPE derivatives. Now, exchanges like Binance and Bybit have offered PEPE perpetual futures, enabling users to invest 100x leverage on the price of PEPE. In just a few days, the trading volume of PEPE derivatives has surpassed the daily spot trading volume.
Because derivatives create leveraged exposure to the underlying asset, they also introduce greater volatility to the asset. This volatility is now spilling over into Ethereum’s DeFi ecosystem, where wild swings in PEPE prices over the weekend pushed Ethereum gas fees to new yearly highs. Users are once again faced with requiring over $100 in transaction fees to exchange PEPE on-chain.
Unlike the memecoin frenzy of 2021, the Ethereum ecosystem now has a fully functional second-layer solution that can help relieve congestion on the mainnet. However, the creators of PEPE chose to launch on the Ethereum mainnet to maximize their access to liquidity. While Ethereum, Arbitrum, and Polygon all offer similar numbers of daily active users, Ethereum’s total value locked is $29 billion, Arbitrum’s $2.5 billion, and Polygon’s $1 billion. Choosing to launch on Ethereum Scaling Solutions, choosing to launch on Ethereum Scaling Solutions creates more friction and reduces the likelihood of a PEPE outbreak.
Meme coins may not be making their mark on ethereum’s scaling solutions, but they are scaling to bitcoin with the novel BRC-20 standard built on the Ordinals protocol. These tokens are fungible batches of metadata inscribed in individual satoshis on the Bitcoin network. Since the release of PEPE, the BRC-20 meme coin has exploded in popularity and caused severe congestion on the network — enough to force Binance to suspend BTC withdrawals twice in one day in order to reconfigure their fee handling.
Finally, the revival of activity on the Ethereum mainnet has benefited ETH holders. The supply of ETH is shrinking at the fastest rate since The Merge occurred in September 2022. Although on paper, PEPE is clearly the clear winner of the recent meme cycle, but"Ultrasound Money"Meme has shown its strength on the fundamentals.
looking to the future
Both SHIB and DOGE experienced a 90% price correction after parabolic growth in 2021. Will PEPE face the same outcome? The history of speculative markets would say yes. However, that’s not to say PEPE’s rise is over.
At the peak of the mania in October 2021, SHIB briefly surpassed DOGE in market capitalization, peaking at a market capitalization of $45 billion. At a market cap of $1 billion, PEPE is now one-fifth of SHIBs market cap and one-tenth of DOGEs. It wouldnt be surprising to see it surpass both at some point, if only briefly.
Another data point to watch is the number of daily active users of Uniswap on Ethereum. That number has more than doubled since PEPE was launched and is now fast approaching the May 2021 all-time high of 90,000 daily users. Uniswap mobile wallet integration has improved since 2021, and if PEPE continues to gain traction, it could set new daily user records.
Finally, stories are circulating of early PEPE buyers getting rich with small initial investments. These stories make speculative investments in other newly launched meme coins more attractive for fringe users. In the first two weeks of Pepe’s launch, we started to see substantial interest in other meme coins like WOJAK, TURBO, and AIDOGE. However, the excitement and growth of these alternative meme coins are all features of the final phase of the 2021 meme coin frenzy.
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