Sentiment-based virtual currencies, colloquially known as “meme coins,” are virtual currencies inspired by social and cultural trends. Once regarded as momentary internet comedy, meme coins attracted both retail and institutional investors and quickly captured a significant share of the cryptocurrency market. The meme coin market now boasts a market cap of approximately $36 billion¹ only 12 years after Dogecoin (DOGE), the first meme coin, was launched.² Their playful nature and low barrier to entry in comparison to other asset classes have also made them particularly attractive to younger investors. However, neither a thorough understanding of their inherent risks nor regulatory oversight have kept pace with their rapid evolution, raising concerns for anti-financial crime (AFC) professionals. This article explores some of these concerns, drawing on recent case studies and current challenges. It concludes with some considerations for AFC professionals and investors.

Key characteristics and distinctions of meme coins

Meme coins reflect the collective mood―or “sentiment”―and are generally comical and lighthearted. Popular meme coins include DOGE, SHIB and PEPE (as shown in Graphic 1). They are popularized by online communities, influencers and celebrities. Some are even inspired by religion, such as LUCE, which surged over 134% following the Pope Francis’ death.³ Nowadays, meme coins are even promoted by politicians and world leaders. As with the other asset classes, investor speculation and reactions to external events impact their price movements. However, unlike other investment instruments with investment promises, or mainstream crypto assets like Bitcoin and Ether that were created with specific utility, meme coins have no underlying value or any real utility. What is more, they are incredibly easy to create⁴ and given the right online conditions―hype and high-profile backers―they can quickly gain momentum. But because their values are derived mainly from prevailing sentiment, the price of a given meme coin can be, and often is, highly volatile. Positive sentiment about the underlying character, trend or sociopolitical cause will typically trigger an increase in demand and appreciation in price, or a “pump,” such as when DOGE’s popularity and price surged multiple times over the years following tweets by Elon Musk about the token⁵ and Tesla’s announcement to accept DOGE as a payment method.⁶ Conversely, negative sentiment about the same coin shortly after a pump could cause a rapid price depreciation, or “dump.”

Graphic 1: Top 10 meme coins by market cap as of May 1, 2025

Source: CoinGecko⁷

Not all meme coins are created equally. They are either official or unofficial and the main distinction lies in their intent and the perceived legitimacy of the project and its backers. Official coins typically have an official website; are associated with a known or credible figure, brand or sociopolitical movement; are sometimes backed by a whitepaper;⁸ and are listed on major centralized exchanges which boost their legitimacy and adoption. Official coins with an underlying political ideology (PolitiFi coins) are a growing subset of official meme coins. However, unofficial coins, which are usually created for entertainment, can be launched by anonymous developers without any clear backing or use case and typically trade on decentralized exchanges (DEXs).

Vulnerabilities and financial crime risks

Despite their popularity and entertainment value, meme coins pose significant financial crime risks to investors amid unclear regulatory oversight and guidance. These coins are susceptible to familiar schemes, including pump and dumps, rug pulls and market manipulation, in addition to exploitation by money launderers, terrorist financers and sanctions evaders. But they also pose other unique inherent risks.

A. Imitation coins

These are fake replicas, or copycats, of actual meme coins―official or unofficial―that fraudsters launch to intentionally mislead investors. For example, $GREED, a social experiment token launched on the Solana blockchain with the goal of challenging crypto influencers,⁹ has over a dozen dupes across a number of DEXs, as shown in Graphic 2.¹⁰

Graphic 2: A listing of $GREED imitation coins

Source: DEXScreener.com¹¹

B. Fake coins

These are coins seemingly or purportedly related to an existing character or person, but do not have any association to or consent or endorsement from the person or project they are supposedly associated with. STONKS, for example, was fraudulently launched after hackers accessed a Nasdaq account, linked it to a fake profile on X, endorsed the coin on X and retweeted the X post using the fake Nasdaq X account.¹² Because the fake coins are associated with legitimate entities or real people, unsuspecting followers are duped into buying them.

C. Phishing

Similarly, hackers gain access to personal information through the use of phishing emails to access accounts or install malware or ransomware onto the victims’ devices. For example, shortly after launch, the information page for $CAR, the Central African Republic’s (CAR) meme coin promoted on social media by the CAR’s president, directed investors to phishing links.¹³

Phishing attacks appear to be a major issue in the meme coin market and community, particularly because of Community Takeovers (CTOs) whereby original token creators leave the project¹⁴ and the community takes over control.¹⁵ CTOs themselves can be a blind spot, as malicious actors purporting to be behind the CTO can insert malicious links on the token’s page or social media accounts.

D. Vaporware

The term vaporware applies to cryptocurrency projects that gain investor support and social media popularity but have no clear use case and fail to materialize. Meme coin examples include Tron (TRX) and Fonziecoin (FONZ). When hyped-up projects fail to deliver, investors are left with worthless coins,¹⁶ creating instability and mistrust in the crypto community.

