By Chris Dixon
Translation: Blockchain in Vernacular
With cryptocurrency prices recently hitting new all-time highs again, there is a risk of over-speculation in the crypto market, especially with the recent craze about memecoins. Why does the market always repeat these cycles instead of supporting more productive blockchain-based innovations that will have a real impact?
Memecoin is a cryptographic token used for humor, born from a shared understanding of the meaning of an online community. You may have heard of Dogecoin, based on the old "doge" meme, showing an image of a Shiba Inu. It originated from a wider online community where someone added a cryptocurrency that later had some financial value in a satirical way. This "memecoin" embodies various aspects of Internet culture, most of which are harmless, but some memecoins are harmful.
But my goal here is not to defend memecoins or disparage them, but to point out the backwardness of a policy regime that has allowed memecoins to flourish while crypto companies and blockchain tokens with more productive uses have had a hard time. Any mememaker can easily create, issue, and even automatically list tokens, including those that disparage specific politicians and celebrities. But entrepreneurs trying to build something real and lasting are mired in regulatory hassles.
Today, it’s actually safer to launch a memecoin with no use case than to launch a useful token. Think about it: if we had a system that only incentivized meme stocks like GameStop but rejected companies like Apple, Microsoft, and Nvidia — companies whose products people use every day — then we would consider this a failure of policy. Yet the current regulatory regime encourages platforms to list memecoins over other more useful tokens. The lack of regulatory clarity in the crypto industry means that platforms and entrepreneurs live in constant fear that more productive blockchain tokens may suddenly be deemed securities.
I call the distinction between these more speculative and productive uses in the crypto industry “computers vs. casinos.” One culture (“casinos”) sees blockchain as a way to issue tokens primarily for trading and gambling. The other culture (“computers”) is more interested in viewing blockchain as a new innovation platform, similar to the web, social, and mobile platforms that came before it . It’s possible that the memecoin community will evolve its token over time by adding more utility; after all, many of the disruptive innovations we use today initially looked like toys. “Utility” is important because, at its core, tokens are a new digital primitive that gives property rights to anyone online. More productive blockchain-based tokens make it possible for individuals and communities to own internet platforms and services, rather than just use them.
Such open-source, community-run services could solve many of the problems we face with big tech today: They could provide more efficient payment systems. They could verify proof of authenticity to prevent deepfakes. They could allow more say in, or opt-out of, specific social networks, especially if you don’t like their censorship policies or who those networks kick out and keep. They could give users a vote in platform decisions, especially if those users’ livelihoods depend on that platform. They could counter “proof-of-humanity” AI. Or they could serve as a decentralized counterweight to the centralized power of corporations.
Our legal framework should encourage these innovations. So why do we value Internet memes more than real issues? U.S. securities laws do not give the SEC the power to make value-based judgments about investments. Nor is the SEC’s mission to end speculation. Rather, the agency’s role is to
(1) Protect investors;
(2) maintaining fair, orderly, and efficient markets; and
(3) Promote capital formation.
When it comes to digital asset markets and tokens, the SEC has failed on all three of these goals.
The main test the SEC uses to determine whether something is a security is the 1946 Howey test, which involves evaluating a variety of factors, including whether there is a reasonable expectation of profit due to the managerial efforts of others. Take, for example, Bitcoin and Ethereum: While both crypto projects were originally conceived by one person, they evolved into communities of developers that no one entity controls — so potential investors don’t have to rely on anyone’s “managerial efforts.” These technologies now operate like public infrastructure rather than proprietary platforms.
Unfortunately, other entrepreneurs who are building innovative projects have no idea how to get the same regulatory treatment as Bitcoin and Ethereum. Bitcoin (founded in 2009) and Ethereum (2013-2014) are the only significant blockchain projects to date that have been explicitly or implicitly identified by the SEC as not involving management efforts — both were established more than a decade ago. The SEC’s lack of candor and approach, including applying the Howey test through enforcement, has also led to confusion and uncertainty in the industry. While the Howey test is reasonable, it is inherently subjective. The SEC has broadly expanded the meaning of the test to the point that ordinary assets, even things like Nike shoes, may be considered securities today.
At the same time, the memecoin project has no developers, so memecoin investors are not dependent on anyone's "management efforts." As a result, memecoin keeps spreading while innovative projects languish . Investors end up with more risk, not less.
The answer is not less regulation, but better regulation . Specific solutions include adding well-designed disclosures that provide more information to ordinary investors. Another solution is to require long lock-up periods to prevent get-rich-quick schemes and incentivize longer-term construction.
Regulators implemented similar protections in the aftermath of the Great Depression, the excesses of the 1920s boom, and the stock market crash of 1929. Once those guiding principles were established, we saw an unprecedented era of growth and innovation in the markets and the economy. Now is the time for regulators to learn from past mistakes and pave the way to a better future for all.
The author is a general partner at Andreessen Horowitz, leads the crypto fund, and is the author of Read Write Own.
Source: https://a16zcrypto.com/posts/article/memecoins-tokens-regulation-policy/
