Original author: @yashhsm Original translation: Lucy, BlockBeats Editor's note: @yashhsm put forward a point of view in his tweet that governance tokens are essentially meme coins. Starting from the project agreement, he analyzed and compared the similarities between governance tokens and meme coins to explain why VCs need to raise FDV. In addition, @yashhsm also expressed his insights on project financing, community building and fair launch, and proposed a more fair launch direction for cryptocurrency projects. BlockBeats translated the original text as follows:

VCs hate meme coins, but I will explain why there is no difference between meme coins and governance tokens.

Governance tokens are just meme coins in suits.

Governance tokens are just meme coins with a few more steps

All governance tokens are essentially meme coins, and their value comes from the meme origins of the protocol. Why do I say that?

No revenue sharing (due to regulatory safety)

Governance tokens do not perform well in community-driven decision-making frameworks.

Tokens tend to be concentrated in a certain group of people and have low participation or dysfunctional DAOs, which makes them useless as meme coins. Whether it is ARB (Arbitrum's governance token) or WLD (Worldcoin's token), they are essentially meme coins attached to these projects.

Governance tokens can in many ways cause the same harm to communities as meme coins:

Community: Most governance tokens are venture-backed coins that were launched at high valuations and gradually moved into the hands of retail investors.

· Builders: Many high-profile VC-backed governance tokens launched before product launch (e.g. Zeus launched with $1B FDV), which led to a huge sense of disillusionment. Many founders even struggle to reach such a valuation after making significant progress.

Not saying Zeus won’t be successful, just pointing out that it’s common practice for tokens to launch before product. Even ICOs (initial coin offerings) from 2017 were preferable to the current low-volume VC-backed tokens because they were more equitable, with the majority of supply unlocked at launch.

Take EigenLayer as an example, a typical low float, high FDV investment strategy, backed by VCs with 29.5% of the shares. Insiders (VCs and team) hold a large stake of 55%. Last cycle, we blamed FTX/Alameda, but we are no better this cycle.

If a group of insiders holds more than 50%, we severely hinder the redistributive effect of cryptocurrencies and allow insiders to get rich on high FDV launches. If insiders truly believe that they would be better off reducing their distributions given the launch of high FDV tokens.

Can the real cabal come to light?

Considering the absurdity of the capital formation process - we finally conclude:

Venture capitalists blame meme coins

Meme creators blame venture capitalists

This has led to significant regulatory confusion and reputational harm, affecting the credibility of serious builders. But why are venture capitalists so harmful to tokens?

There is a structural reason for venture capitalists to inflate FDV. For example, if a large venture capital fund invests $4 million for a 20% stake at a $20 million valuation, they must reasonably increase the FDV to at least $400 million at the TGE to make it profitable for the limited partners (LPs).

The larger the fund, the more likely they are to give projects:

A ridiculously high private valuation → build a strong narrative → raise money at a higher valuation round (raising early/seed investors’ investment) → launch at a higher public valuation → sell off on retail investors.

Launching at a high FDV will only lead to a downward spiral and zero market share, like Starkware. Launching at a lower FDV allows retail investors to profit from repricing and helps build community buy-in and market share, like Celestia.

Retail investors are more sensitive to unlocks than ever before. In May alone, $1.25 billion worth of Python tokens will be unlocked, along with hundreds of millions from projects like Avalanche, Aptos, Arbitrum, and more. [View @Token_Unlocks]

Meme coins are the result of a financial system collapse (like Bitcoin after the financial crisis)

Negative/zero real interest rates force every saver to speculate on new shiny asset classes (e.g., meme coins). Zero interest rate environments cause markets to be flooded with zombie companies.

Even top indices like the S&P 500 have about 5% zombie companies, and now with rising interest rates, the situation will get worse, making them little better than meme coins.

What’s worse is that they are consistently promoted by fund managers and retail investors are buying them every month, like GME.

As relevant research on financial nihilism says, speculation will never disappear, and the representative of this cycle is meme coin.

Meme coins are battle testing infrastructure

I disagree with @eddylazzarin's (a16z CTO) stance. Meme coins are a net positive for the network.

Without meme coins, chains like Solana wouldn’t face network congestion and all the network/economic errors wouldn’t be exposed. But meme coins on Solana have already brought a net positive effect:

All decentralized exchanges not only processed record volumes, but also surpassed their Ethereum counterparts.

Money market integration of meme coins to increase total locked value.

Validators earn huge fees through priority fees and MEV.

Consumer apps integrating meme coins to attract attention or for marketing purposes.

DeFi is having a broader impact due to increased liquidity and activity.

To allow real physical assets to be traded on-chain, we need stress-tested infrastructure and liquidity (decentralized exchanges/broader DeFi; look at the top meme coins; they have the deepest liquidity outside of L1 tokens/stablecoins).

Meme coins are not a distraction; they are just another asset class on the blockchain.

Meme coins as a fundraising mechanism

Looking at pump.fun on Solana, thousands of meme coins are issued every day, generating millions of dollars in fees. For the first time in human history, anyone can create and participate in a financial product for less than $2 and in less than 2 minutes. Meme coins can serve as an excellent fundraising and GTM (marketing) strategy.

Traditionally: Projects raise funds by allocating 15-20% of funds to venture capital firms (VCs) → develop products → launch tokens → build communities through memes/marketing. However, this community will eventually be abandoned by VCs.

In the meme coin era: launch a meme coin (no roadmap, just for fun) → raise funds → form a tribal community early on → build apps/infrastructure → continue to add utility to the meme coin without making false promises or providing a roadmap.

This approach leverages the tribalism (holder bias) of the meme coin community, ensuring high engagement from community members who become your BD/marketers. It ensures a more equitable token distribution and counters the low circulation high valuation pump and dump strategy employed by VCs.

This trend will eventually lead to the fusion of meme coins and governance tokens:

@bonkbot_io, a Telegram bot ($25 billion peak daily transaction volume), born from BONKmeme coins, burns 10% of transaction fees.

@degentokenbase, Farcaster meme coin (now building L3)

What will happen in the future?

Everyone wants to be early; meme coins give retail investors this leverage over slower institutions because of limited access to VC private deals. While meme coins empower communities, they do make crypto look like a casino.

So, what is the solution?

For VCs, put your deals on a platform like @echodotxyz, engage the community in collaborative deals, and witness the meme-coin magic of the community rallying around the project from the early stages.

To be clear, I am not against VC/PE funding; VCs should be rewarded for their early risk taking. I am simply advocating for a fairer distribution; creating a level playing field where everyone has the opportunity to achieve financial sovereignty.

Cryptocurrency is not just about open and permissionless technology; it is also about making early-stage financing, which is currently as opaque as traditional startups, open.

To summarize this massive article:

Everything is a meme coin.

Research meme coins as a fundraising and community building mechanism.

Projects should move towards more equitable launches.

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