Nigeria’s cryptocurrency market has seen explosive growth, attracting both tech-savvy youth and seasoned investors. However, this growth has been accompanied by significant risks, particularly evident in the realm of celebrity-endorsed cryptocurrencies.
Celebrity tokens are meme coins referencing famous public personalities and entertainment icons, with many of these launched on the Solana network. They are of two kinds. We have coins associated directly with the referenced figure or trending incident and launched without their involvement of any sort. These are unofficial celebrity tokens.
Second kind, which $DAVIDO falls under, is a directly launched celebrity coin. These tokens are promoted by the celebrities themselves, who advertise them directly to their fans and engage in extra promotional activities for the tokens. Unlike unofficial celebrity tokens, celebrities are involved in the branding of these coins.
International afrobeats musician and one of Nigeria’s greatest exports, David Adeleke popularly known as Davido, launched the $DAVIDO coin on the Solana blockchain via Drip, 29 May 2024. $DAVIDO initially experienced a meteoric rise in value, reaching a market capitalisation of approximately $10 million within hours. This surge was primarily driven by Davido’s immense popularity and aggressive marketing campaigns on social media. However, the euphoria was short-lived. The coin’s value plummeted within 24 hours, leaving many investors with substantial losses.
$DAVIDO reached a market cap of over $14 million shortly after being launched but has since succumbed to a wide sell-off.
The $DAVIDO coin incident is not isolated. Similar patterns of rapid growth followed by dramatic collapses have been observed in other celebrity-endorsed cryptocurrency projects worldwide. These cases underscore common trends in the cryptocurrency market.
Each celebrity adopts different strategies to promote their meme coins. Given Adeleke’s strong social media following and widespread fame, it was no surprise that the associated $DAVIDO will create a short term frenzy for traders. Most celebrities adopt community-driven promotions to garner support for their newly launched tokens. These meme coins are obviously, not without several controversies.
This was evident in cases like Kim Kardashian’s promotion of EthereumMax tokens in 2022, which resulted in a hefty fine for her involvement, or celebrities like Floyd Mayweather and DJ Khaled who have also promoted cryptocurrencies with mixed results. According to a report by Lookonchain, a wallet linked to the musician has been implicated in snipping the asset at launch and selling his holdings for over $450,000.
CONCERNS OVER CELEBRITY TOKENS
Hyper Volatility: Cryptocurrencies are naturally known for their volatility and tendency to experience rapid price fluctuations. However, meme coins are particularly susceptible to these swings due to their liquidity, trading setup, and perceived value. Celebrity tokens are part of this category. Their value largely depends on community engagement and lacks a solid tokenomics strategy, meaning that most meme coins have their entire supply in circulation and are owned by traders eager to realise their profits and not backed up by real economic activity.
Rug Pulls: Rug pulls are schemes to artificially inflate the value of an investment through false and misleading claims, to sell cheaply purchased units at higher prices. Although these coins are not traditionally associated with falsehood, their trajectory shows strong features of rug pull. Some celebrity tokens have rugged shortly after launch, leaving investors with significant losses.
Regulatory Implications and Investor Protection
The $DAVIDO coin episode highlights the urgent need for a dedicated regulatory framework for the blockchain industry in Nigeria. While the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) have taken initial steps, a specialised regulatory body is essential to address the unique complexities of this rapidly evolving sector.
Key regulatory measures include: stricter licensing requirements for cryptocurrency projects, mandatory disclosure of project details, enhanced investor education initiatives, and effective enforcement mechanisms.
Lessons learnt and way forward
The collapse of $DAVIDO serves as a cautionary tale for investors. It emphasises the importance of conducting thorough due diligence before investing in any cryptocurrency project, regardless of celebrity endorsements. Investors should focus on projects with strong fundamentals, experienced teams, and clear utility.
The cryptocurrency industry has the potential to contribute significantly to the Nigerian economy. However, building a sustainable ecosystem requires an approach that prioritises investor protection and responsible innovation.
As the market evolves, it is crucial for investors, regulators, and industry stakeholders to work together to create a more resilient and investor-centric ecosystem. This article is only for informational purposes and should not be taken as financial advice.
