To call ZORA a “memecoin” is sheer genius or extreme naiveté. Maybe both? In the wild west of crypto, US regulators are in a rush to be the sheriffs. They’re always looking for people to prosecute and make an example out of. Now, Zora’s new token is launching on Base, and it promises to turn heads. This dramatic increase in interest has been paired with an increased regulatory focus on crypto assets.

Is It a Duck or a Rabbit?

The central question is this: Will the SEC see ZORA as a harmless duck, quacking along in the memecoin pond, or as a rabbit in disguise, secretly plotting to become a security? The answer could determine Zora's fate.

Let's be clear. To the SEC and regulators across the globe, unregistered securities offerings are no joke. They certainly are not famed for their exuberity in these affairs. The legal definition of a security is notoriously murky. It usually comes down to whether investors expect to earn a return on their investments from everyone else’s hard work. The Howey Test, anyone?

Zora is walking a tightrope. On one hand, they're explicitly stating that ZORA is a "memecoin" and that it won't confer any governance rights or equity claims. On the surface, this sounds like it is meant strictly for community outreach, as if to offer a virtual community high-five. On the other hand, the token distribution is based on past activity, rewarding users for their contributions to the Zora ecosystem. This would encourage people to hook into the network, hoping to recoup costs down the road. Zora’s “Coins” feature is central to the platform, turning every post into a tradable commodity.

Think of it this way: Is ZORA more like Dogecoin, a purely speculative asset driven by internet hype, or more like a utility token with underlying value tied to the Zora platform? The answer is not at all obvious, and therein lies the regulatory risk.

Regulatory Landmines Ahead?

Marcin, you of all people, with your background in regulatory analysis — you know this isn’t the case. What would happen if ZORA is found to be a security? Here's a glimpse:

  • Fines and Penalties: Regulators can impose hefty fines for non-compliance.
  • Cease-and-Desist Orders: Zora could be forced to halt the distribution and trading of ZORA.
  • Legal Battles: A protracted legal battle with the SEC could drain resources and damage Zora's reputation.
  • Criminal Charges: In extreme cases, individuals involved in the issuance of unregistered securities could face criminal charges. (Unlikely, but not impossible).

It's not just the SEC either. And other regulatory authorities outside of the United States are similarly stepping up their enforcement actions against crypto. Given regulatory uncertainty swirling around this technology, Zora should take into account the future implications of launching ZORA in various jurisdictions.

The Libertarian Contrarian Take

Here's where things get interesting. While regulatory compliance is incredibly important work, we can all agree that overregulation kills innovation. We recognize that crypto is a nascent technology and that overly restrictive rules might stifle the innovation of new and beneficial applications.

Think about it: Zora has already introduced innovative features like Open Editions and auction houses, enabling millions of dollars in creator earnings. With more than 2.4 million unique wallets as collectors and over 618,000 as Creators on their platform, launching billions in secondary volume. Is it really reasonable to hold such an innovative, rapidly growing platform to the same strict regulatory standards as legacy financial institutions?

We know that Zora is pushing the boundaries of what’s possible in the crypto ecosystem. This might create the need for regulators to catch up to a fast-moving environment. Maybe that's a good thing. Or maybe they're being reckless.

The key question is this: Can a project like Zora innovate and thrive while navigating the complex web of regulations?

Navigating the Unknown

Here are a few potential strategies:

  • Seek Expert Legal Counsel: Engage experienced lawyers who specialize in crypto regulation.
  • Implement Robust Compliance Procedures: Develop a comprehensive compliance program that addresses potential regulatory concerns.
  • Engage with Regulators Proactively: Communicate with regulators to understand their concerns and demonstrate a commitment to compliance.
  • Transparency is Key: Be transparent about the purpose and functionality of ZORA.

As a final point, the ultimate success of ZORA will turn on Zora’s willingness to push the envelope on innovation while making peace with regulatory imperatives. Was re-labeling ZORA as a memecoin a clever escape from due diligence at best, or disproportionate punishment at worst? The answer is still unclear.

ZORA is taking an ambitious approach with today’s launch of 10 billion total tokens. This collaborative effort will allocate tokens through on-chain snapshots taken between Jan 1 2020 and Mar 3, 2025, and a 10% retroactive airdrop by April 20, 2025. As this would-be Trump innovation sparks something brilliant, or does it take one fateful step into a regulatory thunderdome?

What do you think? Is Zora really the best thing to happen to innovation since sliced bread, or are they just being dangerously irresponsible? How Congress responds may well determine the future of crypto. Let's discuss.