All governance tokens are essentially memes, and their value depends on the origin of the protocol’s meme. In other words, governance tokens are memes dressed in suits. Why is this the case? This article is based on an article by Yash Agarwal and is edited and compiled by TechFlow.
Table of Contents:
Governance Tokens are Memes with Extra Steps
The Real Conspiracy Should Stand Up
Memes are the Product of Financial System Collapse
Memes are Testing Infrastructure
Memes as Fundraising Mechanisms
This is Already Happening
Looking Ahead
In Conclusion
A discussion and insights on how and why memes provide fairer distribution compared to VC-backed governance tokens and TradFi – Lessons for crypto founders.
Recently, a16z’s CTO argued that meme coins have “no appeal to builders” and “could even be net negative when externalities are considered.”
“A series of false promises masking casinos.”
“Has changed the way the public, regulators, and entrepreneurs view cryptocurrencies.”
“Not attractive on a technical level.”
And so on.
At the same time, Chris Dixon published a more sobering article highlighting the systemic absurdity of US securities laws – emphasizing how the best projects find themselves in regulatory quagmires while meme coins are able to thrive because they “don’t pretend that meme coin investors rely on anyone’s management effort.” This indirectly acknowledges the charade (pretense) of the rest of the crypto space – various teams’ management efforts of protocols, which we call governance tokens.
Our goal is not to defend or diminish the importance of meme coins (or governance tokens). Our purpose is simply to advocate for fairer token distribution.
Further reading:
Is there a better framework to understand memecoins?
I believe all governance tokens are essentially memes, and their value depends on the origin of the protocol’s meme. In other words, governance tokens are memes dressed in suits. Why is this the case?
Typically, governance tokens do not offer any income distribution (due to securities laws), and they also do not perform well as community-driven decision-making frameworks (holding is often concentrated, participation is low, or DAOs generally malfunction). This makes their role similar to memes, but with extra steps. Whether it’s ARB (Arbitrum’s governance token) or WLD (Worldcoin’s token), they are essentially memes attached to these projects.
This is not to say that governance tokens are useless. Ultimately, their existence serves as a constant reminder of why laws need updating. That being said, governance tokens can cause as much harm as memes in many cases:
For builders: Many well-known VC-backed governance tokens start raising funds before the product is even released, leading to significant disillusionment. This directly undermines the reputation of founders who have worked for years to achieve adoption. For example, Zeus Network launched with a $1 billion FDV even before releasing the product, while many founders struggle to reach such valuations even after significant progress.
For communities: Most governance tokens are backed by venture capital and launched at high valuations, gradually transitioning to retail investors.
Research on ICP, XCH, Apecoin, DFINITY, etc., shows that even 2017 ICOs were better than the current low circulating supply tokens backed by venture capital, as they had most of their supply unlocked at launch.
Let’s take a look at the case of EigenLayer:
EigenLayer, arguably the largest Ethereum protocol of this cycle, is a classic example. Insiders (venture capital and team) hold a significant portion, 55%, while the initial community airdrop is only 5%. This is a typical low circulating supply, high FDV game supported by venture capital, with 29.5% owned by venture capital. In the previous cycle, we blamed FTX/Alameda, but this cycle we are no better off.
The EIGENDAO managed by EIGEN now functions like any Web2 governance committee, as insiders control the majority of the supply (initial community supply is only 5%). Let’s not forget that the entire concept of EigenLayer was a re-collateralization (leveraged yield farming), making financial engineering as much of a Ponzi scheme as memes.
If a group of insiders holds more than half of the supply (55% in this case), we severely hinder the redistribution effect of cryptocurrencies, making a few insiders extremely wealthy through low circulating supply, high FDV issuance. If insiders truly believe in the astronomical digital valuations of token issuance, they would be better off reducing distribution.
Given the absurdity of the capital formation process, we will eventually see venture capitalists blaming memes, while meme creators blame venture capitalists for the regulatory confusion and reputational crises in the field.
But why are venture capitalists so harmful to tokens?
There are structural reasons why venture capital firms inflate FDV. For example, if a large venture fund invests $4 million for a 20% stake, valuing it at $20 million, logically, they would need to increase the FDV to at least $400 million in the TGE (token generation event) to generate profits for LPs. The protocol is driven to list at the highest FDV possible to boost returns for seed/pre-seed investors.
In this process, they constantly encourage projects to raise funds at higher valuations. The larger the fund, the more likely they will give the project an absurdly high private valuation, creating a strong narrative and ultimately listing at a higher public valuation, forcing a dump on retail investors during token issuance.
A high FDV launch only leads to a downward spiral and lack of attention. Consider the case of Starkware.
