Money Stuff: Memecoin Venture Capital

A genuine, important and irritating innovation of crypto is that it created a new way to finance companies, or even two new ways to finance companies. Traditionally, if you wanted to launch a business and needed money for it, you would go out to investors, ask them for money, and promise them something in return. There were some standard things you would promise them: a share of the profits (“equity”), or their money back with interest (“debt”), or some blend or variation on those ideas.

And then crypto came along, and now you can launch a business and raise money from investors by giving them tokens. A token is a different sort of promise to investors. What is that promise? Well, there are four main answers:

1. Some tokens are roughly debt: You promise people some fixed return. (This is, approximately, a “stablecoin.”)
2. Some tokens are roughly equity: You promise people a share of the profits of the business. (Crypto exchanges, for instance, sometimes issue tokens and promise to use a portion of their revenue or profit to buy back the tokens, analogous to how companies share their profits with shareholders through stock buybacks.)
3. Some tokens are crowdfunding: You plan to build a product, and you give your investors tokens that will eventually allow them to pay for or use the product. This was not exactly invented by crypto — platforms like Kickstarter allowed crowdfunding without any crypto — but crypto certainly did a lot of it, making it more mainstream and much larger-scale. These tokens are sometimes called “utility tokens,” because the idea is that they will provide some utility — you can use them to do stuff — when your product is ultimately working.
4. Some tokens are nothing. You launch a project, and it has a name, The Bleebzorx Network or whatever, and it has some business plan, and if the plan works it will make money. And then you go out to investors and you say “buy some Bleebzorx Tokens if you believe in my project,” and the investors are like “oh you are a smart founder and your project sounds good, we are interested, what do we get if we buy Bleebzorx Tokens,” and you say “well you get Bleebzorx Tokens.” And the investors, if they come from traditional financial backgrounds, say “no we know we get that, but like, what economic rights do these tokens have? What is their connection to the underlying project?” And you say “oh, nothing, they are just tokens. They just have the same name as the project.” And they say “well will you share your profits from the project with the token holders,” and you say “lol absolutely not.” And they say “well then why would we pay for these tokens? Even if the project succeeds beyond our wildest expectations, why would that make the tokens worth money?” And you say: “It just will. People will be like ‘oh, the Bleebzorx Project is good, we’d better buy some Bleebzorx Tokens.’ So they’ll buy tokens and the price will go up. They won’t overthink it, so neither should you. Just buy the tokens and you’ll make money.” Loosely speaking, these tokens are called “meme tokens,” or “memecoins”: They have some memetic association with your project, but no economic rights.

And you can combine these categories in various ways. [1]  We have talked about the third category, utility tokens, a few times around here; it is what people commonly think of when they think that crypto created a new way to finance companies. Selling tokens to use the company’s product, in order to raise money to build that product, was an important innovation of crypto. These tokens, I once wrote, are “like if the Wright Brothers sold air miles to finance inventing the airplane.” And because these tokens were also a speculative investment, this created a new economic model. “Tokenomics,” people sometimes called this idea that every customer of a company could also be a speculator.

But today I want to talk about the fourth category, tokens promising no rights. The main points I want to make about this category are:

• It is genuinely novel. People did not raise money like that, before.
• It is, from first principles, stupid.
• It works. It doesn’t have to make sense! It works! It is just empirically true that some person or thing or meme will get attention, and its associate memecoin will go up, the end. We have talked about this theme several times before. It has never made sense, but it has often worked, at least for a little while.

Now, what do you do with this information? Perhaps you find it irritating and try not to think about it. Perhaps you get into speculative memecoin trading, trying to ride the waves of attention that push up the prices of memecoins. Or perhaps you take advantage of it by starting a business, issuing tokens to fund the business, promising absolutely nothing to buyers of the tokens, using their money to build the business and keeping all of the profits for yourself. Seems fine! If people want to give you money, take it.

People do that, but it requires a somewhat unusual combination (not that unusual): You have to both have some idea for a useful business and have the crypto savvy and brazenness to do this token thing. The financial industry is normally more specialized than that. There are people who start businesses, and there are other people who provide financing for the businesses.

And so another thing you could do is become, as it were, a venture capitalist of vaporous tokens. Your business is to go out and find people starting interesting businesses and offer them a financing proposition. The financing proposition is something like: “We will give you money in exchange for a 0% stake in your business. You will get the money and that’s it, the end. In exchange, we will take a cut of the money that we give you.”

Is that pitch compelling? I mean? 

