February 05, 2025 | Read Online

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"We must look at the price system as such a mechanism for communicating information if we want to understand its real function."

— Friedrich Hayek

Memecoins don't belong on stock exchanges

Las Vegas casinos make most of their money from slot machines, a game that remains inexplicably popular despite its lack of pretense that there's any skill involved.

Unlike, say, blackjack or baccarat, no one can think they're good at slots — but people keep playing, in full knowledge of the fact that they're highly likely to lose.

Studies show that many slot machine players even prefer to lose (because winning risks breaking them out of a "dark flow" state that provides an escape from real life).

Memecoins enthusiasts are often compared to Vegas casino-goers in this way: They understand they're likely to lose, but keep playing anyway, because it's fun.

But, I don't know; it seems self-evident that memecoin traders are mostly in it for the money, which can only mean they believe there's skill involved in trading memecoins — and that they possess more of it than others.

Or maybe they don't think they're trading at all — maybe they think they're investing.

Like me, you probably think that's laughable.

But if memecoins become available to stock market investors, who's to say they're wrong?

$HAYEK

In last week's press release announcing the new Grayscale Dogecoin Trust, Grayscale's head of product and research, Rayhaneh Sharif-Askary, made the case for why the original joke coin should now be taken seriously: "Dogecoin has matured into a potentially powerful tool for promoting financial accessibility."

"We believe, as a faster, cheaper and more scalable derivative of bitcoin, Dogecoin is helping groups underserved by legacy financial infrastructure to participate in the financial system," she added.

I was skeptical, so I emailed Sharif-Askary to ask exactly how Dogecoin fosters financial inclusivity — I was surprised to learn from her response that "Venezuelan refugees have used DOGE for remittances" and that the "Radio Doge" feature enables offline transactions.

Pretty neat!

But I'm still not convinced that makes Dogecoin investable, as the press release suggests: "Grayscale Dogecoin Trust offers investors exposure to an asset that is positioned to help fulfill bitcoin's originally intended use case and its egalitarian ethos."

They lost me at calling DOGE an "asset" — but lots of people disagree with me on that and as soon as memecoins are available to stock market investors, I will have officially lost the argument.

Similarly, Bitwise's pending application for a DOGE ETF refers to Dogecoin as a "speculative investment" and a "digital asset" and I guess it's right — I consider my baseball card collection to be an "asset," too.

But I don't think my baseball cards should be tradeable on the New York Stock Exchange.

Bitwise makes clear in its filing that Dogecoin is not intended to serve as a store of value, explaining instead that its purpose is "to improve the ease and affordability of transferring value while fostering a fun and inclusive community around the digital asset."

But I worry that making DOGE available on stock markets will inevitably give people the impression that it's something more than that — that it's something to not just trade and have fun with, but to invest in.

There's also a pending filing for an ETF holding the TRUMP memecoin — a "relatively new innovation," it explains, that may or may not trade according to its "fundamental investment characteristics."

And there's even been an application for a leveraged MELANIA ETF (although that application appears to have been retracted).

I get it, memecoins can be fun — the ENRON memecoin launched yesterday was particularly amusing, I thought.

But I don't think these things belong on stock exchanges for the simple reason that they are "not intended to be, or to be the subject of, an investment opportunity," as the official website for the TRUMP memecoin states.

That was written by lawyers, of course, and others think memecoins are more than this.

The venture capitalist Sam Lessin, for example, believes that memecoins are a legitimate form of money and that "money is just a form of communication."

"This," he says, "is Hayek 101."

But I think he has that slightly wrong — and wrong in a way that's instructive: Hayek didn't say money is a form of communication, he said prices are.

"It is more than a metaphor," Hayek wrote, "to describe the price system as a kind of machinery for registering change or a system of telecommunications."

In short, Hayek believed that the beauty of free markets is that individual participants don't need to know everything; instead, they only need to know the information that's been condensed into a single price of whatever they're considering, and "adjust their activities" accordingly.

But there's nothing in the price of memecoins that stock market investors need to know — and we certainly don't want investors adjusting their activity because of booming memecoins prices.

The purpose of the stock market is to direct investors' excess capital to its most productive use and I think we can all agree that there's nothing productive about memecoins.

Memecoins are just a game — a game in which the goal is to guess the next popular meme, as Multicoin's Tushar Jain frames it.

I'm not above playing that game myself on occasion — I just don't think it's a game we should be playing in the stock market.

There's a reason why you can't play the slots with your 401k.

— Byron Gilliam

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Georgios Konstantopoulos @gakonst

ERC4337 bundling across users seems like a non-usecase? what do you really save? 21k gas of compute per user's batch? peanuts. what do you tradeoff? smart contract complexity, not having 1:1 mapping between user action and on-chain operation, latency for users waiting to be… x.com/i/web/status/1…

8:53 PM • Feb 5, 2025

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