Regulation
A New Job for the SEC: Regulating Memecoins
Solana has sunk into memecoin madness. And the SEC should step in.
The blockchain was once celebrated for its high-speed, low-cost transactions—much faster and cheaper than its competitor Ethereum. But Solana has since become ground zero for a memecoin craze that’s dangerous for investors and the network itself.
We at Bitcoin Market Journal strongly advise against investing in memecoins, because they have no underlying value. They are essentially a get-rich-quick scheme, although it is usually the founders who get rich. (Read our guide here)
The Securities and Exchange Commission, charged with protecting investors, has aggressively pursued legitimate cryptocurrency companies like Ripple and Binance, while largely ignoring the biggest threat to investor safety: memecoins.
I urge the SEC to crack down on memecoin projectsstarting with Solana’s major offenders.
Solana: Ground Zero for Memecoins
Imagine if the New York Stock Exchange allowed anyone to start a shell company, pitch it to investors, and then accept real money for their fictional company.
You can’t imagine it, because it’s slow and expensive to list on the NYSE. But that’s exactly what happens with memecoins.
Since Ethereum is slow and expensive, Solana has emerged as ground zero for memecoins. Solana’s low transaction fees of as low as $0.0001! make it the go-to platform for memecoin promoters.
The biggest culprit is a viral platform called PUMP.FUNwhich allows anyone to launch their own memecoin for just a couple of dollars. Then scammers can create a new memecoin, keep most of the tokens for themselves, promote the token and drive up the price, then sell their tokens at a profit.
PUMP.FUN, as in “raise the price and then have some fun while leaving everyone else holding the bag.”
The number of memecoins launched on Solana via tools like PUMP.FUN is impressive: recently, over 100,000 new tokens have been launched per day:
This massive meme explosion attracted over 1 million players to Solana:
This memecoin frenzy has led to network congestion, raising serious questions about Solana’s long-term sustainability and credibility. It also highlights a glaring regulatory gap that the SEC should address.
SEC: Do your job
The SEC is responsible for protecting investors.
Memecoins are perhaps the most speculative and risky “investments” in the financial world today. They have no real value. They are based on hype and social media promotion. They are the most marginal of marginal investments.
Compare memecoins to traditional markets. To be listed on NASDAQ, you go through extensive vetting. You have to meet strict financial and governance criteria. This process should be tough, so investors can trust the credibility and transparency of companies listed on NASDAQ.
Or take the gambling industry, which is heavily regulated in the United States. Casinos are monitored by state gambling commissions, which enforce strict rules on everything from fairness of play to prevention of gambling addiction.
As a society, we have agreed that when money is at stake and the potential for exploitation is high, we need regulation to protect consumers.
Memecoins, of course, operate in a regulatory gray area. They combine the high-risk nature of gambling with the veneer of a legitimate investment, while lacking the oversight of both the financial and gambling industries. This creates a perfect storm for potential harm to investors.
I ask the SEC to do its job. If you want to crack down on cryptocurrencies, Start with memecoins.
How to Regulate Memecoins
There are legitimate crypto companies creating useful and valuable products on blockchain technology, and there are memecoins. So far, the SEC has focused on going after the former, while largely ignoring the latter. This needs to change:
Define and classify memecoins:The SEC should establish clear criteria to distinguish memecoins from legitimate cryptocurrency companies, focusing on factors such as utility, team credibility, and marketing tactics.
Implement listing requirements:The SEC should work with cryptocurrency exchanges to develop and enforce stringent listing requirements for memecoins, similar to those used by traditional exchanges.
Mandatory Disclosures: The SEC should encourage all crypto projects to provide comprehensive information about their founders, token distribution, and potential risks. (Not just memecoins.)
Trade Restrictions:The SEC should consider requiring Layer-1s like Solana to implement trading limits or circuit breakers for memecoins, to limit extreme price volatility.
Educational initiatives: The SEC should continue its campaigns to inform the public about the risks associated with investing in memecoins.
By focusing its firepower on memecoins, the SEC can address one of the most damaging aspects of cryptocurrency investing without stifling innovation at legitimate companies.
Solana’s memecoin problem is a symptom of a larger problem in the cryptocurrency industry: to attract more institutional investors, we need to get rid of the gamblers.
By taking action, the SEC can not only help prevent widespread financial harm, but it can also bring some much-needed credibility to the cryptocurrency space.
How Solana Can Help
Remember, Solana is a community-driven company, which means that SOL token holders decide the direction. This means Solana community still has more power than SEC to cut the memecoin cancer off their blockchain. So these ideas are in their long-term interest:
Community-driven proposals: The Solana community should create and vote on proposals that discourage memecoins. For example:
- Implementation of stringent token creation requirements
- Introducing a verification process for new tokens
- Establish guidelines for responsible token launches
Collaboration with exchanges: The Solana Foundation should work with major exchanges to enforce stricter listing criteria for Solana-based tokens, especially those that look like memecoins.
Educational initiatives: Solana should launch community-driven educational campaigns to educate users about the risks associated with memecoins and promote more sustainable investment practices.
Technical solutions:The Solana development team should discourage the creation and trading of memecoins by adjusting transaction fees for certain types of token-based activities or developing tools to flag crapcoins.
Self-regulatory body:Finally, Solana should establish a community-driven regulatory body to oversee token launches, setting standards and best practices for the ecosystem.
The longer you let gambling drive your economy, the harder it is to shut it down. Memecoins are an addiction and Solana should go to rehab before the SEC mounts an intervention.
Solana’s second great comeback?
Remember: Solana staged one of the cryptocurrency industry’s great comebacks.
When FTX crashed in November 2022, many thought it was the end of Solana as well. FTX was a major investor in SOL (Solana-based tokens were often called “Sam coin”), and as FTX imploded, people sold their SOL, sending the price plummeting from $36 to under $10.
The damage was deeper. At the time, about 20% of Solana-based companies had received investments from FTX or Alameda, and many of those companies had their money trapped in FTX. So it wasn’t just SOL, it was a meteoric impact that impacted the entire Solana ecosystem. Many investors had left Solana for dead.
But it was actually one of the great cryptocurrency investment opportunities of our time. Solana has rebuilt itself and the price of SOL, at the time of writing, is $170.
But investors today should be concerned about a much bigger threat to Solana: the proliferation of memecoins.
If Solana can get his act together, it could be a second great comeback story.If not, I hope the SEC does its job and steps in.
The move is up to Solana: either regulate memes or become one of them.