1. I would find it compelling — free money! — if I believed it.
2. I would have a hard time believing it.

And yet. On Jan. 1, Steve Yegge, a famous software developer and writer, announced a project called Gas Town, which you might approximately describe as “an IDE for vibe-coding.” People seem to like it. Yegge did not raise a bunch of money to build Gas Town; he built it himself, apparently for fun. His plans to monetize it were, as far as I can tell, quite vague, in that optimistic open-source-y “if you build something cool the money will work itself out” sort of way. (“I’ve already started to get strange offers, from people sniffing around early rumors of Gas Town, to pay me to sit at home and be myself,” he wrote, though also: “I shared Gas Town with Anthropic in November.” If you build something cool in artificial intelligence these days, the money really does work itself out.)

And then he got a LinkedIn message. The LinkedIn message said that someone had set up a token “for” Gas Town on a crypto platform named, delightfully, Bags. The way Bags works is that anyone can set up a memecoin, and then maybe people will trade it, and if they trade it the platform will collect fees, and whoever sets up the memecoin can collect those trading fees, or direct them to whomever she wants to get them. So someone set up a Gas Town token — “$GAS” — on Bags, and directed the fees to Yegge. Millions of dollars’ worth of $GAS traded, for some reason, generating tens of thousands of dollars of fees waiting for Yegge. As he wrote last week:

In other words, this unknown Internet Person was telling me that blah blah blah blah stuff stuff stuff blah there’s a lot of money waiting for me blah blah blah more stuff… as long as I buy some Solana to unlock my earnings.

Woah, what am I, some sorta dumbass? Well yeah, actually. So I went for it.

Long story short, I actually did claim my earnings this morning; the total was up to $68k by then, and it’s $75k now. And by the time this post makes the rounds, well, let’s just say I’m going to have some more claiming to do. ...

Would you like to know more? I’ve been studying this from all angles and it’s still one of the weirdest things I’ve encountered. Allow me to get richer just by telling you about it. Maybe the catch is I’ll go to jail! 

What is going on here? Well. $GAS seems to be a pure memecoin. Sean Goedecke writes:

So what does $GAS have to do with Gas Town … ? From a technical perspective, the answer is nothing. Gas Town is an open-source GitHub repository that you can clone, edit and run without ever interacting with the $GAS coin. … Buying $GAS … does not unlock any new capabilities in the tools. All it does is siphon a little bit of money to Yegge … and increase the value of the $GAS … coins.

You do not buy $GAS for utility. You also do not buy it because Yegge has promised to repay your money with interest, or to share his profits from Gas Town with token holders. For one thing, he seems to have no plans to profit from Gas Town; for another thing, he wasn’t even involved in launching $GAS. $GAS is not, in any traditional sense, an investment in Gas Town.

Instead, you buy $GAS because you think other people will; because you think it will get attention and be a meme. Why would that happen? Well, for one thing, Gas Town got a lot of attention, particularly from the pretty online types who buy memecoins, and $GAS is named after Gas Town, so, by the loose logic of memecoins, it should go up.

But, for another thing, Yegge eventually posted about it. Not — apparently — because he had anything to do with its creation, or because it has anything to do with Gas Town. But because someone sent him a LinkedIn message about it, and the LinkedIn message promised him money, and the money was there. So he posted about it, knowing that doing so would drive attention to $GAS, which would drive more trading of $GAS, which would make him more money. “Allow me to get richer just by telling you about it,” he wrote, correctly. (As of about noon today it had generated more than $290,000 of earnings for him.) That’s how memecoins work! You own them, you tell people about them, you get richer.

Why did someone do this? Why did someone create $GAS, and why did they (or someone else) message Yegge about it? Why did the creator allocate 99% of the trading fees to Yegge, rather than keeping them for herself? Presumably the creator gave Yegge the trading fees to (1) make it seem more legitimately connected to Gas Town and (2) entice Yegge to post about it. And presumably the creator kept, not the royalties, but a lot of $GAS coins for herself. You set up the coin, you distribute some, you keep a lot yourself, you generate some royalties, you send it to Yegge, you get him to post, the coin goes up and you sell at a profit. The price of $GAS spiked from less than $0.01 to more than $0.04 when Yegge posted about it, peaking at a market value of about $40 million. (Then it collapsed again and now it’s back below $0.001, which is the normal fate of a memecoin.)

As Yegge and Goedecke point out, Yegge is not alone; another researcher built another AI project and got retroactive funding from a Bags memecoin. It is … memecoin venture capital? You have a certain sort of specialized financial expertise, you find founders with a promising business, you offer them financing, and if things work out you get a big return on your investment. Of course your investment is nothing, and they promise nothing in return, but somehow you both make money.