Murky regulatory landscape: Challenges and gaps

SEC

In a February 2025 statement, the Securities Exchange Commission (SEC) staff classified meme coins as non-securities, which means that transactions involving meme coins do not need to be registered under the Securities Act of 1933, nor are they exempt from registration.¹⁷ The staff likened them to “collectibles,” noting that the offer and sale of meme coins do not involve an investment in an “enterprise” nor do their promoters engage in “entrepreneurial or managerial” activities that reasonably lead buyers to expect financial returns.¹⁸ The SEC’s commissioner criticized the guidance as overly broad and suggested that the Howey test¹⁹ be performed on an individualized basis, arguing that a broad-brush application to such a diverse asset class enables crypto enterprises to skirt around SEC regulations by labeling themselves as a meme coin. If assessed individually, as the commissioner suggests, it is possible some meme coins could classify as securities.

Unfortunately, the opposing views created more confusion than regulatory clarity, highlighting how nuanced the meme coin industry really is and reigniting the security-commodity cryptocurrency debate. What is clear, however, is that as long as meme coins are considered non-securities, investors are not protected by federal securities law if a meme coin project fails or is exploited.

CFTC

If meme coins are not securities they may be generalized as commodities, although the Commodity Futures Trading Commission (CFTC) has yet to issue any meme coin-specific statements. The CFTC’s current crypto-currency approach is to prosecute cases involving fraud that occurred on CFTC-registered exchanges if the digital asset is classified as a commodity or involves derivative contracts. Of note, meme coin derivatives had already been listed on exchanges registered with the CFTC indicating it considered the assets commodities.²⁰

New York Department of Financial Services

When hyped-up projects fail to deliver, investors are left with worthless coins, creating instability and mistrust in the crypto community

The New York Department of Financial Services (DFS) issued a notice in January 2025 concerning the various risks posed to consumers by non-DFS licensed platforms that enable the creation of meme coins―a warning to DFS-regulated entities that certain meme coins did not meet DFS’ standards and are “incompatible” with its coin listing and market manipulation guidance.²¹ According to the DFS, consumers have experienced significant losses from wash trading, pump-and-dump schemes and insider market manipulation,²² pointing to poor security standards and insufficient due diligence regarding code-based vulnerabilities. Lay investors are likely unfamiliar with code-based vulnerabilities, yet the DFS did not elaborate on what they were. It appears the DFS is alluding to an earlier point: that meme coin projects can and are launched with relative ease and speed. Because of this, the code itself could potentially have errors, making it more susceptible to attacks or exploitation. Potential code-based vulnerabilities include, but are not limited to, logic errors in the smart contracts²³ that can lead to funds being accidently locked or depleted as well as reentrancy attacks, in which an attacker exploits the delay in the smart contract’s balance updates and withdraws funds multiple times before the contract updates.²⁴ In addition, a user or project administrator’s private key could be exposed via phishing attacks or malicious software installed on users’ devices without their knowledge.

Modern Emoluments and Malfeasance Enforcement Act

Earlier this year, lawmakers proposed legislation aimed at outlawing public officials from issuing, sponsoring or promoting financial instruments including meme coins and otherwise benefiting financially from their public positions.²⁵ While a notable proposal, the Modern Emoluments and Malfeasance Enforcement Act focuses on preventing governing-driven market manipulation rather than protecting investors from the risks and vulnerabilities discussed earlier.

Recommendations

Unmitigated risks, mistrust in cryptocurrency markets and murky regulatory waters will not mix well. In light of the various risks and vulnerabilities associated with meme coins, investors are encouraged to do their own due diligence before making financial decisions to avoid scams or getting caught up in online hype. Increased public awareness and warnings to investors, such as the DFS alert and providing risk disclaimers²⁶ prior to purchasing meme coins, are steps in the right direction. Another important consideration for further regulatory exploration is that some key industry players, such as launch pads, skirt MSB requirements although they sometimes engage in money transmission activities.

According to the DFS, consumers have experienced significant losses from wash trading, pump-and-dump schemes and insider market manipulation pointing to poor security standards and insufficient due diligence regarding code-based vulnerabilities

But given the regulatory gray areas that currently exist, the industry would benefit most from meme coin subject-matter experts (SMEs). First, SMEs can serve as advisors to coin issuers and listers, ensuring legitimacy and adherence to existing and emerging financial crime regulations and guidance. Second, they can also perform security audits to assess the codes and smart contracts for vulnerabilities that could be exploited by bad actors. Third, SMEs may be investors’ only protection given the current lack of legal and regulatory recourse available to them when projects fail or are exploited; simplifying the nuances, technical aspects and risks of some meme coins will help consumers discern legitimate projects from online hype and scams. Lastly, meme coin SMEs could help foster regulatory clarity by contributing their niche knowledge and insights to ongoing conversations regarding evolving risks and the need for oversight. This type of collaborative partnership activity between SMEs and regulators could help protect meme coin investors from fraud and exploitation.

Trisha Gangadeen, CAMS, independent AFC expert, financial crimes writer,
Las Vegas, NV, USA, trishagangadeen@gmail.com,

Special thanks to AFC colleague, Brian Chan, , for his expert insights on meme coins.

