Why Policy Gaps Fuel Memecoin Mainia Over Productive Progress

Over the last several months, observers of the crypto industry have once again witnessed a whirlwind of developments—some so striking that it is tempting to forget all this has happened within a short span of time. On the one hand, memecoins with minimal real-world utility have surged, seized headlines, and managed to exploit gaps in the existing policy regime.¹ On the other hand, regulators and policymakers have escalated enforcement actions, proposed new legislation, and raised concerns about everything from stablecoin regulation to money laundering.² These events illuminate the deep tension that persists between the crypto ecosystem and traditional regulatory frameworks—a tension rooted in the mismatch between twentieth-century policy tools designed for centralized intermediaries and the evolving reality of decentralized blockchain-based projects.³

In many respects, the repeated boom-and-bust cycles in crypto stem from flawed policy that ironically favors “meme culture” over meaningful contributions to finance, technology, and society.⁴ The result is that entrepreneurs who aim to bring genuine, lasting utility to the market face daunting uncertainty. At the same time, the quickest path to short-term gains can be launching a throwaway token—one that has no functionality, offers no product or service, and ultimately rewards only speculation.

This paradox would not be tolerated in traditional securities markets. We would never structure rules such that nonsense “meme stocks” got a green light while tech giants like Apple or Microsoft languished in uncertainty.⁵ And yet, in a crypto world governed by outdated regulations and inhibited by a lack of clarity, this is precisely what transpires: Memecoins float freely while productive projects fight an uphill battle.

On a foundational level, this tension highlights why there is growing consensus that the solution is not less regulation but better regulation.⁶ That means regulation which imposes thoughtful disclosures, ensures adequate lockups, and keeps bad actors at bay—just as it did after the 1929 crash. Clarity along these lines would, in turn, nurture what we might call the “computer,” rather than the “casino,” side of crypto innovation.

While some regulators, such as the Securities and Exchange Commission (SEC), still default to a regulation-by-enforcement approach, their inconsistent stance has left even the most well-intentioned projects in limbo.⁷ This is especially unfortunate when it comes to blockchain technologies that could reshape digital identity, improve payment systems, and facilitate decentralized infrastructure for social media, AI, or enterprise services—if only they had the regulatory confidence to build in the open. Yet despite the roadblocks, builders do have some workable playbooks.

The “DXR” framework (Decentralize, X-clude, Restrict) offers a lens for thinking about token launch strategies that reduce risk.⁸ Decentralization seeks to achieve the state of “no reliance on the managerial efforts of others,” an objective at the heart of the Howey test for U.S. securities.⁹ X-clude means excluding the U.S. from token distributions, relying on Regulation S to offer outside U.S. jurisdiction.¹⁰ Restrict entails transfer-restricted tokens or “points,” which curb speculation by prohibiting tokens from being bought and sold.¹¹ Each approach carries its own trade-offs of commercial viability, operational complexity, and legal risk. But all are designed to ensure that tokens with real-world utility—or the potential for it—do not end up faring worse than the memecoins that skirt or mock the very concept of productive use.

Of course, none of these strategies are silver bullets, and projects should use them to support the longer-term goal of decentralization. Memecoins evade risk because they make no pretense of managerial efforts or utility, so they can look benign in the eyes of regulators who focus on “investment of money” and “reasonable expectation of profits from others’ efforts.”¹² Meanwhile, a new protocol that wants to bring efficiency and transparency to a system like supply-chain management must painstakingly navigate the uncertain boundaries of the law—exactly the sort of dynamic that leads too many innovators to leave the U.S. altogether.¹³

Recent crypto-related enforcement actions demonstrate that legal risks remain intense for projects that step in to fill the void.¹⁴ Government agencies like the DOJ have notched convictions for open-market manipulation on decentralized exchanges, hacks of smart contracts, and large-scale “cryptojacking” schemes.¹⁵ At the legislative level, senators have introduced new bills to clarify stablecoin rules, proposed changes to anti-money laundering (AML) rules, and advanced frameworks to encourage or curtail blockchain usage.¹⁶

Viewed in total, the environment is in flux. A Manhattan jury recently found a defendant guilty of commodities fraud on a decentralized exchange,¹⁷ while the first conviction for hacking a smart contract came out as well.¹⁸ More bills regulating stablecoins and illicit finance have appeared. Major figures—Changpeng Zhao of Binance and Roger Ver—have found themselves in prosecutors’ crosshairs, illustrating that authorities are willing to extend enforcement to high-profile or once untouchable actors.¹⁹ Meanwhile, the SEC has continued to delay decisions about spot Bitcoin or Ethereum ETFs, demonstrating an ongoing reluctance to grant mainstream recognition of widely used crypto assets.²⁰

Yet these regulatory measures have not curtailed the proliferation of new tokens—some with questionable fundamentals—nor the overall appetite among entrepreneurs to launch tokens of their own. The tension can be especially acute for builders who do not aspire to be a “casino,” but rather to adopt a “computer” ethos and generate real solutions. Even for them, discovering how and when to launch a token is no small matter. Product-market fit should come first. The operational, legal, and commercial considerations can take center stage once a viable product exists. In other words, launching a token prematurely just to ride the hype wave is almost always a path to disaster, whereas building first and carefully planning how to incorporate a token afterward might yield lasting success.²¹

This is why many projects undertake “progressive decentralization.” They begin under a centralized structure and gradually peel away layers of centralized dependence—be it computing resources, control over updates, or governance mechanisms—until the protocol becomes more akin to public infrastructure.²² If done well, decentralization can mitigate the very risks that lead the SEC to classify an asset as a security under Howey. But if done poorly—or merely performed as “decentralization theater”—it will not protect the project from scrutiny.

