a16z Partner: How Bad Regulation Benefits Memes Over Innovation
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a16z Partner: How Bad Regulation Benefits Memes Over Innovation
Meme coins spread, leaving investors ultimately facing more risks, not fewer.
Navigating Web3 tides with focused insightsAuthor: Chris Dixon, Partner at a16z and Head of a16z Crypto, author of "Read Write Own"
Translation: 0xjs, Jinse Finance
As cryptocurrency prices recently hit new all-time highs again, there's a risk of excessive speculation in the crypto market—especially given the recent frenzy around meme coins. Why does the market keep repeating these cycles instead of supporting more productive, truly transformative blockchain-based innovations?
Meme coins are cryptographic tokens primarily created for humor, originating from online communities built around jokes. You may have heard of Dogecoin, based on the old doge meme featuring an image of a Shiba Inu. It started as a lighthearted online community when someone ironically added a cryptocurrency that later gained real financial value. Such "meme coins" reflect aspects of internet culture and are mostly harmless, though other meme coins are not.
But my goal isn't to defend or criticize meme coins; rather, it’s to highlight how outdated policies and institutions enable meme coins to thrive while erecting barriers for crypto companies and blockchain tokens with more meaningful use cases. Any meme creator can easily launch, deploy, and even automatically list a token—including those mocking specific politicians or celebrities. But if an entrepreneur wants to build something real and lasting? They’re plunged into regulatory purgatory.
In practice, today it is safer to launch a meme coin with no utility than to launch a useful token. Consider this: if our securities markets only incentivized GameStop meme stocks but rejected companies like Apple, Microsoft, and NVIDIA—all of which produce products people use daily—we would consider that a policy failure. Yet current regulations encourage platforms to list meme coins over more useful tokens. The lack of clear regulation in crypto means platforms and entrepreneurs constantly worry that their more productive blockchain tokens might suddenly be deemed securities.
I refer to the distinction between these more speculative versus productive use cases in crypto as “computer vs. casino.” One culture (“casino”) sees blockchains mainly as a way to issue tokens for trading and gambling. The other culture (“computer”) is more interested in blockchains as a new platform for innovation, much like the internet, social media, and mobile platforms before them. Over time, meme coin communities may evolve their tokens by adding more utility; after all, many of today’s disruptive innovations initially seemed like mere toys. Utility matters because, at their core, tokens represent a new digital primitive that grants anyone ownership rights online. More functional blockchain-based tokens allow individuals and communities to own—not just use—internet platforms and services.
These open-source, community-run services could solve many of the problems we face with big tech companies today: they can offer more efficient payment systems; verify authenticity to prevent deepfakes; allow more voices into—or the ability to exit—specific social networks, especially if you disagree with their governance rules or who gets banned or retained. They can let users vote on platform decisions, particularly if their livelihoods depend on the platform. They can tag “proof-of-human” signals for AI. Or generally serve as decentralized checks against centralized corporate power.
Our legal framework should encourage such innovation. So why do we prioritize memes over innovation? U.S. securities laws don’t authorize the SEC to make performance-based judgments about investments, nor is its role to eliminate speculation entirely. Instead, the agency’s mission is (1) to protect investors; (2) to maintain fair, orderly, and efficient markets; and (3) to facilitate capital formation. When it comes to digital asset markets and tokens, the U.S. SEC has failed on all three counts.
The primary test the U.S. SEC uses to determine whether something is a security is the 1946 Howey Test, which evaluates several factors—including whether there is a reasonable expectation of profit derived from the efforts of others. Take Bitcoin and Ethereum as examples: although both crypto projects began with one person’s vision, they evolved into developer communities with no single controlling entity—meaning potential investors don’t rely on any individual’s “management efforts.” These technologies now function more like public infrastructure than proprietary platforms.
Unfortunately, other entrepreneurs building innovative projects don’t know how to qualify for the same regulatory treatment as Bitcoin and Ethereum. Bitcoin (founded in 2009) and Ethereum (launched in 2013–2014) are the only two major blockchain projects explicitly or implicitly recognized by the SEC as not involving managerial effort (both founded over a decade ago). The SEC’s lack of transparency and consistency—including regulating via enforcement actions in applying the Howey Test—has caused widespread confusion and uncertainty in the industry. While the Howey Test is conceptually sound, it is inherently subjective. The SEC has stretched its interpretation so broadly that even ordinary assets, such as Nike sneakers, could arguably be considered securities today.
Meanwhile, meme coin projects have no developers, so investors in meme coins don’t pretend to rely on anyone’s “management efforts.” As a result, meme coins proliferate while innovative projects struggle. Ultimately, investors face greater risks, not fewer.
The answer isn’t less regulation—it’s better regulation. Concrete solutions include requiring well-designed disclosures to give retail investors more information. Another solution is imposing longer lock-up periods to deter get-rich-quick schemes and encourage long-term building.
Similar safeguards were implemented by regulators after the 1920s boom and the 1929 stock market crash that led to the Great Depression. Once these guidelines were in place, we entered an era of unprecedented market growth and innovation. Regulators should learn from past mistakes and pave the way for a better future for everyone.
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