Well sure:

The New York Stock Exchange is building a venue using blockchain technology to allow for trading tokenized stocks and exchange-traded funds around the clock.

NYSE, which is owned by Intercontinental Exchange Inc., plans to use its existing technology that matches buyers and sellers, combined with private blockchain networks, to facilitate the trading of tokenized securities in real-time, according to executives. The company is looking to launch the new digital trading platform later this year, pending regulatory approval.

“This reflects an evolution of NYSE’s trading capabilities which went from trading floor, to electronic order-book, to blockchain,” Michael Blaugrund, vice president of strategic initiatives at ICE, said in an interview. “It allows for new types of investor accessibility, and will create new opportunities for retail to participate in the stablecoin-funded markets that have attracted their attention.” …

“We think it aligns with the retail investor’s emerging desire to be able to trade something at 5:04 p.m. on a Saturday and then use that money to buy something else at 5:05 p.m. on a Saturday,” Blaugrund said. “This would facilitate that trade in a way that traditional equity infrastructure cannot.”

Stock trading, traditionally, has two parts. There’s the trade, where you and I agree to exchange $180 for one share of Nvidia Corp. or whatever. And then there’s the settlement, where I actually hand you the $180 and you hand me the Nvidia share. In the very olden days, that settlement might have taken place in physical reality — I’d hand you nine crisp $20 bills; you’d hand me a fancy paper stock certificate — but for decades now it has occurred electronically: A bank deducts $180 from my account and adds $180 to yours; a stock custodian deducts one share of Nvidia from your account and adds it to mine.

There are a lot of people employed in the financial industry whose jobs involve doing settlement, or at least caring about how settlement works. These days, in the US stock market, it takes about a business day: If we agree on a trade on Tuesday, the settlement will happen on Wednesday, and settlements don’t happen on weekends or holidays. In the intervening hours, a lot of people have to do a lot of stuff to, you know, move those database entries around.

This stuff is not, to be fair, purely trivial and administrative. It’s not just updating some databases. Professional traders are doing a lot of borrowing — of money to buy stocks, and of stocks to sell short — and they often need that day to line up their borrowing so they have enough cash and shares to make their settlements work. 

But if you are just a normal person trading stocks in your Robinhood account, you will find this a bit counterintuitive:

1. Your stocks live in a computer database, and you can see them on your Robinhood account screen.
2. Your money lives in a computer database, and you can see it on your Robinhood account screen.
3. You just did a trade in your Robinhood account.
4. Why does it take a whole business day to update the databases? 

You will sort of expect “real-time settlement,” where, if you sell a share of stock for $100, you will be able to spend the $100 immediately. “This is just computers adding a number in one database and subtracting a number in another database,” you will think. “Computers are fast, so how long can that take?”

And, again because all of this happens on your phone and you expect your phone just to work, you will expect this to be available at all hours. “This is just pushing buttons on an app on my phone,” you will think. “Why should that app stop working at 4 p.m. on Friday and not start up again until 9:30 a.m. on Monday?” 

And I could tell you various bits of arcana about leveraged trading firms and recalls of stock borrow and limited liquidity in off-peak hours and blah blah blah, but you’ve got a point there. Better to just give you what you want. “The retail investor’s emerging desire to be able to trade something at 5:04 p.m. on a Saturday and then use that money to buy something else at 5:05 p.m. on a Saturday” is, you know, annoying to financial-industry professionals, but it is not unreasonable, so they’re working on it.

One simplified model of Silicon Valley is that:

1. What venture capitalists are selling to founders, more than money or operational assistance, is status: If you raise a large round from a reputable VC firm, that validates your status as an important tech founder.
2. What founders are selling to venture capitalists, more than investment returns, is status: If you were an early investor in a hot giant startup, that validates your status as an important venture capitalist.

At some level this is stupid; at another level it is surely most of what most people are thinking about most of the time. People mostly want to be admired by their peer group, and, above some bare minimum, money is mostly useful as a way to achieve that.

Obviously the main way for VCs to confer status on founders is by running large funds with good track records, and the main way for founders to confer status on VCs is by starting good companies that go public at large valuations, but all that stuff is hard and you can tinker about the edges. If the essential currency is “impressing other people in Silicon Valley,” you can do stuff that is (1) directly impressive to people in Silicon Valley but (2) otherwise unrelated to building a good tech business.

