The $LIBRA scandal: How meme token launches are becoming the new ICOs
Last week, an event took place that, in my opinion, delegitimizes what was shaping up to be the latest trend in this crypto cycle: tokens endorsed by public figures or celebrities. This trend came crashing down when Javier Milei, the president of Argentina, was accused of facilitating fraud via a token called $LIBRA. What was marketed as a project raising funds to make real-world investments turned out to be a pump-and-dump scheme, leaving 86% of investors with a combined loss of $251 million, while insiders allegedly walked away with $180 million in profits.
What was supposed to be a legitimate project, the $LIBRA launch was a disaster that will have lasting effects on the digital currency industry. One of the developers behind the launch, Hayden Davis, recently sat down for an interview with YouTuber CoffeeZilla to tell his side of the story. While Davis did this in an attempt to clear his name of the alleged fraud accusations swirling around the project, what he ended up doing in the process was exposing the mechanics behind “memecoin” launches— mechanics that pretty much solidify the idea that these launches share more similarities with Ponzi schemes than they do with viable investments.
The mechanics of meme token launches
First, let’s define a memecoin. Many of the tokens being launched today are branded as “meme tokens,” digital collectibles that supposedly exist for entertainment and community engagement. The legal disclaimers for these launches emphasize that they are not investments and are meant for fun only. But it’s clear that all of that language is just the legalese that lawyers probably advise the launch teams to use for a little bit of legal protection because, under the hood, these projects are designed to make money, primarily for those closest to the project.
In reality, meme token launches today are just the 2025 version of the initial coin offering (ICO) craze. Retail investors jump in, hoping for life-changing returns, but the odds of making a profit—or even breaking even—are slim.
Nearly every successful memecoin launch follows the same playbook. Retail investors—the backbone of these launches—are typically introduced to the token via a celebrity, influencer, or public figure with a massive following, usually through a social media post that sends them rushing to buy the token. For what it’s worth, I think an investor might want to support a token for a few reasons. The largest reason is probably that they have the hope of making some quick money, but it’s also possible they buy the token out of genuine support for the person behind the launch or because being a token owner will give them access to some sort of exclusive community.
Regardless, once retail investors start buying in, the real magic happens—at least for the insiders. This is also when things start to go wrong for everyone else.
Crypto snipers and liquidity pools
During his interview with CoffeeZilla, Davis revealed that almost every high-profile meme token launch gets hit by internal and external “snipers.” These are traders—often using bots—who buy significant amounts of tokens the moment the launch goes live, usually pumping in millions of dollars of liquidity within the first few minutes of a token launch. Because they get in so early, they’re in a prime position to make sizable profits, but their actions also destabilize the entire market.
In the case of $LIBRA, the liquidity pool wasn’t large enough to support the massive sell-offs from snipers. As a result, when these snipers dumped their tokens, the price collapsed, which sparked a sell-off that the project couldn’t recover from.
What’s even more revealing is that, according to Davis, the $LIBRA launch team itself acted as snipers. He claimed this practice is common in major token launches, including the $MELANIA token launch in which he was also involved. These teams skim liquidity from the pool, attempting to create a price floor that prevents the token from crashing too quickly. However, they also hold back liquidity to reinject it later to artificially inflate the token’s price when they start their next wave of marketing.
Why crypto’s retail investors lose
As you can see, this entire structure is rigged in favor of insiders. Those who have early access to the project can allocate their funds accordingly and maximize their profits—usually at the expense of retail investors who enter late.
Retail traders drive up the price, making it attractive for insiders to cash out. Once those insiders sell, the token price crashes and the liquidity pool shrinks to the point where many investors can’t even trade their tokens back, or if they do, it’s at a significant discount. As a result, most investors end up holding worthless assets while insiders walk away with massive gains.
This problem has been well-known in crypto for years, but hearing it directly from a person like Davis, who facilitates many of these high-profile launches, brings the issues that consumers face in the digital currency market to the surface in a way that hasn’t really needed to be confronted since the first ICO boom: the fact that these launches are little more than elaborate pump-and-dump schemes that continue to go unchecked by regulators.
If this were happening in the stock market, regulators would call it insider trading, and people would be facing criminal charges. But in crypto, these activities fall into a regulatory gray area. Because tokens aren’t classified as securities, the same legal standards don’t apply. And now, with the current administration’s lax stance on digital asset regulation, these schemes are effectively permitted.
One of the biggest issues with meme tokens is that, due to their structure, they have little chance of long-term survival. Unlike traditional stocks, where investor money fuels company growth, most memecoin projects extract money from investors without providing any real value in return. In many instances, they don’t even offer a product. Once the initial hype dies down, the token price crashes and recovery is highly unlikely.
Compare that to the stock market: When investors buy shares in a company, their capital is used to expand the business, hire employees, and develop new products. Even if a company’s stock price fluctuates, an underlying business drives long-term value. In contrast, meme tokens are often nothing more than speculative assets that exist solely for insiders to extract liquidity at the expense of the retail investor.
The future of crypto: A critical crossroads
Before we look ahead, let’s assess what’s happened so far in 2025. In just the past two months, three high-profile memecoin launches—$TRUMP, $MELANIA, and $LIBRA—have all collapsed, losing 71%, 90%, and 80% of their value, respectively. In each case, on-chain data suggests that the project teams, as well as insiders, profited significantly, while retail investors who joined in after the launch was publicly announced were left holding the bag.
In addition, the Trump administration’s “crypto-friendly” stance adds to this problem, as it has removed many of the regulatory guardrails that were in place to prevent fraud, including key figures at the SEC who previously cracked down on fraud in the crypto world but have now been fired or moved to different departments, which creates an environment where memecoins will proliferate.
This raises an important question: Should the crypto markets be regulated like the capital markets?
Under former SEC Chair Gary Gensler, regulators took an aggressive stance on crypto, classifying many tokens as securities and cracking down on fraudulent projects. But with Gensler gone, regulatory scrutiny has practically disappeared, effectively turning the crypto market into a Wild West free-for-all.
Initially, many in the industry cheered the loosening of regulations, believing it would allow crypto to thrive. But now, it’s becoming clear that a completely unregulated market is doing more harm than good.
This brings us to where we are today: the industry is at a turning point where crypto does have the opportunity to mature in an environment where it is easier to do business without regulatory scrutiny and reporting requirements—which, if leveraged correctly, can create an environment that supports the growth of new businesses—or it can continue down the path it’s on, turning into little more than a high-tech casino where insiders get rich at the expense of retail investors.
Unfortunately, I think we have started down the path of the latter, and unless something changes within the next few months, I see that the start of the year is setting the pace for what will be the next three years of what we can expect the cryptocurrency industry to look like under the Trump administration.
Watch: History of Bitcoin with Kurt Wuckert Jr.
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Source: https://coingeek.com/how-libra-memecoins-unmask-a-broken-crypto-market/