In recent times, cryptocurrency prices have skyrocketed, reigniting the speculation frenzy that has become a familiar occurrence. However, this time around, the comeback of memecoins, which are humorous crypto tokens inspired by internet culture, has been particularly noteworthy.
One prime example is Dogecoin, the poster child of memecoins, which started as a joke but has managed to gain significant value beyond its meme status. The appeal of memecoins extends beyond just providing a quick laugh or generating fast profits; it has become a cultural phenomenon. Yet, it is perplexing to see how regulatory bodies give these joke coins a free pass while legitimate and innovative crypto projects face burdensome red tape.
To put it into perspective, imagine if meme stocks like GameStop were celebrated, while tech giants like Apple or Microsoft, which actually contribute to technological advancements, were disregarded. It sounds absurd, but this is the current state of crypto regulation, where memecoins receive approval while transformative projects are left behind.
Chris Dixon of Andreessen Horowitz has made an insightful analogy that sheds light on this issue. He suggests that the crypto market can be divided into two categories: the “casinos,” which focus on quick token flipping for profits, and the “computers,” who recognize blockchain as a groundbreaking platform for future innovations. It is frustrating for both Dixon and myself to witness the casinos stealing the spotlight while the computers play a secondary role. This skewed focus is not only unfair but also hinders opportunities for advancements in decentralized AI and combating deepfakes.
Unfortunately, US regulations do not provide much assistance in this matter. The Securities and Exchange Commission (SEC) is responsible for ensuring the safety of investments, maintaining smooth markets, and facilitating capital flows. However, their current approach, relying on the outdated “Howey test” from 1946 to determine securities, is inadequate for the crypto industry. Bitcoin and Ethereum managed to navigate these regulations by evolving into community-led projects that no longer rely on central figures, making them more akin to public utilities than private enterprises. On the other hand, other innovative projects struggle with regulatory uncertainties, thanks to the SEC’s approach. We need smarter regulations that make sense, incorporate meaningful disclosures, prevent cash grabs through lock-up periods, and learn from historical mistakes.
It is worth mentioning the post-Great Depression era, when regulatory measures were implemented, resulting in a surge of innovation and economic growth. Dixon concludes his essay by emphasizing the need for a regulatory framework that recognizes the potential of legitimate crypto projects while curbing the madness fueled by memecoins. The focus should be on the technology rather than meddling with the market.
The security of memecoins remains a significant concern. A recent investigation by Cointelegraph into Base, Coinbase’s Ethereum layer 2 solution, revealed that the majority of memecoins on the platform are highly vulnerable. About 90% of these tokens failed basic security checks, lacking essential features like locked liquidity and verified contracts that protect against scams like rug pulls. Some of these tokens are outright traps, with 17% designed to deceive unsuspecting traders through tactics like honeypots, which entice investors with high returns but prevent them from selling their stakes.
Considering the risks associated with memecoins, it begs the question of why we are still fixated on regulating them when there are more pressing issues to address. It is time to shift our focus and resources towards innovation and securing genuine cryptocurrencies, rather than indulging in the illusion created by memecoins. Although my stance may be misconstrued as memecoin hatred, I am, in fact, a true believer in the potential of blockchain technology.
To the blockchain!
If you’re interested, you can read Chris Nixon’s complete essay here.