5 Things to Check Before Apeing Into a Memecoin

Memecoins keep making it to the front row seats of topics discussed in the crypto community from time to time. The reason is not far-fetched. In most cases, memecoins are usually among the top gainers, attracting the attention of many.

Granted, these speculative digital assets have attained significant heights, benefiting early holders. Still, it is important to note that they can equally depreciate, erasing every paper profit investors have made. This stresses the need for every investor to perform due diligence before apeing into a memecoin.

This article highlights five things you should check before diving into a meme token.

5 Things to Check Before Buying a Memecoin

Before diving headfirst into a memecoin, ensure you do your own research with the five things we will discuss shortly. Checking them could determine whether you’re on track to net meteoric gains or experience significant losses. They are:

Liquidity’s status

Before memecoins make it to centralized exchanges (CEXs) like Binance and OKX, they first get listed on decentralized exchanges (DEXs), such as Uniswap, PancakeSwap, and Raydium.

After creating a memecoin, the developer creates a trading pair on a DEX where it will be traded once launched. Two assets, the newly created memecoin and a base asset (ETH, SOL, USDC, or USDT), are deposited into a liquidity pool on the DEX. In return for depositing these assets, the developer receives LP tokens, representing ownership of the pool. If they retain these LP tokens without locking or burning them, they can redeem them at any moment to withdraw all the valuable tokens. This leaves buyers of the memecoin holding worthless meme tokens that cannot be sold.

So before apeing into a memecoin, ensure you confirm whether the LP is locked, burned, or unlocked. If burned, it means that the LP tokens are non-retrievable, meaning that there is no way for the developers to rug token holders. If locked, it means that the token will be stashed away in a third-party smart contract locker for a predetermined duration. Once unlocked, it becomes vulnerable to a rug pull.

You can use tools like RugCheck, TokenSniffer, and DEXScreener to check the status of the LP tokens.

Token supply distribution

Every cryptocurrency has a total supply, that is, the total number of tokens available. When some memecoins are created, the developer behind them may try to make the token look credible by publishing a tokenomics that outlines how the token is distributed among holders. But it is crucial to look beyond the surface.

Blockchain explorers help an investor to determine the actual token supply distribution for memecoins. You can get this by searching the token’s CA on the supported blockchain explorer and navigating to the Holders section. Below is a sample of what you should be looking for:

Alternatively, you can fetch this data from platforms like RugCheck and BubbleMaps.

If the top 10 holders, excluding the LP burned/locked addresses, own a large percentage of the supply, a single holder selling can distort the token’s price and overall performance. This calls for a need to be wary. This is especially so if you see a significant portion of the supply is held by an unidentified address.

On the other hand, if you see that the top holders are either an LP burn address, CEXs, DEXs, a staking vault, or a smart contract labeled with the project’s name, then you can rest assured that most of the tokens are either held or staked by retail investors on these platforms.

There are cases when about half of the token’s supply is sent to a popular individual as a way of building credibility among onlookers. While this move favors some projects, it doesn’t favor others, as the individual can decide to dump the tokens on the market.

Social media presence

Another thing to check before apeing into a memecoin is checking the social media presence of the project and/or its creator(s). These social media presences can be on X, Discord, Reddit, Telegram, Farcaster, or a combination of some of these platforms. It is through these social apps that the project’s creator builds hype around the token, creates engagement with holders, and keeps their communities updated on the project’s operations.

Most short-lived, sketchy meme tokens have no social media presence. Others may create, but will be quiet or dormant. Another red flag is seeing that the X account of a memecoin has been suspended from the social app.

In some cases, there may be little activity on the project’s social media account. You can turn to the founder’s X handle to see if there is active communication about the project there. This will help you determine whether the token is worth the spend. Again, extreme caution is required, as some projects and the founders may abandon the accounts once the token reaches a specific threshold they have targeted.

