The rise of celebrity-backed memecoins has created a speculative frenzy, but beneath the viral hype lies a landscape rife with systemic risks. Projects like Kanye West’s YZY token, which surged to a $3 billion market cap before collapsing by 80%, exemplify how coordinated sniping tactics and liquidity manipulation exploit retail investors. These dynamics, amplified by celebrity influence and opaque token structures, underscore urgent gaps in regulatory oversight.
The Sniping Playbook: How Insiders Profit
Hayden Davis, a figure synonymous with memecoin volatility, epitomizes the predatory strategies employed in high-profile token launches. According to on-chain analytics from Bubblemaps, Davis’ wallets—historically linked to the controversial Libra token—purchased YZY just one minute after its announcement. These wallets, pre-funded by centralized exchanges the day prior, turned a $2.8 million stake into a $12 million profit. The tactics? A combination of pre-loaded liquidity, high-priority transaction fees, and anti-sniping measures bypassed by insiders.
The YZY token’s launch featured 25 identical contract addresses to deter front-running, yet insiders controlled 70% of the supply. One multi-sig wallet held 87% of the tokens before distribution, enabling liquidity manipulation and coordinated dumping. Retail investors, lured by West’s social media promotions, faced a rigged system where insiders extracted profits while prices cratered.
Systemic Risks: Unequal Access and Legal Loopholes
The YZY case highlights broader vulnerabilities in celebrity-driven crypto projects. On-chain data reveals that insiders often exploit pre-launch information, liquidity pools, and anti-sniping measures to secure unfair advantages. For instance, the use of vesting schedules and multi-sig wallets allows developers to unilaterally adjust liquidity, creating artificial scarcity or dumping pressure.
Legal ambiguities further exacerbate these risks. While the U.S. SEC clarified in 2025 that meme coins are not securities under the Howey Test, enforcement of anti-fraud provisions remains inconsistent. Projects like YZY leverage this ambiguity to avoid accountability, using celebrity endorsements to drive mass speculation while insiders profit from pre-allocated tokens.
Regulatory Blind Spots and Emerging Reforms
Regulators are scrambling to address these gaps. The SEC’s 2025 staff statement emphasized that fraudulent practices—such as insider trading and liquidity manipulation—remain actionable under anti-fraud rules. Enforcement actions against figures like Kim Kardashian (for promoting EthereumMax) and Coinbase employee Ishan Wahi (for insider trading) signal a shift toward targeting misconduct rather than asset classification.
However, global enforcement remains fragmented. Canada’s CSA and the EU’s MiCA framework have introduced stricter disclosure requirements for influencers and liquidity structures, but jurisdictional arbitrage allows developers to exploit laxer regulations elsewhere. For example, tokens like LIBRA (tied to Argentine President Javier Milei) and TRUMP (promoted by Donald Trump) have faced scrutiny for coordinated dumping and pre-launch manipulation, yet enforcement varies widely.
Investment Risks and the Path Forward
For investors, the risks are stark. Retail participants often lack the tools to detect pre-allocated token distributions or liquidity manipulation. The YZY token’s “class action waiver” clause further insulates insiders by preventing collective legal action. As a result, losses are borne disproportionately by small investors, while insiders cash out.
The solution lies in robust regulatory reforms. Proposals include:
1. Mandatory Transparency: Require public disclosure of token distribution, liquidity pool structures, and insider allocations.
2. Anti-Fraud Enforcement: Strengthen enforcement of anti-touting laws and liquidity manipulation rules, regardless of securities classification.
3. Retail Protections: Mandate disclaimers for speculative assets and educational resources to inform investors of risks.
The SEC’s “Project Crypto” initiative, launched in July 2025, aims to modernize securities laws to address these challenges. However, progress is slow, and the pace of innovation in memecoin tactics outstrips regulatory responses.
Conclusion: A Call for Caution and Clarity
Celebrity memecoins are a high-risk, high-reward asset class, but their volatility and systemic risks make them unsuitable for most investors. The YZY case serves as a cautionary tale: coordinated sniping, liquidity manipulation, and celebrity hype create a perfect storm for retail losses.
Investors should approach these projects with extreme caution, prioritizing diversification and thorough due diligence. Meanwhile, regulators must close loopholes that enable insider exploitation. Until then, the memecoin market will remain a playground for the well-connected—and a minefield for the unwary.