In Defense of Meme Coins

From yuga.eth

I believe that meme coins are net-good for society. Even amongst the crypto-forward, this is a controversial position. Many argue that meme coins distract from technologically important innovations at the heart of crypto. Others claim they are inherently worthless.

On the whole, I believe meme coins are good because they reflect society’s commitment to upholding digital property rights through a free and open market. Meme coins are one of the purest expressions for citizens to exercise their freedom to transact without contingency. A person has no obligation to justify legal purchases and sales; their preferences alone should be the arbiters of economic decisions, underlining the principles of personal autonomy and market freedom. Conversely, in most markets (perhaps excepting those that overwhelmingly influence the national interest), it is not the job of the regulator or the legislator to decide what can or should be bought or sold. To restrict meme coin markets based on personal preference is to oppose free markets more generally.

The above argument holds whether or not meme coins have intrinsic value, but the assumption that meme coins are fundamentally worthless is increasingly untenable. One straightforward indicator of this is market price. For example, the lowest market capitalization that Dogecoin reached in the depths of the ‘22 bear market was $7.7B:

DOGE from 2020 to the present.

This would have placed DOGE at a similar size to News Corporation - the parent company of FOX News and a company in the SP 500, which had a market capitalization of $9.1B at the same time. Even during a time of peak crypto skepticism and high interest rates, the market continued to reflect significant value in DOGE.

There are a number of explanations for this, which range from the skeptical to the ideological. A skeptic might assert that those with large DOGE holdings are incentivized to keep the price from falling beyond a certain point and therefore propped it up with further purchases. A crypto ideologue might argue that all coins, including the U.S. dollar, are meme coins, because they derive value from social convention, which is a form of copycatting or memetics. (That fiat money is “ backed by men with guns ,” as economist Paul Krugman once said, makes meme coins seem far more benign than their alternatives.)

I believe that both explanations could be true to varying degrees, and that there is a third: meme coins are primarily a cultural, not financial, phenomenon. They are outlets for people to express their collective humor, dissent, or camaraderie using novel technology. Through meme coins, communities form around shared jokes, cultural moments, or socio-political sentiments, allowing them to participate in a form of digital expression that transcends traditional financial mechanics. Meme coins become symbols of a shared identity or cause, where value is derived not just from market dynamics but also from the popularity of the values that the meme coin reflects.

It is tempting to dismiss this type of activity as “financial nihilism”: a profound distrust in the existing system and a desire to dismantle it through the exposure of its absurdities, as Joe Weisenthal writes here :

Indeed, it is likely that some amount of meme coin activity is motivated by financial nihilism. Such sentiment reflects a broader trend towards pessimism, fueled by forces such as inflation, uncompetitive wages, unaffordable housing , unsustainable sovereign debt, and political polarization.

It is telling, however, when people try to censor or delegitimize financial nihilism as a philosophical viewpoint. The so-called “laws” of finance are neither inviolable nor inherently ethical - in fact, they are not even consistently observable . The Discounted Cash Flow model was not used as a method of valuing companies by investment banks until the 1950’s, based on the work of scholars such as Fisher, Modigliani and Miller. Similarly, the notion of the “risk-free interest rate” was an outgrowth of the Capital Asset Pricing Model invented by Treynor et. al in 1962, less than 70 years ago. These relatively new concepts are hardly moral dictums; they are merely theories with varying amounts of predictive validity. Why, then, is questioning the traditional system often characterized as a moral lapse, rather than a critical inquiry into its efficacy?

One answer is that those who have a vested interest in the current system - particularly those who work in traditional finance and the regulatory apparatus that surrounds it - want to perpetuate it. And to do so involves delegitimizing any system that challenges it, including cryptocurrency and meme coins. The wholesale dismissal of financial nihilism reveals a bias towards maintaining the current financial order at the expense of considering any alternatives.

Another answer is that people perceive meme coins as rife with rugs and scams, and undoubtedly, there is some truth to this. Meme coin supporters should demand honesty and transparency from their community as vigilantly as they demand the price to go up. I suspect that many of the most prominent voices against meme coins are those that were swindled out of their money in one way or another, and I sympathize with them. Those who commit fraud should be held accountable, whether by the community or the state.

Some scams are meme coins, but not all meme coins are scams. At this point, I will disclose which meme coins I hold. This is in no way financial advice - any of these coins may go to 0. Rather, it is an expression of my personal cultural affinities, and a proof of my own commitment to transparency:

• MOCHI ( @mochi_token ) - The cutest cat onchain. I believe that cuteness is a universal value that transcends cultures and unites people. I also like cats.

• TOSHI ( @Toshi_base ) - Currently, the most valuable cat onchain.

• JENSEN ( @Jensencoin ) - A community fashioned after the CEO of NVIDIA.

I recently tweeted that “[s]tructurally, meme coins are not that different from Social Security.” This may read tongue-in-cheek, but the two are similar in unexpected ways:

• Community-Based Value: Both meme coins and Social Security require collective belief. Meme coins gain value from community consensus, similar to how Social Security's effectiveness is grounded in societal commitment.

• Redistribution Mechanism: Meme coins and Social Security both redistribute wealth. Meme coins redistribute wealth among investors; Social Security redistributes income from the current workforce to retirees.

• Dependence on New Participants: The sustainability of meme coins depends on attracting new investors, akin to how Social Security requires a continuous influx of contributions from the working population to fund the benefits of retirees, essentially reflecting a demographic version of the "greater fool" theory. The difference is that Social Security is known to be at risk of insolvency .

It will take time for meme coins to gain credibility as a form of cultural expression, particularly in an industry that clings to decades-old dogma about what confers value. But even without this, meme coins have societal value because they are an important litmus test of financial freedom. Duplicitous financial activity should be eradicated, and simultaneously, people should have the ability to transact in whatever medium they choose, including meme coins.

[This post does not reflect the views of my employer in any way, only mine.]

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.