The Squeeze of Memecoins Paired with Stocks is a Lie

The Squeeze of Memecoins Paired with Stocks is a Lie

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I regret to inform you that the great ambitions of our memecoins coupled with actions will not come true.

For those who don’t know what I’m referring to, I’m talking about the broadcast program that squeezes in the supply of on-chain inventory trickle down to “real” inventory. Unfortunately, the mechanics are simply not suited to this.

If you were offline last weekend, you will have missed the wacky price upsets that happened. Since liquidity pools are essentially a one-and-done, when people purchased memecoins like BONER that were paired with tokenized stocks, or TEQ, pronounced “tech,” they effectively parked and then cornered the supply of their associated stock token, leading to immense rallies from extremely limited supplies.

AMC Stock Token briefly hit $166.86, although the actual stock closed Friday at $2.59. HIMS was less extreme, but still absurd, settling at $132.64 from Friday’s close of $28.84 before coming back down to earth once markets reopened on Monday. This is approximately 64x and 4.6x their respective off-chain prices.

In recent days, this “supply grab” has sparked enthusiasm about second-order effects, particularly on heavily shorted stocks. Could a wild and brave group of memecoin holders raise the price so much that the cornered tokenized supply would not only cause a short squeeze on the chain, but also a decline?

Unfortunately, the answer is no.

Why compression doesn’t work

The first problem is simply one of scale. Most TEQ supplies remain tiny relative to their underlying stocks. BONER, for example, accumulated 53% of HIMS stock tokenswhich seems incredible until you realize that this equates to only ~0.014% of actual HIMS shares.

But even on a larger scale, there is a bigger problem: cornering the Stock Token doesn’t cornering the stock.

Robinhood Stock Tokens are backed 1:1 by the underlying shares held, giving price exposure rather than ownership of the stock itself. So when BONER puts a large portion of HIMS stock tokens into its liquidity pool, it makes the stock tokens scarce, not the HIMS itself.

If this scarcity pushes the tokenized HIMS well above the actual stock price, Robinhood’s authorized participant can create more stock tokens to arbitrage the gap. These new tokens require additional shares to support them, so a new issuance can create some demand for the underlying stock. But hoarding existing tokens does not in itself require equivalent purchases of HIMS. Instead, the main effect is to encourage the issuance of more stock tokens, thereby increasing the wrapper supply and bringing its price back toward the actual stock.

The weekend basically proved that. HIMS could trade above $100 on-chain, while real HIMS remained around $29. Once the markets reopen, around 4,000 new HIMS tokens entered the marketand the gap quickly disappeared.

So the legendary short squeeze is not impossible forever. We just need TEQs with much stronger links to real equity.

What would a better TEQ look like?

Ironically, the closest configuration seems to be on Solana.

Last year, Galaxy worked directly with Superstate to bring GLXY on chain. The difference is quite simple: Robinhood gives you a token that tracks a share. With Galaxy, the token East the part.

Current Galaxy shareholders can convert their current GLXY to onchain GLXY. These tokens remain true Class A Galaxy ordinary shares, with the same legal, economic and voting rights as traditional GLXY. When the token changes hands, Galaxy’s official ownership records change with it.

This makes on-chain and off-chain markets much more directly connected, as moving GLXY on-chain moves the stocks themselves rather than just creating another representation of them.

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But Galaxy isn’t there yet. Currently, its on-chain shares can only be moved between approved wallets, and Galaxy did not enable AMM trading without permission.

So, what are stock-paired Memecoins used for?

So we have to ask: is this simply a novelty that gives speculators a reason to deploy capital?

I don’t think so.

The short squeeze is probably the most exciting mechanism that people latched onto first. But even without this, the association of shares and tokens creates a real new dynamic.

A dominant theory, presented by Eric Conneris that these memecoins could become decentralized marketing machines for their sister companies. Holders naturally start following earnings, products, short interests, news, and anything else related to the stock, producing memes and content around it along the way.

There are obvious limitations here. BONER may be perfectly aligned with Hims’ product line, but a public healthcare company trying to build credibility with the general public might not want to officially adopt a “BONER” token.

However, there is probably an intermediary. The best companies today understand guerrilla marketing, and these communities create an organic distribution channel without the company necessarily having to recognize it, let alone control it.

The second path, probably the most interesting, consists of transforming TEQs into new financial and fun primitives.

This is already happening. NetNet Capital invented its version “RW-Play”, essentially using tokenized stocks as programmable elements in games and DeFi products. Its COINflip pays winners in tokenized Coinbase shares, SpaceX Invaders pays in tokenized SpaceX, and MSFT Flight Simulator pays in tokenized Microsoft.

Instead of just buying and holding stocks, they can become trading pairs, collateral, prices, liquidity, or elements in entirely new applications.

Right now, people are largely returning to the OG 2020 DeFi playbook with a new asset class. But the more interesting question is what will happen once TEQs start developing their own primitives.

Ripe Brings Old-School DeFi Farming to the Robinhood Chain on Bankless

Ripe Protocol brings classic DeFi liquidity mining back to Robinhood Chain.

Beyond the huge candles that people have accumulated on Robinhood Chain, this interaction between stocks and tokens appears to be one of the most unique things to happen on the chain in some time. Robinhood Stock Tokens makes its channel the default home today, but I doubt that position goes unchallenged.

Galaxy is already showing that Solana can support TEQs with much stronger ties to actual off-chain stocks, and I would expect Base to experiment with models of their own. The competition will not only be about who puts the most actions on-chain, but also who builds the most meaningful bridges between their on-chain and off-chain forms, and ultimately who gives people the most interesting things to do with them.

In the end, it’s nice to be present at the birth of a new meta. There are plenty of opportunities to make money, but more importantly, plenty of opportunity to see what entirely new mechanics will be designed.

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