On Wall Street, this largely takes the form of golf, and I suppose that in Silicon Valley there are other social rituals (rock climbing? ketamine?) that can get you similar access to deal flow, but my impression is that the most useful — and easiest, and most scalable — approach, in the tech industry, is being good [2] at social media. We talked a few years ago about how important it is for venture capitalists to be good at Twitter. I wrote that, if you are a VC, “the basic thing that you’re offering” to a founder “is yourself, your advice and wisdom and presence and, if applicable, fame”:

If you are a venture capitalist it is good to be a dynamic brilliant celebrity, because that will get you deal flow.

And by “be a dynamic brilliant celebrity” I mean, of course, “write good tweets on Twitter,” since that is where venture capitalists go to make jokes and impart wisdom, and where startup founders go to find venture capitalists.

Specifically we were talking about people who ghostwrote tweets for venture capitalists, because this work is actually pretty easy to outsource. Since then, Twitter has been renamed X and become vastly more edgelordy, and I suppose you can still win business on X, but the degree of difficulty has gone up. But there’s always LinkedIn. The Information reports:

[LinkedIn] has become a popular place for the capitalistic set to burnish their image and reputation—so much so that increasingly many of them are willing to hire some help in the form of a LinkedIn ghostwriter.

“Investors, employees can all be reading a single post from an executive in San Francisco or in Singapore but have no idea that it was actually highly engineered here in New York by a team of 30 people,” said Alice Luu, associate director of strategic communications at New York–based ghostwriting agency Manhattan Strategies.

Charging anywhere from around $1,000 to over $100,000 a year, these experts make it their business to learn the intricacies of LinkedIn’s ever-changing algorithm, the optimum posting rate (recommendations range from once a week to daily) and the best things to say (the general consensus: Be as authentic as possible). The best LinkedIn posts have real subtlety, argued Dov Marmor, CEO of ghostwriting firm Quiltmind. Instead of blatantly promoting your company as in traditional ad campaigns, the goal of LinkedIn marketing is to establish a long-term relationship with potential clients by “talking to them three times a week, every week,” he said, “in a nonintrusive way.”

The best way to promote yourself on LinkedIn is to “be as authentic as possible,” and the best way to do that is probably to hire a ghostwriter.

A few months ago, someone told me that they had heard a rumor that a bank or hedge fund had banned its traders from taking Ozempic, Wegovy and other GLP-1 weight-loss drugs. The theory, as I understood it, was something like “traders need to make quick decisions based on gut instinct, and GLP-1s mess with your gut instincts.” You’re not hungry for snacks, you’re not hungry for profits, you lose your edge. I have not confirmed this rumor, or heard it from anyone else, but se non è vero, è ben trovato. (If your job bans you from taking GLP-1s, do let me know!)

Similarly (via Emily Sundberg), gallerist Ellie Rines apparently told art newsletter the Baer Faxt that GLP-1s are bad for her business: “I’m still in the impulse sector over here — and if someone can turn down a cookie, they can turn down the delicious satisfaction of buying an artwork, too.” This is intuitively plausible to me, and also I wonder if it is a useful theory of, like, crypto prices, or meme stocks. If the mechanism of GLP-1s is not so much “you lose weight” but rather “you stop doing stuff that is mindlessly enjoyable but that you know is bad for you in the long run” — if they essentially improve decision-making — then, you know, watch out. Though in that case surely the traders should take them.

Wall Street’s Calm Shattered by Greenland and Japan Shocks. Netflix Amends Warner Bros. Deal to All Cash in Bidding War. Thinking Machines Exodus Tests Investor Appetite for a $50 Billion Valuation. Sequoia targets major Anthropic investment. Commercial Builders Are Losing Their Appetite to Build Anything but Data Centers. Even MBAs From Top Business Schools Are Struggling to Get Hired.  Hohn Breaks Citadel’s Record With $18.9 Billion Trading Profit. Private credit investors pull $7bn from Wall Street’s biggest funds. BlackRock Offers Senior Executives New Pay Perks for Private Markets Expansion. JPMorgan, Citi Weigh Ending Fixed Pay Allowance for Key UK Staff. Fannie, Freddie Stock Woes Deepen as IPO Questions Mount. Goldman Sachs Grapples With Top Lawyer’s Epstein Problem. Elon Musk asks followers if he should buy Ryanair. “Like, if you want the company, then just go down to Florida and ask your father for more money.” Scammers Dupe Billionaires Seeking Access to Trump in Davos. “His safe word became a recurring punchline among Rubin’s acquaintances at the time, appropriated by jokesters to mean ‘no.’”

If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks!