While celebrity meme coins might have a few attractions like a popular figure and chances of quick gains, it also comes with several risks. Some of these risks include;
Volatility
Cryptocurrencies are a volatile asset class, they are usually prone to quick swings in price development. However, due to the liquidity conditions, trading set-up, and the perception of value for meme coins, they are even more exposed to these quick swings. Celebrity tokens fall into this asset class. Due to their value relying on community activity, with little or no tokenomics strategy, most memecoins have their total supply in circulation and are held by traders who are always willing to cash in on their profits.
Rug Pulls
One of the acclaimed advantages of meme coins is the low barrier to entry; this is true for both traders and meme coin creators. Anyone can create meme coins and manage the token supply and smart contract agreements. Due to the low regulations in this sector, foul-playing creators can interact negatively with the liquidity pool.
A rug pull defines an unfortunate event where a token or liquidity pool creator pairs their token with standard cryptocurrencies like USDT, and pulls out all the funds after investors’ buy-in, rendering the token untradeable and close to worthless. Even with solutions like liquidity locking, this is still possible, especially when the creator can mint more tokens. Some celebrity tokens have rugged shortly after launch, leaving investors with significant losses.
Copyright Concerns
Apart from celebrity tokens that are directly associated with the public figure, most celebrity tokens operate without the knowledge of the referenced individual. Certain activities of the project like the use of images and intellectual properties could infringe on the rights of the celebrity. Affected individuals can take legal action against the meme coin creator(s). The effect on the investors is usually the loss of capital due to the crash in value that could follow events like this
