Chris Dixon, a general partner at the well-known American venture capital firm Andreessen Horowitz (a16z), recently shared on his blog how current policies in the United States are impacting the cryptocurrency market and why meme coins are developing better than tokens with real utility. The following is a translation of the original article.
Cryptocurrency prices have recently reached new all-time highs, which could lead to excessive speculation in the crypto market, especially considering the recent hype surrounding meme coins. Why does the market keep repeating these cycles instead of supporting blockchain-based productive innovations that can make a real difference?
Meme coins primarily refer to humorous cryptocurrencies that originated from an online community that understands internal jokes. You may have heard of Dogecoin, which is based on the old doge meme and features images of Shiba Inu dogs. It emerged as a loosely-knit online community, and when someone sarcastically added a cryptocurrency that later gained some economic value, the concept of “meme coins” was 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 my article is not to defend or belittle meme coins. What I really want to express is how current policy systems allow meme coins to flourish while cryptocurrency companies and blockchain tokens with more productive use cases face obstacles. Anyone who creates memes can easily create, launch, and automatically list tokens in the market, including tokens that degrade specific politicians and celebrities. But what about entrepreneurs trying to build real and lasting products? They find themselves in a 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 denied companies like Apple, Microsoft, and Nvidia (which have products used by people 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 the possibility of their more productive blockchain tokens being suddenly classified as securities.
I refer to the distinction between these “speculative and productive” use cases in the cryptocurrency industry as the “computer versus casino” divide. One culture (casino) sees blockchain primarily as a means for trading and gambling, while the other culture (computer) is more interested in using blockchain as an innovative new platform, much like the internet, social, and mobile platforms before it. However, meme coin communities also have the potential to evolve their tokens over time by adding more utility; after all, many disruptive innovations we use today initially seemed like toys. Nevertheless, “utility” is important because tokens are essentially a new digital language 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 within specific social networks, or the choice to opt out if you dislike censorship policies or who these networks choose to kick out and retain.
– They can give users voting rights in platform decisions, especially if their livelihood depends on the platform.
– They can incorporate “human proofs” to counter artificial intelligence.
– They can serve as a decentralized balance of power against corporate centralization.
Our legal framework should encourage such innovations. So why do we prioritize memes over genuinely useful content? The U.S. securities laws do not empower the SEC to make judgments based on the merits of an investment, and ending speculation is not the SEC’s responsibility. Instead, the role of the agency should be to (1) protect investors, (2) maintain fair, orderly, and efficient markets, and (3) facilitate capital formation. However, the SEC has not achieved these three goals when it comes to addressing the issues of 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 of others.” These technologies now function more like public infrastructure than private platforms.
Unfortunately, other entrepreneurs building innovative projects do not know how to obtain the same regulatory treatment as Bitcoin and Ethereum. Bitcoin (established in 2009) and Ethereum (2013-2014) are the only two significant blockchain projects that the SEC has explicitly or implicitly recognized as not involving the 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. Additionally, while the Howey test has its merits, it is inherently subjective. The SEC has expanded the meaning of the test so broadly that ordinary assets, even things like Nike sneakers, could be considered securities today.
Meanwhile, meme coin projects have no developers, so there is no assumption of meme coin investors relying on the “efforts of others.” As a result, meme coins spread while innovative projects struggle. At the same time, 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 quick get-rich schemes and incentivize longer-term building.
Regulatory bodies implemented similar protective measures after the Great Depression, which occurred due to excesses in 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 towards a better future for everyone.
The author is a partner at Andreessen Horowitz, where he leads the crypto fund, and the author of the book “The Ownership Economy.”
