Chris Dixon, a general partner at the well-known venture capital firm Andreessen Horowitz (a16z), recently shared on his blog how current policies in the United States are affecting the cryptocurrency market and why meme coins are developing better than tokens with real-world utility. The following is a translation of the original article.
Cryptocurrency prices have recently reached new all-time highs, which could lead to speculative excesses in the crypto market, especially considering the recent buzz surrounding meme coins. Why does the market keep repeating these cycles instead of supporting blockchain-based innovations that truly make a difference?
Meme coins refer primarily to humorous tokens that originate from online communities capable of understanding inside jokes. You may have heard of Dogecoin, which is based on the old doge meme and features pictures of Shiba Inu dogs. It emerged as a loosely knit online community, and when someone sarcastically added a crypto token that later gained economic value, meme coins were born. These “meme coins” embody various aspects of internet culture, most of which are harmless, although other meme coins may not be.
However, the focus of this article is not to defend or belittle meme coins. What I really want to express is how current policy frameworks allow meme coins to flourish while cryptocurrency companies and blockchain tokens with more productive use cases face obstacles. Anyone can easily create, launch, and automatically list tokens in the market, including tokens that mock specific politicians and celebrities. But what about entrepreneurs trying to build real and enduring products? They are often caught in the regulatory gray area.
Today, launching a meme coin without any use case is actually safer than launching a practical token. Think about it: if we had a securities market policy that only incentivized meme stocks like GameStop and refused companies like Apple, Microsoft, and Nvidia (companies with products people use every day), we would consider that policy a failure. However, current regulations are encouraging trading platforms to list meme coins rather than other more useful tokens. The lack of regulatory clarity in the cryptocurrency industry means that platforms and entrepreneurs must constantly worry about their more productive blockchain tokens being suddenly treated as securities.
I refer to the distinction between “computers and casinos” in these biased tendencies toward speculative and productive use cases in the cryptocurrency industry. One culture (casinos) sees blockchain primarily as a means for trading and gambling, while the other culture (computers) is more interested in using blockchain as an innovative new platform, much like previous internet, social, and mobile platforms. However, meme coin communities may also develop their tokens over time by increasing their practicality; after all, many disruptive innovations we use today initially looked like toys. Nevertheless, “utility” is important because tokens are essentially a new digital lingua franca that provides ownership to anyone online.
More productive blockchain-based tokens enable individuals and communities to “own,” rather than just use, internet platforms and services. These open-source, community-operated services can address many of the problems we face today with big tech companies:
– They can provide more efficient payment systems.
– They can verify authenticity to prevent deepfakes.
– They can allow for more voice in specific social networks, or the choice to opt out if you dislike content moderation policies or who these networks choose to kick out and retain.
– They can empower users with voting rights in platform decisions, especially when their livelihoods depend on the platform.
– They can incorporate “human proof” to counter artificial intelligence.
– They can serve as a counterbalance to concentrated corporate power.
Our legal framework should encourage such innovations. So why do we prioritize memes over genuinely useful content? US securities laws do not empower the SEC to make judgments based on the investment merits, and ending speculation is not the SEC’s responsibility. Instead, the agency’s role should be to (1) protect investors, (2) maintain fair, orderly, and efficient markets, and (3) facilitate capital formation. However, SEC has not been successful in these three goals when dealing with the digital asset market and tokens.
The SEC’s primary test for determining whether something is a security is based on the Howey test from 1946, which involves evaluating multiple factors – including whether there is a reasonable expectation of profits through the efforts of others. Taking Bitcoin and Ethereum as examples, although these two crypto projects initially started with one person’s vision, they evolved into developer communities without any entity control – hence potential investors do not have to rely on anyone’s “efforts.” These technologies now function more like public infrastructure rather than private platforms.
Unfortunately, other entrepreneurs building innovative projects do not know how to obtain the same regulatory treatment as Bitcoin and Ethereum. Bitcoin (founded in 2009) and Ethereum (2013-2014) are the only two significant blockchain projects to date that the SEC has explicitly or implicitly recognized as not involving efforts of others. They have been around for over a decade, and the SEC’s lack of transparency and regulatory approach has led to much confusion and uncertainty in the industry. Moreover, while the Howey test has its merits, it remains inherently subjective. The SEC has expanded the meaning of the test so broadly that ordinary assets, even something like Nike sneakers, could be considered securities today.
Meanwhile, meme coin projects lack developers, so there is no assumption of meme coin investors relying on anyone’s “efforts.” As a result, meme coins spread, while innovative projects struggle. Additionally, investors face greater risks, not smaller ones.
The solution to this problem is not to reduce regulation but to have better regulation. Specific solutions include adding tailored disclosures and providing more information for ordinary investors. Another solution is to require longer lock-up periods to prevent get-rich-quick schemes and incentivize longer-term building.
Regulatory bodies implemented similar protective measures after the Great Depression, which followed the excesses of the 1920s and the stock market crash of 1929. Once these guiding principles were in place, we witnessed an unprecedented era of growth and innovation in our markets and economy. Now is the time for regulatory bodies to learn from past mistakes and pave the way for a better future for everyone.
The author is a partner at Andreessen Horowitz, where he leads the cryptocurrency fund, and the author of the book “The Crypto Canon.”
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