Everything is excellent and exciting until your developer tweets, “Oh fuck.”

Solana’s decentralized applications are experiencing a renewed sense of excitement due to its recent surge and advancements in its DEX.

Memecoins are at the vanguard of the network’s DeFi comeback.

According to trading data company Birdeye, more than 19,000 new Solana tokens with some liquidity were introduced in the last week.

Some have referred to the memecoin movement as a “lottery” on Solana since these tokens are so popular because they provide a modest but unlikely potential of yielding life-changing profits for a relatively small investment.

In contrast to the conventional lottery model, in which participants buy inexpensive tickets with the expectation of winning millions of dollars, meme coin investors risk losing everything they own.

Before entering the Solana sweepstakes, take note of these five hazards.

1. Memecoin developers are frequently utterly incompetent

The same immature degens who invest in meme coins frequently put them up; they have no idea what they’re doing. An excellent illustration of this is the recent fat finger incident that disappointed investors.

Rather than giving away $10 million worth of presale tokens purchased by investors, Slerf, the creator of meme coins, torched them on March 18.

For presale investors, it was a nightmare, but Slerf soon turned it around as centralized exchange listings flooded the market, and media attention helped raise awareness.

Some exchanges, including Bitget and HTX, declared that they would use trading fees from Slerf transactions on their platform to reimburse presale investors. Though Magazine has communicated with presale investors, this is hardly consoling.

“Even if my money is returned, I won’t be satisfied,” an investor who requested to remain anonymous told Magazine.

“You know, Slerf outperformed me during the presale, and I lost out on the chance,” he continues.

Participants in the business began to wonder why Slerf made the “accidental” fat finger event, with some suggesting that it was a publicity ploy in response to Slerf’s remarkable turnaround.

Slerf insists that it was an error, and many people noticed that the developer who was crying during a Spaces event after the incident sounded sincere.

According to Winston Ma, an adjunct law professor at New York University, the case might be covered by tort law if the error happened in a regulated setting. If a mistake qualifies as “gross negligence” under these circumstances, the company can be forced to reimburse investors for their losses.

According to Ma, there are circumstances in which there are better contractual remedies than monetary compensation.

“Rather, they would beg for particular performance.”

Instead of seeking monetary damages, a party filing a plea for particular performance asks the court to compel the other party to carry out their contractual obligations as agreed.

2. Because of pseudonyms, you can never be sure which con artist made the coin

The people who create and invest in meme coins frequently use pseudonyms. This is for a good reason—for example, to defend against $5 wrench assaults or angry investors who lost money when the price crashed.

“People can win a lot and lose a lot, which could lead to negative feelings,” Roman Big_Cat, the product head behind the anonymous Laika memecoin project based in Solana, tells Magazine.

He continues, “Because someone can come to your house, I’m also keeping my pseudonym.”

Although pseudonymity protects one’s identity, it also gives con artists new avenues to operate.

Anyone may set up an internet profile, pull out a successful meme coin fraud, and then vanish from sight. The same individual may come back the following day using a new meme coin and a different alias. This week, 19,000 new meme coins were minted. They don’t appear to have all been made by novices.

DeFi has little regulation and is mostly pseudonymous. This makes it easier for con artists to carry out their plans without being discovered or held responsible.

According to Big_Cat’s estimation, malevolent actors are responsible for roughly 95% of the contracts on Solana.

He states, “This is the harsh reality.”

3. Rug pulls have a higher probability of going to the moon than your meme coin

Scams like rug pulls come in a variety of shapes and sizes. They usually happen when project developers abscond with project funding, leaving their community with nothing or useless assets.

Security company Hacken reports that last year’s 149 recorded rug pull occurrences at BNB Chain lead the industry, with Solana failing to even make the top 10.

However, according to Hacken’s annual security report, released in February, the anticipated spike in rug pulls on Solana is “particularly concerning” because of the network’s massive influx of new tokens—100,000 in December alone.

Investors should watch out for rug pulls on liquidity pools when it comes to meme coins.

Here, a new token is developed by a developer and listed on a decentralized exchange.

If this token has a liquidity pool, which it can have by combining it with an established cryptocurrency like stablecoins or Solana’s native token SOL, then it can begin trading.

By exchanging the associated tokens, investors can purchase the new meme coin, increasing the liquidity pool’s value.

The developer can pull the rug at any time by taking all of the assets out of the liquidity pool and vanishing into their pseudonymous nothingness.

Investors can protect themselves from liquidity pool rugs by verifying that the project has locked liquidity, meaning developers are unable to remove their money from the pool.

Through bots available on multiple internet platforms, including Telegram and Discord, investors on Solana can verify a project’s liquidity status.

4. Compared to regular meme coin investments, presales carry considerably more risk

Presales have been the mode of operation for many of the most successful memecoin fundraisers on Solana in recent times. This can apply to DeFi transactions when investors deposit money into an account with the expectation of obtaining fresh tokens in exchange. This might even be riskier, with a higher chance of the developers taking off with the money.

As of March 19, 33 Solana projects had raised around 796,000 SOL ($149.2 million at the time) through presales, based on estimations made by on-chain detective ZachXBT.

Of those ventures, at least four ended in scams and rug pulls.

According to Ma of New York University, a possible case under contract law would examine whether the Howey test should be used to determine whether these investment contracts qualify as securities.

Ma claims that the presale efforts that are promoted on social media sites like X qualify as open solicitation.

“The Howey test will be straightforward to pass because the public solicitation is very obvious,” claims Ma. If the asset is a security, the US Securities and Exchange Commission may mandate that public presales be registered.

This is excellent to know, but it’s moot as the majority of memecoin investors lack the resources to file a lawsuit. Presales provide investors the chance to test out an item before it goes on sale, frequently at a lower cost.

In the Solana meme coin rush, investors’ need for rapid rewards frequently overrides their research, and this has led to similarities with the 2017 ICO boom.

Initial coin offerings, or ICOs, are a way for blockchain firms to raise money. Many firms raised large sums of money during the initial coin offering (ICO) frenzy seven years ago, frequently in a matter of minutes after starting their ICOs. The uncontrolled nature of the boom also drew attention and criticism.

80% of initial coin offerings (ICOs) during the boom were fraudulent, according to a 2018 analysis by the consultancy firm Satis Group.

5. Memecoins only have sentiment; there’s no utility in most cases

Although meme coins present overnight millionaire opportunities to the retail sector, industry veterans are highly critical of them.

The CEO of the blockchain analytics company CryptoQuant, Ki Young Ju, has been a vocal opponent of the meme coin movement. He argues that the promise of “easy money” may divert talented individuals from creating worthwhile goods and eclipse worthy endeavors.

Memecoins are entertaining, to be sure, but with a product, this business will advance, Ju tells Magazine.

Conversely, more individuals are drawn to cryptocurrency because of the prospects for earning money and the sheer dumb enjoyment it offers.

Big_Cat from Laika claims that the widespread onboarding of retail traders into the cryptocurrency market is the meme coins intangible benefit.

Laika’s main objective is to launch a helium balloon into low Earth orbit and broadcast video from there in an attempt to attract investors.

After that, it intends to introduce its own layer-1 blockchain to create a memecoin ecosystem.

Ju acknowledges that novice investors who learn about the market via meme coins frequently have a “horrible experience.”

Ju continues, “But it won’t be an issue if there’s a legitimate founder who can lead a memecoin project for a long time.”