# Regulation Arbitrage is Crypto's Only Use Case *Crypto is mostly used for things we deemed illegal or monitored closely to minimize harm* By [Everett Caldera](https://paragraph.com/@evcaldera) · 2024-09-30 --- People working in crypto want you to believe there are real use cases. I, on the other hand, believe that the only real existing use cases are directly connected to avoiding various regulations and profiting from this.  Everybody knows this but nobody in the industry says this out loud.  I worked within the industry in 2017 at the height of the ICO frenzy. Practically all those projects sold literal securities and should have been immediately busted by the SEC. Crypto enabled the teams not only to sell “shares” in their projects but also to advertise this investment opportunity to the general audience.  SEC prohibits general solicitation for private companies. Crypto showed us why. Imagine every billboard and TV ad sharing exciting investment opportunities you can commit to right away. In the real world, only accredited investors and organizations can invest in private companies, exactly because most companies will fail but they at least can bear the losses. Regular people can invest when companies get public, exactly because they have proper governance, transparency and a lot of oversight.  Meet our friend, Regulation Arbitrage! By hiding under the veil of a novel technology platform, crypto projects were able to avoid the expected oversight. And crypto attracted the right kind of grifters to leverage this. Imagine this dialogue: – 'Do you know why I pulled you over?' – 'Officer, you don't understand. We're not selling shares, we're selling access to our software protocol, and the fact the price of this token you speak of is closely related to our financial performance is pure coincidence!' There are exactly two reasons to send payments in crypto. First, if you live in a region where banking practically doesn't exist. While there are places like these on the face of the Earth, a far more appealing reason is to avoid paying taxes. Banks follow KYC/AML regulations, so they'd report on you, especially if you are an American citizen. Without crypto, the only real alternative is cash. Crypto gives you digital money but doesn’t ask for your ID, and people value it, even if the process is more complicated. Regulation arbitrage! Now, Bitcoin and Ethereum aren’t securities. But if your project has a token used for governance and gets a direct boost from the protocol’s revenue, either directly or indirectly, like if you’re using the revenue to buy out the token from the market and burn it… Of course, it’s security! That’s literal stock! Most projects try to position their token as a “utility token”, but most have no utility at all. In fact, they’re extremely afraid to actually require their token to be used. Regulation arbitrage! And now, millions of people have seen the Bitcoin price chart and want to become millionaires themselves. Any investment market is a zero-sum game; the only way to “realize” your gains is by selling them to the next bloke.  This flood now funds the entire crypto ecosystem. Nobody is taking a mortgage or a car loan on MakerDAO. Imagine getting a loan with a collateral that exceeds the value of the said loan! This only works as long as everybody believes the prices will go up. Crypto lending fuels speculation, not productive activities.  Somehow, working in crypto is now one of the best ways to make money. But you need to build, not use crypto. Don’t confuse these things! Crypto projects enjoy enormous valuations, and it’s not rare to see a Seed stage project headed by a team of literal morons and an FDV over $50 million. Investors also want to jump on the same rocket! And they’re ready to compete with other investors for slightly better opportunities. Unlike venture, crypto tokens get liquidity much quicker. Build a half-competent L2, and suddenly, it’s worth hundreds of millions, and you can retire for good.  Most crypto projects fall into one of several categories: store of value, money transfer, lending, speculation, and finally, crypto infrastructure, which is probably the largest. Everybody is building infrastructure. Infrastructure for what? All of them can tell you, yet nobody knows. We’ve drastically increased the overall throughput of Ethereum and rollups and spent it on the same speculative things. We didn’t know exactly what could be built with 4G, but faster Internet seemed convincing enough on its own.  ICOs have been replaced by airdrops. Some early airdrops like ENS worked nicely precisely because nobody expected them. Most recent ones, like Eigenlayer, were disappointing. Because airdrops have become a cornerstone of anyone's strategy. And so you build a token so you could have an airdrop, not because your project actually needs one. People have learned to farm them and expect an airdrop the minute your project has a Twitter account. Remember that everything is priced in. The only purpose of airdrops is to create liquidity for the token… so its owners can become the exit liquidity for the project’s team and investors.  American venture capital firms really want Trump because he’s expected to make crypto more legal and free up their gains. Andreessen Horowitz would literally gaslight you with carefully built marketing reports posed as research to prop up their own investments. And none of these projects are as useful as the web browser.  There’s a sliver of projects that build something meaningfully interesting in crypto. Still, most would live just fine without a token or position themselves as a decentralized protocol while offloading all the key functionality off-chain, so they’re no more decentralized than Bluesky.  Now, arbitrating regulations is certainly useful sometimes. But there's a reason crypto people pull their eyes away from this. Nobody would care much about crypto if they accepted this reality. --- *Originally published on [Everett Caldera](https://paragraph.com/@evcaldera/crypto-regulation-arbitrage)*