Memecoins are cryptocurrencies belonging to online communities, mostly used for humorous purposes. You’ve probably heard of Dogecoin, which is based on the old “doge” meme featuring images of Shiba Inu dogs. This type of memecoin incorporates aspects of internet culture and is mostly harmless. Any meme generator can easily create, launch, and even automatically list tokens. But entrepreneurs trying to build something that lasts?

Think of it this way: If we had a securities market with only meme stocks like GameStop encouraging investment and rejecting companies like Apple, Microsoft, and Nvidia, we’d view that as a policy failure. While current regulations encourage platforms to list memecoins, they do not list other, more useful tokens that enable individuals and communities to own internet platforms and services. But regulatory uncertainty in the crypto sector has platforms and entrepreneurs fearing that the more efficient blockchain tokens they list or develop could suddenly be considered a security.

So why do we prioritize memes over important issues? U.S. securities laws do not give the Securities and Exchange Commission (SEC) the authority to make value-based decisions about an investment. Nor is it the SEC’s job to completely eliminate speculation. Instead, its job is to protect investors; maintain fair, orderly and efficient markets; and to facilitate capital formation. The commission fails on all three of these goals when it comes to digital asset markets and tokens.

The primary test the SEC uses to determine whether something is a security is the 1946 Howey test. This test evaluates a number of factors, including “a reasonable expectation of profit from the management efforts of others.” Take Bitcoin and Ethereum for example: although both crypto projects started with the vision of a single person, over time they have evolved into developer communities that are not under anyone’s control - so potential investors do not have to rely on anyone’s management efforts. These technologies now operate more like public infrastructure rather than proprietary platforms.

Unfortunately, other entrepreneurs building innovative projects do not know how to qualify for the same treatment as Bitcoin (2009) and Ethereum (2013-2014). These are the only major blockchain projects that the SEC has determined explicitly or implicitly do not require management effort. The SEC approach has led to great confusion and uncertainty in the industry. While the Howey test is logical, it is actually subjective. Since Memecoin projects do not have developers, Memecoin investors have no claim to trust anyone’s management efforts. Therefore, while memecoins are spreading, more innovative projects face many challenges.

What is wanted is not less regulation, but better regulation. One solution is to add well-tailored disclosures to provide investors with more information. Another solution is long lock-up periods to prevent get-rich-quick schemes. Regulators implemented similar safeguards after the 1929 stock market crash. With these safeguards in place, we have seen a period of unprecedented growth and innovation in our markets and economy. Now is the time for regulators to learn from the mistakes of the past.