As the Shiba Inu (SHIB) cryptocurrency has climbed to #9 on the cryptocurrency market cap rankings at $39 billion, I felt the need to do a deep dive to understand whether there was anything to it beyond the memes.
Caveats & disclosure
- This article is not financial advice. Do not make investment decisions based on a single person’s views in a new and risky field such as cryptocurrency.
- This article is not endorsed by my employer. The views expressed within are my own.
- I own cryptocurrency.
I am not sure about people making money from memes and am extra watchful of market manipulation in these scenarios. I started my research exploring the possibility that Shiba Inu was a sophisticated pump and dump scheme. I was not able to find convincing evidence of this. What is clear is that a lot of people are having a lot of fun with it, while making a lot of money out of absolutely nothing, with no clear intention of providing value that goes beyond memes.
Shiba Inu was created in August 2020 by anonymous creators going by the name “Ryoshi”, obviously modelled upon Satoshi, the anonymous creator(s) of Bitcoin. At this point, it was a meta joke, playing on the Doge meme and the more famous Dogecoin, with the same dog as the template, i.e. the cute Japanese shiba inu breed. The creator(s) used an unusual method to get additional publicity – they sent 50% of the tokens to Vitalik Buterin, one of the creators of Ethereum. Meanwhile, the market cap of SHIB had gone up into the billions of dollars.
Vitalik, by now a billionaire who was suddenly able to play God, sent $1 billion worth of the tokens to Crypto Relief, a fund for dealing with COVID-19 in India, which was particularly hard hit by the pandemic at that time (May 2021). Vitalik later “burned” the remaining tokens by sending them to an address to which no one held private keys, thus increasing the value of the remaining tokens, while giving SHIB massive publicity. In the message embedded in the burn transaction, he wrote that he did not want to be given coins or power in other peoples’ projects. Regardless, other “dog tokens” were still gifted to his wallet. Vitalik sold those tokens, causing massive drops in their prices. In effect, the tactic worked for first-mover SHIB, while backfiring for the rest.
The Woof Paper
This is fun history, but does SHIB actually produce anything original or valuable? As far as I can tell, it does not. There is a decentralised exchange, Shibaswap, but why anybody would use this instead of one of the other DEXes is not clear. I read their white paper (the “Woof Paper”). There are two versions (v1: April 2021 and v2: June 2021), but the differences between them are not noteworthy and I will not be differentiating them in this text. I found the paper to be a good mixture of self-aggrandisement, obfuscatory and platitude-filled language, pure nonsense and silliness. A few things were worth pointing out.
It is unclear who wrote the Woof Paper. The creator, Ryoshi, is described in the third person in multiple parts of the Woof Paper. However, Ryoshi signs off the conclusion in first person. My impression is that the creator(s) imagined a persona akin to Bitcoin’s Satoshi Nakamoto and talked about him with seeming awe through most of the Woof Paper, but then signed off the conclusion of the paper as Ryoshi as though they were indeed he. The writing gives the feeling that the creators only see Ryoshi as a front, and not as themselves. This is in contrast with Satoshi, who used that name to interact with people on forums for months and wrote the Bitcoin white paper under that name. The paper also contains several quotes from Japanese swordsman Miyamoto Musashi (1584 – 1645 CE), which seem to be another excuse for dropping a Japanese name into the mix rather than add meaningful context.
“We were the first to mint one quadrillion tokens”, brags the Woof Paper, as though punching in 15 zeroes into a bit of code were some sort of achievement. There seems to be the implication that an individual could own more SHIB than any other cryptocurrency because each token would be of such small value (it started at $0.000,000,01 per token).
The Woof Paper states that the minds behind SHIB had never collaborated before, and that they were 100% run by their community, implying that other cryptocurrency projects were not. My research into the biggest wallets suggests that SHIB is heavily centralised compared with other major cryptocurrencies such as BTC, ETH and even DOGE.
