February 18, 2025 | Read Online

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"There is nothing new in Wall Street. Whatever happens in the stock market today has happened before and will happen again."

— Jesse Livermore

Crypto needs a new SEC: The Solana Exchange Commission

In 1913 the New York Stock Exchange launched a campaign to counteract a growing awareness that Wall Street was rigged in favor of insiders.

Stock markets had long been plagued by executives overstating the value of their companies' assets, diluting shareholders by secretly issuing new shares, and cornering their own stock.

One such machination (a failed attempt to corner the shares of United Copper Company) caused the financial panic of 1907 — a tipping point for many investors as it revealed that "investing" in equities was mostly a game of guessing how insiders might manipulate the market.

To combat that perception, the NYSE rebranded itself as the "people's exchange," tightened its listing standards and created a self-regulatory body to implement rules on the disclosure of non-public information, margin requirements and advertising practices.

The goal of these voluntary measures was to encourage retail investing and discourage government regulation — and I guess they were successful because no significant regulation was imposed and stock market investing did go mainstream.

But this proved to be Wall Street's undoing.

Stock markets boomed in the 1920s thanks in large part to an influx of retail investors, most of whom rushed into dubious, overpriced and oftentimes fraudulent securities: By 1932, the Dow had lost almost 90% of its value from the 1929 high.

The magnitude of the losses dispelled any perception of fairness that the NYSE may have succeeded in creating.

In Congressional hearings after the crash, one witness testified that former President Hoover "shared the average American's view of Wall Street as a giant casino rigged by professionals."

The industry had failed to police itself, and as a result, the government decided to police it for them. The Securities Exchange Commission was created in 1934, at which point investors' trust in markets was probably at an all-time low.

Following this weekend's events, investors' trust in crypto markets is not much higher.

The LIBRA memecoin has made crypto look like a giant casino that's rigged by professionals.

Ruining the game for everyone

Most crypto advocates concede that memecoins are a form of gambling, but they usually justify it by citing the enduring popularity of Las Vegas casinos.

But the thing about gambling in a Vegas casino is that 1) the odds are only slightly against you and 2) the Nevada Gaming Commission ensures you won't be cheated.

With memecoins, by contrast, you're much more likely to lose (as estimated here) and there's a good chance you'll be cheated, too.

Both risks became abundantly clear this weekend with the launch of LIBRA, a memecoin that was promoted as an Argentine version of TRUMP.

Unlike TRUMP, however, where early buyers had three full days to take their profits, buyers of LIBRA had only about 90 minutes to take theirs.

This ensured only the very earliest and most mercenary buyers made money (at the expense of buyers that came immediately after).

Subsequent revelations have detailed just how mercenary those early buyers were.

Creators of the LIBRA coin reportedly arranged for Argentine President Javier Milei to endorse the memecoin shortly after launch, gave 1% of tokens to a market maker to provide liquidity, and then told their insider friends to be ready to "snipe" that liquidity (using specialized software bots) as soon as the token was launched (and before Milei's endorsement).

Memecoins are not securities, so this might not be illegal — I don't know.

But it's certainly unethical.

So much so that even crypto's biggest advocates are now worried that retail investors will no longer want to participate not just in memecoins, but any part of crypto.

Or be able to participate, even: Memecoins have likely extracted billions of dollars from crypto users, of which there aren't all that many.

Vegas, by contrast, has many more players and manages them much more strategically — casinos carefully calibrate slot machines, for example, so that players win just frequently enough that they continue playing.

In crypto, however, there is no calibration — retail players are being maximally extracted.

The team that launched LIBRA, for example, extracted at least $87 million from memecoin players; other snipers, informed ahead of the launch, almost certainly extracted tens of millions more.

Similarly, a single sniper made $100 million buying the TRUMP token the very second it was launched.

Everyone agrees that this is too much.

Memecoins are unavoidably extractive: Having no utility, they are a negative-sum game that players, in aggregate, can only lose at.

But, unlike casino games, they are also rigged — and that makes the memecoin game unsustainable.

You only need to watch kids at elementary school argue over the rules of tag or kickball to know that a game that doesn't seem fair won't last very long.

Similarly, unless the crypto industry can convince people that its game is at least reasonably fair, people will soon stop playing it.

It's possible.

Las Vegas has the Nevada Gaming Commission, college football has the NCAA and Wall Street has both a self-imposed FINRA and the government-imposed SEC.

Crypto could do something similar — a Solana Exchange Commission, say, to agree on some self-imposed and self-enforced rules.

As anathema as that may be to the "code is law" ethos of crypto, it may also be necessary for digital-asset investing to have any chance of becoming a mainstream activity.

Thanks to memecoins, digital assets are currently better described as a casino than an asset class.

But even casinos need rules, so now may be the time for crypto to decide on some.

If not, the government will eventually decide the rules for it — just as they did for the stock market.

— Byron Gilliam

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