1. Note that due to meme coin volatility, these estimates can rapidly fluctuate. In addition, data aggregators employ different methodologies, including or excluding certain meme coins, therefore figures across aggregators will vary. Also see: “Today’s Cryptocurrency Prices by Market Cap,” CoinMarketCap, https://coinmarketcap.com/
2. “The History of Dogecoin,” Dogecoin, https://dogecoin.com/dogepedia/articles/history-of-dogecoin/
3. “Cryptocurrency LUCE Surges 134% After Pope Francis’ Death, Driven by Speculation and Online Hype,” Yahoo Finance, April 22, 2025, https://finance.yahoo.com/news/cryptocurrency-luce-surges-134-pope-010143498.html
4. Meme coins can easily be created on launchpads such as pump.fun, LaunchLab and SunPump.
5. Grace Kay, “A history of Elon Musk’s love affair with Dogecoin, from a Doge-themed Twitter icon to a spat with one of its creators,” Business Insider,
   https://www.businessinsider.com/history-elon-musk-love-affair-dogecoin-2022-7
6. Caden Pok, “Elon Musk’s Tesla Enables Dogecoin (DOGE) Payment, Price Surges Over 20%,” Yahoo!Finance, May 8, 2024, https://finance.yahoo.com/news/elon-musks-tesla-enables-dogecoin-170019481.html
7. “Top Meme Coins by Market Cap,” CoinGecko, https://www.coingecko.com/en/categories/meme-token
8. Ryan Glenn and May Woods, “How to Spot Meme Coin Scams,” Be(in)Crypto, March 10, 2025, https://beincrypto.com/learn/how-to-spot-meme-coin-scams/
9. “What is Greed: Get to know all about Greed,” OHX, February 19, 2025, https://www.okx.com/learn/what-is-greed-community-driven-token
10. ”DEXScreener,“ DEXScreeener.com, https://dexscreener.com/search?q=GREED
11. Ibid.
12. “Nasdaq X Hack Pumps STONKS Coin Value to $80M Before Quick Crash,” CoinPedia, January 23, 2025, https://coinpedia.org/news/nasdaq-official-x-account-hacked-to-pump-fake-stonks-memecoin/amp/
13. Yohan Yun, “Central African Republic ‘CAR’ memecoin info pages plagued with phishing links,” Cointelegraph, February 10, 2025, https://cointelegraph.com/news/car-memecoin-crypto-scam-phishing-links
14. CTO can occur for a number of reasons, legitimate and illegitimate. For example, the original creators may leave a project if their goals and objectives deviate from the community’s interest. They may also leave as part of an “exit scam,” such as a rug pull or to take off with investment funds.
15. “Community Takeover (CTO),” CoinMarketCap, https://coinmarketcap.com/academy/glossary/community-takeover-cto
16. Kai Sedgwick, “Four Cryptocurrencies That Actually Meet the Definition of Vaporware,” Bitcoin.com News, January 8, 2018, https://news.bitcoin.com/tron-cardano-verge-and-ripple-four-cryptocurrencies-that-actually-meet-the-definition-of-vaporware/
17. “Staff Statement on Meme Coins,” U.S. Securities and Exchange Commission, February 27, 2025, https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins
18. Ibid.
19. A four-part test used to determine if an asset is a security under U.S. law. See: “Framework for ‘Investment Contract’ Analysis of Digital Assets,” U.S. Securities and Exchange Commission, https://www.sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contract-analysis-digital-assets
20. “Implications of the SEC’s Stance that Meme Coins are not Securities,” Harvard Law School Forum on Corporate Governance, March 19, 2025, https://corpgov.law.harvard.edu/2025/03/19/implications-of-the-secs-stance-that-meme-coins-
    are-not-securities/
21. “TO: All Virtual Currency Business Entities Licensed under 23 NYCRR Part 200 or Chartered as Limited Purpose Trust Companies under the New York Banking Law,” Department of Financial Services, New York State, January 16, 2025, https://www.dfs.ny.gov/industry-guidance/industry-letters/il20250114-rapidly-prolif-sentiment-based-vc
22. Ibid.
23. Not all meme coins use smart contracts.
24. “A Broad Overview of Reentrancy Attacks in Solidity Contracts,” QuickNode, March 18, 2025, https://www.quicknode.com/guides/ethereum-development/smart-contracts/a-broad-overview-of-reentrancy-attacks-in-solidity-contracts
25. Helen Partz, “House Democrats propose bill to ban presidential memecoins: Report,” Cointelegraph, February 27, 2025, https://cointelegraph.com/news/house-democrats-law-ban-presidential-memecoins
26. Some platforms like Robinhood provide investors with “risk disclosures statements” which explain some of the potential risks of trading cryptocurrencies, including meme coins. See “Robinhood Crypto Risk Disclosure,” Robinhood, https://cdn.robinhood.com/assets/robinhood/legal/Robinhood%20Crypto%20Risk%20Disclosures.pdf