Based on the analysis, the exchange developed two solutions to help investors make better decisions

Memecoins, initially created under the inspiration of memes and trends, or to strengthen communities, have grown and gained importance in the cryptocurrency industry. Dogecoin — supported by Elon Musk — Shiba Inu, Pepe, and Official Trump, launched by the US president, lead the memecoin market in market capitalization. Many investors are attracted by the playful way they present themselves or by the sense of community they create. But some may end up neglecting to observe the real value of the assets and whether there is a scam behind the joke.

With the aim of helping its users to correctly assess scenarios and make better investment decisions, a team of researchers from Binance created a method to identify disparities between apparent and real liquidity in such tokens, which is already being applied in practice by the exchange.

Based on the analysis, two important tools were developed:

  • Estimated Liquidity (ELiq): calculates the maximum amount that can be withdrawn from a token before causing a relevant impact on the market;

  • Memecoin Liquidity Risk Index: ranks tokens based on market value adjusted risk.

With ELiq, investors have access to the most traded assets, improving market efficiency. The solution identifies those tokens with low trading volume and, ultimately, removes them from the list of currencies traded on the platform.

The Memecoin Liquidity Risk Index points out the difficulty of converting a memecoin into cash quickly, without suffering significant losses. With customized indicators, it is possible to offer valuable insights into liquidity, providing better decision-making.

Analysis and findings

Like other cryptocurrencies, memecoins are usually created on a blockchain. From this, Binance researchers developed a multidimensional structure that identifies the origin of the addresses of these assets.

By combining analysis of the origin and destination of funds, behavioral similarity, and the detection of irregular transactions, the method revealed clusters of addresses that traditional assessments often miss. This cut is essential to understanding the true distribution and liquidity of memecoins.

The intersection of this information found significant differences between apparent liquidity (what appears on the surface) and real liquidity (what is really happening) among the memecoins examined. The concentration of ownership, for example, was much higher than the data that the blockchain suggested, with some entities controlling what appeared to be many independent addresses, creating a significant potential for market manipulation.

The recent solutions corroborate the efforts made on several fronts by Binance to strengthen the transparency and security of the crypto ecosystem, in addition to protecting its users. Understanding the liquidity of memecoins with a rational and research-based perspective is essential to understanding the right time to trade them.