Founders also must give deep thought to the token’s fundamental economics. Does it accrue value through transaction fees, governance utility, or some other mechanism? If it relies on indefinite “token incentives” with no underlying business model, it risks devolving into speculation. Founders have to navigate the tricky terrain of distributing tokens in such a way that fosters organic usage while ensuring compliance. One-year lockups for founders, employees, and early investors have become de facto mandatory—a vital protection against both legal fallout and rapid sell-offs.²³

In parallel, major changes in Washington signal a broader shift in how crypto might be regulated. In some quarters, there is genuine openness to balancing innovation with consumer protection—particularly as new bills propose frameworks that could resolve the standoff between regulators and token issuers. If regulatory clarity does materialize, it is likely to emphasize transparency, longer lockup periods, and robust disclosures, which together help the public understand not merely the benefits of a project but also the risks.²⁴

This is good news for serious founders. They will be able to use tokens to align incentives among decentralized communities. They can harness tokens to address practical problems, from decentralized social media moderation to better energy grids. In fact, the potential for blockchain technology in areas like AI, identity, creative content, gaming, and financial services remains one of the more profound developments of the past decade. If the U.S. provides a safe, clear regulatory environment, one can expect to see breakthroughs on par with the earlier waves of web, social, and mobile innovations.²⁵

But if innovation is stymied, entrepreneurs will continue fleeing to jurisdictions that offer more clarity. Overly rigid enforcement will then do little more than empower the very scams regulators hope to eliminate. Not only does that hamper the national interest; it also deprives everyday consumers of the opportunities these technologies can create—like cheaper cross-border remittances or robust decentralized networks that no single party can censor or exploit.²⁶

Looking ahead, the path to a well-regulated and thriving crypto landscape will likely involve an all-of-government approach. Agencies such as the SEC or CFTC must facilitate rulemaking processes that reflect the technological realities of decentralized systems.²⁷ Enforcement by conversation, not by ambush, will be essential.²⁸ Meanwhile, the Treasury, Department of Justice, Consumer Financial Protection Bureau, and others must continue to tackle fraud, sanctions evasion, and other illicit uses of crypto without casting a shadow so broad that it snuffs out innovation. Congress, too, can help stabilize this environment by passing balanced legislation that is technologically neutral—tailored to address the unique features of blockchains without punishing responsible builders.²⁹

At the core of these calls is the recognition that policy should foster legitimate usage and disincentivize hollow speculation. With a more measured, rules-based system, tokens of real worth—those that confer genuine product utility, governance powers, or other meaningful value—will have space to flourish. Projects will be able to operate in the open, encourage developer participation, engage with regulators, and, ultimately, foster ecosystems that, if successful, mirror the internet’s original promise of open access, user-driven innovation, and global reach.³⁰

In the meantime, the best practice for founders who wish to put out a token remains: pursue decentralization, abide by thoughtful communications strategies, educate yourself on the intricacies of Regulation S if you need to exclude U.S. users, and possibly use transfer restrictions if you must build toward a more open token structure in stages. Put simply, let decentralization be your North Star.[^31] Even if you start out excluding U.S. users, restricting transferability, or distributing tokens solely to employees and testers under strict guidelines, the entire point is to push the envelope of trustlessness, permissionlessness, and credible neutrality.

Those who heed these norms stand a much better chance of withstanding the scrutiny of regulators, fighting off class-action lawsuits, and, most importantly, delivering real innovation that outlasts the hype. Those who do not risk winding up as another cautionary footnote in the history of the technology’s early days—just another source of “casino” speculation.

Ultimately, a legal regime that supports genuine innovation over empty memes benefits everyone: founders, investors, everyday consumers, and regulators seeking safer, fairer markets. Even in the midst of frequent headlines about arrests, convictions, scam tokens, and forced delistings, the overarching story is one of continuing progress. Responsible entrepreneurs are forging real products and services, lawmakers are beginning to create workable frameworks, and regulators are grappling—albeit unevenly—with how best to adapt mid-twentieth-century rules to decentralized systems. Out of this ongoing tension will emerge a new stage in crypto, one capable of delivering on the promise of tokens as a new digital primitive and of rebalancing power on the internet in ways not seen since the dawn of Web 2.0. If done right, the future of crypto in the United States may indeed be bright.