Web3 Lawyer: What legal compliance should be considered for MEMECoin, which has an investment return of over 1800%?

Author: Mankun Blockchain

The hottest track in 2024 is undoubtedly MEMECoin, which has quickly become the darling of the market thanks to its unique cultural background and fan-like community support. According to a Biteye survey, MEMECoin has an astonishing return rate of 1834.22% in the first half of 2024, far ahead of the second place (almost 8 times higher).

In another report from KuCoin, researchers noted that in May 2024, the crypto market saw significant growth, especially with MEMECoin related to celebrities and trending topics attracting a lot of attention and investment. Speaking of this, one cannot ignore the celebrity effect. You may have heard of Tesla CEO Elon Musk, whose tweets have repeatedly caused wild fluctuations in the price of Dogecoin. But who would have thought that this was initially just a crypto joke?

Origin of MEMECoin

Let's turn back time to 2013 when Dogecoin dramatically emerged. At that time, its founders, Jackson Palmer and Billy Markus, just wanted to poke fun at the growing cryptocurrency craze, so they created a token based on the popular meme Shiba Inu and named it Dogecoin. Little did they know that this joke would grow larger, and the originally humorous coin gradually evolved into a significant cultural phenomenon within the community.

Another typical MEMECoin is Shiba Inu. Launched in 2020, Shiba Inu claims to be the "Dogecoin Killer" and quickly amassed a large following through extensive social media and community activities, once ranking among the top 20 cryptocurrencies by market capitalization. In 2023, with the launch of Arbitrum, more MEMECoin projects emerged in its ecosystem, driving older MEMECoin projects, including PEPE, FLOKI, and BONK, to become favorites in the crypto space, not only driving users crazy but also attracting more Web3 practitioners to this track.

*Image source: Coinmarketcap

However, for some newcomers to Web3, MEMECoin and NFTs can be quite confusing. Why? Because they are very similar! Both represent images as PFP (Profile Picture), and their popularity relies on crypto community culture, with prices largely driven by FOMO. A typical example is BOME (Book of MEME), which stores MEMECoin cultural images on IPFS and encapsulates this data within each BOME Token. This design makes BOME both a PFP and a Token, combining the collectible value of NFTs with the utility of Tokens. Another example is inscriptions, where each inscription has a specific storage location and content on the blockchain, including text, images, or other forms of information.

*Image source: BOME official website

So, whether for investors or developers, how should one distinguish between MEMECoin and NFTs?

Differences Between MEMECoin and NFT

Indeed, both MEMECoin and NFTs share commonalities in terms of technology, community attributes, and symbolism. However, at their core and underlying logic, there are significant differences, including technical standards, nature, purchasing motives, and issuance mechanisms.

Technical Standards

• MEMECoin: The most common MEMECoin generally uses the ERC-20 standard, which is the most common token issuance standard on Ethereum.

• NFT: The basic standard for NFTs is ERC-721, ensuring that each NFT is an independent entity; however, to meet higher flexibility, many NFTs use ERC-1155, allowing developers to mint both NFTs and fungible tokens, facilitating uses such as in-game items.

Nature

• MEMECoin: A type of digital currency based on blockchain technology, primarily used for trading and investment, with price changes largely dependent on speculation and market FOMO.

• NFT: Represents a unique digital asset, typically used for digital artworks, music, in-game items, etc., with its value often tied to its scarcity and artistic merit.

Purchasing Motives

• MEMECoin: Primarily serves as a speculative tool, with participants hoping to profit from price fluctuations. These tokens often rely on social media and celebrity effects to drive their value, much like the explosive popularity of Dogecoin and Shiba Inu.

• NFT: Mainly serves as proof of digital assets, used for collection, display, and trading. NFTs are more like collectibles in the digital age, attracting a large number of artists and collectors due to their brand value, scarcity, and uniqueness.

Issuance Mechanism

• MEMECoin: Typically issued through ICOs (Initial Coin Offerings), IDOs (Initial DEX Offerings), etc. The issuance process is usually relatively simple, but due to a lack of regulation, it is prone to various issues, such as fraud and market manipulation.

• NFT: Usually minted directly by artists or creators and sold on specific platforms. The issuance of NFTs relies more on the reputation of the creator and the uniqueness of the work, making it relatively more regulated and transparent.

In comparison, although MEMECoin may appear similar to PFPs, its differences from NFTs are quite evident, especially in that its essence is a Token, and the volatility of its price and user participation motives often lead to user disputes and compliance issues. Therefore, as Web3 developers, it is crucial to consider the prospects of MEMECoin projects from a legal perspective rather than merely chasing market trends.

Compliance Issues of MEMECoin

The low entry barrier, high risk, high return, and strong community drive of MEMECoin are fundamental reasons for its popularity. However, the regulatory issues it faces must be taken seriously.

The Chinese government prohibits digital currency trading and ICOs (Initial Coin Offerings), which means that due to strict regulations on cryptocurrencies in China, issuing MEMECoin directly in China is not allowed, although there is a relatively open attitude towards blockchain technology and NFTs. In this context, the innovative combination of MEMECoin and NFTs may provide developers with another possibility, such as the inscription model. However, during the issuance process, attention must also be paid to legal and compliance issues, such as the requirements for issuing NFTs in current laws and regulatory policies in China, including intellectual property issues, adequate information disclosure, a sound consumer protection mechanism, and tax obligations, etc.

However, some developers may think that as long as they do not issue MEMECoin in China, there will be no issues. This is not the case.

First, in the United States, many MEMECoin may be considered securities and must comply with the regulatory requirements of the U.S. Securities and Exchange Commission (SEC), including registration, disclosure, etc. At the same time, issuers must comply with the regulations of the Financial Crimes Enforcement Network (FinCEN), implementing AML and KYC procedures to prevent money laundering and terrorist financing. In terms of taxation, they must comply with the regulations of the Internal Revenue Service (IRS) regarding tax reporting and payment, including transaction income tax and capital gains tax.

Next, in Japan, all cryptocurrency exchanges must register with the Financial Services Agency (FSA) and be subject to regulation. Similarly, issuers must comply with Japan's AML and KYC regulations to ensure compliance with customer identity verification and transaction monitoring. In terms of taxation, they must comply with the regulations of the National Tax Agency of Japan regarding tax reporting and payment, including transaction income tax and capital gains tax.

Likewise, the European Union is gradually establishing a unified regulatory framework for cryptocurrencies, including the phased implementation of the Markets in Crypto-Assets Regulation (MiCA). Issuers must comply with the EU's Anti-Money Laundering Directive (AMLD), implementing strict KYC and AML procedures. They must also comply with the tax regulations of each member state regarding tax reporting and payment, ensuring compliance in tax handling.

Furthermore, whether it is MEMECoin or other Web3 projects, any issuance of tokens will face issues of market manipulation and fraud. Issuers must establish internal controls and risk management mechanisms to monitor and prevent market manipulation and fraudulent activities.

Conclusion

Clearly, as the hottest track, MEMECoin's wealth effect will inevitably attract a large number of users, leading to the emergence of more projects. However, legal compliance issues hang over issuers like the "Sword of Damocles," and they must fully understand and comply with relevant laws and regulations to protect themselves while reaping more wealth.

In summary, as the MEMECoin market continues to develop, the regulatory environment will also change. Only on the basis of legality and compliance can MEMECoin achieve sustainable development and bring more value and opportunities to investors and society. If you encounter any legal issues during the issuance or investment of MEMECoin, feel free to consult our professional legal team. We will provide you with the highest quality legal services and support.