A low FDV launch allows retail investors to profit from repricing and helps form communities and mindshare. Consider the case of Celestia.
Speculation never dies for a reason; in this cycle, it is memes.
FRED via Kana and Katana
On this basis, the term “financial nihilism” has recently gained a lot of attention. It encompasses the view that the cost of living is suffocating most Americans, with fewer opportunities for upward mobility, the American Dream has essentially become a thing of the past, and the median ratio of house prices to income has reached unsustainable levels.
The fundamental driving factor of financial nihilism is the same as populism, which is a political approach that appeals to ordinary people who are tired of established elite groups – “this system doesn’t work for me, so I want to try something very different” (e.g., buying BODEN instead of voting for Biden).
Memes are not only a great entry tool into cryptocurrencies but also an excellent way to test infrastructure. Contrary to a16z’s stance, we believe memes have a net positive impact on any ecosystem. Without meme coins, chains like Solana wouldn’t face network congestion, and all network/economic vulnerabilities wouldn’t come to light. Meme coins on Solana have had a net positive impact:
All DEXs not only handle the highest trading volumes ever but also surpass their Ethereum counterparts.
Money markets integrate memes to increase TVL.
Consumer applications integrate memes for attention or marketing purposes.
Validators earn significant fees due to priority fees and MEV.
Increased liquidity and activity create network effects in DeFi.
Solana wallet Phantom has reached 7 million monthly active devices, and that’s for a reason because it is supported by memecoins, making it one of the most widely used applications in crypto currently.
For real RWAs, on-chain trading requires infrastructure with sufficient liquidity (look at top memes, they have the deepest liquidity apart from L1 tokens/stablecoins), stress-tested DEXs, and broader DeFi adoption.
Memes don’t distract people; they are just another asset class on a shared ledger.
Memes have proven to be an effective capital coordination mechanism. Research Pump.fun, which has facilitated the issuance of millions of memes and created billions of value for memes. Why? Because for the first time in human history, anyone can build a financial asset in less than $2 and in less than 2 minutes!
Memes can serve as excellent fundraising mechanisms and listing strategies. Traditionally, projects raise a large amount of funds by allocating 15-20% to venture capital, develop the product, and then issue tokens while building a community through memes and marketing. However, this often leads to the community being ultimately abandoned by venture capital.
In the era of memes, people can raise funds by launching their own memes (with no roadmap, just for fun) and early forming tribal communities. Then, they can continue building applications/infrastructure, continually adding utility to the memes without making false promises or providing roadmaps.
This approach leverages the tribalism of meme communities (e.g., holder bias), ensuring high engagement from community members who become your BD/marketing team. It also ensures fairer token distribution, countering the pump and dump strategies of low circulating supply, high FDV adopted by venture capital.
BONKBot, a Telegram bot (with a daily trading volume of up to $250 million), originated from the BONK meme and uses 10% of transaction fees to buy and burn BONK. It has burned approximately $7 million worth of BONK through fees, aligning its economy with holders.
Degen, a meme in the Farcaster ecosystem, allows contributors to reward/tip others for quality content released with DEGEN. Additionally, they have built an L3 chain for degen. Similarly, one of the most popular memes in the previous cycle, Shibatoken, is now building an L2.
This trend will eventually lead to the convergence of memes and governance tokens. It is important to note that not all memes are equal; scams are common, but they are more easily exposed than scams conducted silently by venture capital.
Everyone wants to be ahead of the next big thing, and memes are one of the few areas where retail investors can enter earlier than most institutions. As access to private venture transactions is restricted, memes provide a better potential market fit for retail capital. While memes do make cryptocurrencies seem like a casino, they do empower communities to regain power.
So, what is the solution?
Venture capitalists like a16z should syndicate their deals to allow anyone to participate. Platforms like Echo are well-suited for this.
For venture capital, put your deals on Echo, allow community participation in syndicated deals, and witness the meme-like magic of early communities rallying around projects.
It should be clarified that we are not against VC/private funding; we advocate for fairer distribution, creating a level playing field where everyone has the opportunity for financial sovereignty. Venture capital should be rewarded for taking early risks. Cryptocurrencies are about open and permissionless technology, but they are also about open early financing, which is currently as opaque as traditional startups.
Everything is a meme.
Research memes as fundraising and community-building mechanisms.
Projects should lean towards fairer launches.
It’s time to make early financing more open.
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Wall Street Enters the Meme Coin Market! VanEck Launches “Memecoin Index” with DOGE, SHIB, PEPE, etc.
Meme Coin History: Origins, Value Judgment, and Future Opportunities
Thoughts: What is the Value of Meme Coins? Community, Wealth Redistribution, Financial Nihilism.