71% of SHIB are held by just 10 addresses. If we exclude the burn address to which Vitalik sent his SHIB, it becomes 50% held by the top 9 addresses. The top 99 addresses still hold 66% of unburned SHIB.
Note: In all comparisons of top addresses, one needs to be aware that many top addresses will be exchange addresses that hold tokens owned by a large number of participants. This simple comparison of cryptocurrency distribution in wallets has not controlled for such matters.
Dogecoin’s distribution looks slightly less centralised than SHIB’s.
BTC is far more decentralised, with the top 100 addresses together holding only 13% of the supply.
The Woof Paper and the SHIB ecosystem itself appear to be designed to obfuscate and confuse. There are three different “primary” tokens (SHIB, LEASH and BONE) and a variety of additional tokens that appear to be involved somehow. I decided not to kill any more brain cells trying to figure out what the point of each was, since Ryoshi are probably already laughing at me for trying to analyse it. Most likely, all of these can be mapped to features already existing in decentralised exchanges (DEXes), but the terminology just makes it that much harder to figure out.
Then there is the overt anticompetitive behavior, where cryptocurrency exchanges would not be permitted to earn tokens from the ShibaSwap DEX.
Finally, the “100% community-driven” project states that their roadmap (“Ruffmap”) is top secret “to ensure [their] continued advantage in this highly competitive space”. One possibility is that Ryoshi have not yet thought the plan through. Another is that they just enjoy the flexibility of not having to commit to anything. How a community-run project can have secret plans is beyond me.
Comparisons with some scams
Despite all this, I find it challenging to call SHIB a fraud. Typical “rug pulls” or “pump and dump” schemes would result in exits by the fraudsters at a much lower value. It does not make sense that they are waiting for the value to go even higher, now that SHIB’s market capitalisation is $39 B. The infamous Bitconnect was a ponzi scheme whose market cap had reached about $2.8 B before it collapsed in 2018. Then again, Bernie Madoff’s ponzi scheme is estimated to have reached $64 B before it collapsed.
A more current example, SQUID (named after, but not affiliated with the TV show Squid Game) pumped and dumped in just one week, losing 99.99% of its peak value just today, but it is unclear how much market cap was lost (as the capitalisation was never checked in the first place).
Cryptocurrency experts and meme coins
SHIB’s behavior is somewhat different from the aforementioned scams. However, I do have my concerns. Meme coins make the news cycles and people often buy them purely based on hype and excitement. Hype is inherent in cryptocurrencies as people see them as opportunities to make quick money. Meme coins take this to the extreme, with coordinated action from retail investors to pump the value of coins they hold and put pressure on major centralised entities to list these coins, many of which do not even pretend of offer a genuine value other than “being fun”. If and when people who are not attuned to the vagaries of the cryptocurrency ecosystem lose large investments, there will be calls for governments and lawmakers to step in and “protect the innocent”. The very idea of bringing in these centralised entities of power goes against the ethos that gave birth to cryptocurrencies in the first place. For these reasons, many do not like meme coins.
Others have a different perception, believing that the fact that meme coins get the average person interested in cryptocurrencies is its own value and helps the ecosystem. This is an understandable position, and the people who have that position will probably not be the ones who lose money when the meme coins crash.
I believe that within one year (i.e. by 1 November 2022), SHIB will have fallen out of the top 15 cryptocurrencies by market cap. This would be a significant change. In today’s terms it would mean losing more than 64% of its value while the other top cryptocurrencies remain unchanged.
People will lose interest in SHIB and move on to other tokens which either actually produce value or are the topic of greater interest at that point. I use the relative terminology because it is not sufficient for SHIB to just lose value. If the entire market including SHIB crashes by 64%, that would not be evidence of the market’s loss of enthusiasm for SHIB, but for the cryptocurrency ecosystem in general.
Let time tell.
Vitalik Buterin burns his remaining SHIB tokens – the actual transaction. Scroll down to the Input data field and click “UTF-8” to see Vitalik’s message.
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