In 2021, Shiba Inu (SHIB 1.33%) was the hottest meme coin on the planet. In 2022, not so much. In fact, Shiba Inu is still down nearly 75% from its all-time high in October 2021. While there have been some interesting developments this year — such as the launch of the Shiba Inu metaverse project back in March — Shiba Inu has had a difficult time convincing people that it is anything other than a highly speculative meme coin.

But that could change later this year. The buzz right now in the Shiba Inu community is about Shibarium, a Layer 2 scaling solution for Shiba Inu. While there is no exact date for the launch of Shibarium, developers are predicting a Q3 public beta launch date. If it launches as planned, it will provide a huge boost to Shiba Inu.

What is Shibarium and why does it matter?

The primary purpose of Shibarium is to reduce transaction fees and boost overall throughput capacity. According to developers, all transactions will be approved in seconds at near-zero transaction costs. This will make it more attractive to build decentralized applications and other projects for Shiba Inu. In fact, it seems many of the most popular Shiba Inu projects — such as SHIB: The Metaverse and ShibaSwap — will now run on top of Shibarium as well. 

To understand why Shibarium matters, consider the analogous situation with Ethereum (ETH 2.52%) right now. It’s too slow and relatively expensive to use Ethereum for some activities (such as minting new non-fungible tokens, or NFTs), so there are Layer 2 scaling solutions like Polygon (MATIC 0.97%) that sit on top of Ethereum and speed up the whole process while also reducing gas, or user, fees. Investors love Polygon for this reason.

So while this analogy may not be precise, Shibarium is to Shiba Inu more or less what Polygon is to Ethereum. And that’s why the launch of Shibarium would be so exciting. It would instantly add new functionality and utility to Shiba Inu while making everything else that you already do with Shiba Inu faster and cheaper. 

Burn rate

And from the perspective of crypto investors, there’s another very important element of Shibarium: It will likely include a built-in burn mechanism to help remove Shiba Inu coins from circulation. This solves a very important problem with Shiba Inu: There are simply too many coins in circulation. Right now, for example, that’s approximately 549 trillion coins, which explains why the price of Shiba Inu is so infinitesimally tiny ($0.0000137). For Shiba Inu ever to climb to the $1 mark, given the current market capitalization, supply would need to shrink to around 7 billion tokens. So how do you get from 549 trillion to 7 billion?

The answer to that is coin burning. You have to burn coins to reduce supply, and Shibarium is being created with that important fact in mind. The new functionalities that could be built on top of Shibarium — such as new decentralized applications, new functionality for ShibaSwap, and new metaverse worlds — will all lead to higher coin burn rates. According to one prominent member of the Shiba Inu community, we could see the burning of 111 trillion coins within the next 12 months due to all the creative new ways that developers are creating for people to burn their Shiba Inu coins.

Supply and demand 

It’s just basic economics. When you lower the supply of something, you will raise the price that people are willing to pay for it. So I’m starting to view the launch of Shibarium as not only a great way to improve the utility and performance of Shiba Inu but also a fantastic way to burn coins and boost its price.

As the price of Shiba Inu goes up, people will start to notice, and if enough people notice, that’s when we’ll start to hear stories about “the return of Shiba Inu.” A doggy meme coin might not be the best long-term investment, but over the short term, it could offer an attractive way to boost returns in your crypto portfolio.

Dominic Basulto has positions in Ethereum and Polygon. The Motley Fool has positions in and recommends Ethereum and Polygon. The Motley Fool has a disclosure policy.