The Battle of Meme and Governance Tokens: In fact, it’s all about Meme Coins

Original Title: “Memecoins > Governance Tokens”

Written by: Yash Agarwal

Translated by: Deep Tide TechFlow

A discussion and insights on how and why Memes offer a fairer issuance compared to VC-backed governance tokens and TradFi --- lessons for crypto founders.

The CTO of A16z recently argued that Meme coins "are not attractive to builders," and "may even be net negative when considering external influences."

• "A series of false promises covering up a casino"
• "Changed the perception of the public, regulators, and entrepreneurs towards cryptocurrencies"
• "Technically unattractive"

And so on.

Meanwhile, Chris Dixon published a more sobering article highlighting the systemic absurdities of the U.S. securities law system ------ emphasizing how the best projects get caught in regulatory dilemmas, while Meme coins can stand out because they do not "pretend that Meme coin investors rely on anyone's management efforts." This indirectly acknowledges the masquerade of the rest of cryptocurrency (pretend behavior) ------ various teams' management efforts over protocols, which we call governance tokens.

Our goal is neither to defend Meme coins (or governance tokens) nor to undermine their significance; our purpose is simply to advocate for fairer token issuance.

Governance Tokens are Memes with Extra Steps

I believe that all governance tokens are essentially Memes, with their value depending on the Meme origins of the protocol. In other words, governance tokens are Memes dressed in suits. Why do I say this?

Typically, governance tokens do not provide any revenue distribution (due to securities laws), and they perform poorly as community-oriented decision-making frameworks (holding is often concentrated, participation enthusiasm is low, or DAOs are generally dysfunctional), which makes their role similar to that of Memes, just with a few extra steps. Whether it's ARB (the governance token of Arbitrum) or WLD (the token of Worldcoin), they are essentially Meme coins attached to these projects.

This is not to say that governance tokens are useless. Ultimately, their existence serves as a constant reminder of why the laws need updating. That said, governance tokens can cause as much harm as Memes in many cases:

• For builders: Many well-known VC-backed governance tokens start issuing before product launch, leading to severe disillusionment. This directly undermines the credibility of founders who have worked for years to achieve adoption. For example, Zeus Network launched with a $1 billion FDV even before releasing a product, while many founders struggle to reach such valuations even after significant progress.
• For the community: Most governance tokens are VC-backed, launching at inflated valuations and gradually transferring to retail investors.

Researching ICP, XCH, Apecoin, DFINITY, etc., even ICOs from 2017 performed better than the current low-circulation tokens backed by VCs, as most of their supply was unlocked at launch.

Let's look at EigenLayer:

EigenLayer, arguably the largest Ethereum protocol of this cycle, is a classic example. Insiders (VCs and the team) hold a substantial portion, up to 55%, while the initial community airdrop was only 5%. This is a typical low-circulation, high FDV game, supported by VCs holding 29.5% of the shares. In the last cycle, we blamed FTX/Alameda, but this cycle is not much better.

The EIGENDAO managed by EIGEN now resembles any Web2 governance committee, as insiders control most of the supply (with the initial community supply being only 5%). Don't forget, the entire concept of EigenLayer is re-staking (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 (in this case, 55%), we severely hinder the redistributive effect of cryptocurrency, making a few insiders extremely wealthy through low-circulation, high FDV issuance. If insiders truly believe, considering the astronomical valuations of token issuance, they might as well reduce allocations.

Let the Real Conspiracy Group Step Forward

Given the absurdity of the capital formation process ------ we will eventually see VCs blaming Memes, while Meme creators blame VCs for the regulatory chaos and reputational crisis in the space.

But why are VCs so harmful to tokens?

VCs inflate FDV for structural reasons. For example, a large VC fund invests $4 million for a 20% stake, valuing the company at $20 million; logically, they must raise the FDV to at least $400 million at TGE (Token Generation Event) to provide profits for LPs. The protocol is pushed to list at the highest possible FDV to enhance returns for seed/pre-seed investors.

In this process, they continually encourage projects to raise funds at higher valuations. The larger the fund, the more likely it is to give the project an absurdly high private valuation, build a strong narrative, and ultimately list at a higher public valuation, forcing retail to sell off at the time of token issuance.

• High FDV launches only lead to a downward spiral and zero attention. Refer to the case of Starkware.
• Low FDV launches allow retail to profit from repricing and help form community and thought shares. Refer to the case of Celestia.

Retail investors are more sensitive to unlocks than ever. In May alone, $1.25 billion worth of Pyth will be unlocked, along with hundreds of millions from Avalanche, Aptos, Arbitrum, and others.