Also, do not rely on promotion from influencers or KOLs on social apps as a basis to acquire a meme token. This is because they are often paid to shill the token regardless of the memecoin’s background.

Minting permissions

It is also vital to verify that the token’s mint and freeze authorities are disabled. The mint authority gives creators the ability to create infinite new tokens out of thin air. The freeze authority enables creators to block any wallet from accessing their tokens.

There are various ways to check the status of the creator’s minting permissions. One option is going to blockchain explorers. On Solscan, for example, the Overview page has a section called Authority, which shows the Mint and Freeze Authority. It has to be N/A, null, or revoked. If an actual wallet address is listed instead, then it means that wallet retains control over minting or freezing. Below is a sample:

Alternatively, you can use DEX trackers, TokenSniffer, or other tools to check the minting permissions.

Launch date

Checking the launch date of a memecoin is another reliable way to determine if it is worth the spend. Minutes-old or hours-old tokens are usually the most risky memecoins to buy because they are susceptible to sniper bot activities. These are automated systems designed to spot new tokens and accumulate a large quantity, waiting for a price pump before dumping their entire allocation.

In most cases, the token may actually see a meteoric price surge that attracts the crypto community. But do not be deceived by such short-lived surges. Most memecoin rug pulls are tokens launched within the past 24 hours or week.

In some instances, a token may survive for weeks or months despite the developer/creator exiting or an initial price drop. When such happens, it indicates the token may have transitioned into a genuine community-driven asset with sustained organic interest rather than short-lived bot speculation. Projects that make it to this point are tagged as community takeovers (CTOs).

On-chain Tools to Verify Memecoins’ Credibility

You do not need to have technical blockchain knowledge before knowing how to verify the credibility of a memecoin. With the following on-chain tools, you have gotten one step closer to determining if a meme token is worth the spend:

• Blockchain explorers: Think of these as search engines for blockchains. They allow users to view transactions, addresses, wallet balance, token holdings, and even the status of blocks. For public blockchains, anyone can view the transaction details or wallet activity of projects or other users using wallet addresses, transaction hashes, or contract addresses (CA). Popular examples include Etherscan, Solscan, and BscScan.
• Analytics platforms: These digital platforms analyze and cluster on-chain data available on a blockchain. In some way, they are similar to blockchain explorers. However, they stand out in the way they arrange data for easy access and their use of available data to create sentiments and other metrics that help users make well-informed decisions. Some analytical platforms even allow users to create custom metrics to track crypto/projects without any prior programming knowledge. Examples include Glassnode, Arkham, CoinGlass, DefiLlama, and CryptoQuant.
• Price-tracking websites: These are websites that allow users to quickly access the trading price, market capitalization, traded volume, and fully diluted market cap in real time. They also aggregate data from various exchanges to enable users to access historical trends on crypto assets. Popular examples include CoinMarketCap, CoinGecko, and CoinStats.
• DEX Trackers: These are software tools that aggregate real-time data from DEXs. Most price-tracking websites do not track data on DEXs. However, DEX trackers provide data such as liquidity pools, trading volume, and live prices. Examples include DEXScreener, DEXTools, and GeckoTerminal.
• On-chain Scanners: There are many other not-so-popular tools that the average user can utilize when investigating potential vulnerabilities in a memecoin before investing. Platforms like RugChecker and TokenSniffer help to track the token’s security score, mint authority, freeze functions, and more.

It is also helpful to have accounts on social platforms like X (formerly Twitter), Discord, Telegram, and Reddit.

Conclusion

No one wants to get rugged or scammed out of their hard-earned money. However, because of the complexities tied to blockchain technology, naive traders tend to focus solely on price charts and social media hype as a basis to decide whether to buy or sell memecoins. This article discussed five things every investor should check before jumping into the next big memecoin.

Regardless of your choice, remember that memecoins are highly speculative and, in most cases, have no inherent utility. As a result, always tread carefully when making financial decisions involving meme tokens.