Some unlocking data

Memes are Products of Financial System Collapse

It can be argued that Bitcoin is the largest and oldest Meme coin, born out of the financial crisis of 2008. Negative/zero real interest rates (interest rates - inflation) forced every saver to speculate on shiny new asset classes (e.g., Meme coins). The market environment created by zero interest rates is filled with rogues sustained by cheap capital. Even top indices like the S&P 500 have about 5% zombie companies, and as interest rates rise, their situation is set to worsen, making them no different from Memes. Worse, they are marketed by fund managers, with retail investors continuously buying in every month.

Speculation never dies for a reason; in this cycle, they are Memes.

FRED via Kana and Katana

On this basis, the term 'financial nihilism' has recently gained much attention. It encapsulates the view that the cost of living is choking most Americans, with more and more people unable to access upward mobility opportunities, and the American Dream has essentially become a thing of the past, with the ratio of home prices to median income reaching an unsustainable level. The fundamental drivers of financial nihilism are the same as those of populism, which is a political approach appealing to ordinary people who are fed up with 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 Testing Infrastructure

Memes are not only a great entry point into cryptocurrency but also an excellent way to test infrastructure. Contrary to A16z's stance, we believe that Memes have a net positive impact on any ecosystem. Without Meme coins, chains like Solana would not face network congestion, and all network/economic vulnerabilities would not surface. Meme coins on Solana have generated a net positive impact:

• All DEXs not only handled the highest trading volumes ever but also surpassed their Ethereum counterparts.
• Money markets integrated Memes to increase TVL.
• Consumer applications integrated Memes for attention or marketing purposes.
• Thanks to priority fees and MEV, validators can earn huge fees.
• Increased liquidity and activity enhance network effects in DeFi.

The monthly active device count for the Solana wallet Phantom reached 7 million for a reason, as it is powered by memecoins, allowing ordinary people to onboard, making it one of the most used applications in cryptocurrency today.

For real RWAs, on-chain trading requires infrastructure with sufficient liquidity (look at top Memes, which have the deepest liquidity besides L1 tokens/stablecoins), stress-tested DEXs, and broader DeFi. Memes do not distract people; they are just another asset class existing on a shared ledger.

Memes as Fundraising Mechanisms

Memes have proven to be an effective means of capital coordination. Look at Pump.fun, which has facilitated the issuance of nearly millions of Memes and created billions in value for Memes. Why? Because for the first time in human history, anyone can create a financial asset in under $2 and less than 2 minutes!

Memes can serve as an excellent fundraising mechanism and listing strategy. Traditionally, projects raise significant funds by allocating 15-20% to VCs, developing products, and then issuing tokens while building a community through Memes and marketing. However, this often leads to communities being ultimately abandoned by VCs.

In the Meme era, people can raise funds by launching their own Memes (with no roadmap, just for fun) and forming tribal communities early on. They can then continue to build applications/infrastructure, continuously adding utility to the Memes without making false promises or providing roadmaps. This approach leverages the tribalism of the Meme community (e.g., holder bias), ensuring high participation from community members who become your BD/marketers. It also ensures a fairer token distribution, countering the siphoning and dumping strategies of VCs that adopt low-circulation, high FDV models.

This is Already Happening

BONKBot, a Telegram bot (with daily trading volumes reaching $250 million), originated from the BONK Meme, utilizing 10% of transaction fees to buy and burn BONK. It has cumulatively burned about $7 million worth of BONK through fees, aligning its economy with its holders.

Degen, a Meme in the Farcaster ecosystem, allows posters to reward/tip others for high-quality content with DEGEN. Additionally, they are building an L3 chain for degen. Similarly, one of the most popular Memes from the last cycle, Shibatoken, is now building an L2.

This trend will ultimately lead to the fusion of Memes and governance tokens. It is important to note that not all Memes are equal; scams are common, but they are easier to expose than scams conducted silently by VCs.

Looking Ahead

Everyone wants to get ahead of the next big event, and Memes are one of the few areas where retail investors can enter earlier than most institutions. With access to private VC trades restricted, Memes provide a better potential market fit for sand lake capital. While Memes do make cryptocurrency look like a casino, they do allow the community to regain power.

So, what is the solution?

VCs like a16z should pool their trades to allow anyone to participate. Platforms like Echo are perfect for this.

For VCs, putting your trades on Echo allows the community to participate in pooled trades and witness the similar Meme-like magic of early community rallies for projects.

It should be clarified that we are not against VCs/private funding; we advocate for fairer distribution, creating a level playing field where everyone has the opportunity to achieve financial sovereignty. VCs should be rewarded for their early risk-taking. Cryptocurrency is not only about open and permissionless technology but also about the openness of early financing, which is currently as opaque as traditional startups.

In Conclusion

• Everything is a Meme.
• Study Memes as fundraising and community-building mechanisms.
• Projects should lean towards fairer launches.

It is time to make early financing more open.