Why the Short Squeeze Myth of Stock-Paired Meme Coins Is Doomed to Fail

Original author: David Christopher

Original translation: Saoirse, Foresight News

Unfortunately, the grand vision the market holds for stock-paired meme coins is ultimately unattainable.

For readers who may not be familiar with the background, I'm referring to a widely circulated narrative in the market: a short squeeze in on-chain stock supply can transmit its effect to the real stock market. But regrettably, the underlying mechanism is designed in a way that makes this impossible.

If you weren't following market movements last weekend, you likely missed that absurd price dislocation. A liquidity pool is essentially a one-in, one-out trading mechanism. When users buy meme coins like BONER that are paired with tokenized stocks (TEQ), large amounts of capital get locked in, thereby monopolizing the circulating supply of the paired stock tokens. Supply gets extremely compressed, directly driving the token price violently upward.

AMC's stock token once surged to $166.86, while its real stock closed at just $2.59 last Friday. HIMS's situation wasn't as extreme, but it was equally bizarre: the on-chain token peaked at $132.64, while the real stock closed at $28.84 on Friday, and prices only returned to rationality when traditional markets opened on Monday. The on-chain prices of the two reached approximately 64 times and 4.6 times their real stock prices, respectively.

Over the past few days, this phenomenon of "monopolizing token supply" has ignited market imagination, with particular attention on what chain effects it could have on heavily shorted stocks. Could a group of fervent meme coin holders push token prices extremely high, relying on locked tokenized shares to not only complete a short squeeze on-chain but also transmit the squeeze effect to the real stock market?

Unfortunately, the answer is no.

BONER hoarded Robinhood's on-chain HIMS tokens, and over the weekend the on-chain token price surged to 4.5 times the real stock price in an attempt to create a short squeeze. The attached chart shows the huge divergence in price trends between the two.

Why the Short Squeeze Strategy Doesn't Work

The first core problem is the size disparity. The circulating supply of most TEQ tokens is negligible compared to the corresponding underlying real stock volume. Taking BONER as an example, it has accumulated 53% of HIMS stock tokens. This percentage looks astonishing, but when converted, it only accounts for about 0.014% of HIMS's total real share capital.

Even if the token scale were to grow further, there is an even more fatal problem: controlling stock tokens does not mean controlling real stocks.

The stock tokens issued by Robinhood are backed 1:1 by real stocks held in custody accounts. Users only gain price return exposure and do not own the stocks themselves. So when BONER deposits a large number of HIMS stock tokens into a liquidity pool, it only causes scarcity of on-chain stock tokens and does not make real HIMS stocks scarce.

Once token scarcity pushes the on-chain HIMS price far above the real stock price, Robinhood's authorized participants can mint new stock tokens and arbitrage the price difference. Minting new tokens does require purchasing additional real stocks as underlying backing, so the issuance will bring a small amount of buying to the underlying stock. But hoarding existing tokens does not in itself force the purchase of an equivalent amount of HIMS actual shares. Its main result is to prompt the platform to issue more stock tokens, expand token supply, and pull the on-chain token price back toward the real stock price.

Last weekend's market movements have already confirmed this: HIMS tokens could break above $100 on-chain, while the real HIMS stock price still hovered around $29. After traditional markets opened, about 4,000 new HIMS tokens flowed into the market, and the huge on-chain/off-chain price gap quickly disappeared.

Of course, the legendary short squeeze is not forever impossible. The premise is that we need a TEQ infrastructure with a stronger binding to real equity.

What a More Complete TEQ (Tokenized Equity) Should Look Like

Ironically, the solution currently closest to this goal appears on the Solana public chain.

Last year, Galaxy partnered with Superstate to migrate GLXY on-chain. The difference between the two is straightforward: Robinhood gives users tokens that track stock prices; under the Galaxy model, the token itself is the stock.

Original Galaxy shareholders can convert their GLXY into the on-chain version of GLXY. These on-chain tokens are actual Galaxy Class A common shares, with exactly the same legal rights, economic benefits, and voting rights as traditional GLXY. When tokens are transferred and settled, Galaxy's official shareholder registry is updated simultaneously.

This makes the connection between on-chain and off-chain markets much more direct. Transferring on-chain GLXY is equivalent to transferring equity itself, rather than merely generating a mirror certificate of the stock.

However, Galaxy's solution is not yet fully mature. At this stage, its on-chain shares can only be transferred between approved wallets, and Galaxy has not yet opened permissionless automated market maker (AMM) trading.

Discussing the conditions for an on-chain short squeeze, pointing out that current tokenized stocks like Robinhood's are merely price-accounting IOUs, not real equity, and cannot achieve a true short squeeze.

What Is the Real Value of Stock-Paired Meme Coins

So, is all this merely a fresh gimmick for speculators to hype capital?

I don't think so.

The short squeeze effect is just the narrative that the public first chased and found most exciting. Even if a short squeeze cannot be achieved, the binding of stocks and tokens still gives rise to entirely new market logic.

Eric Conner proposed a mainstream view: these meme coins can become decentralized marketing tools for the corresponding listed companies. Token holders will spontaneously track earnings reports, product developments, short interest, industry news, and all information related to the underlying stock, while producing a large amount of memes and content.

But this model has obvious limitations. The name BONER may fit Hims's product tone very well, but a medical listed company pursuing mainstream market credibility can hardly publicly embrace a token named "BONER."

Believing that every stock will eventually have a corresponding meme coin community, and that such communities can bring communication dividends to listed companies, and reposting podcast content related to the surge of HIMS on-chain tokens.

But there is a middle ground in reality. Today's excellent companies all understand guerrilla marketing. Token communities will spontaneously form communication channels, and companies do not need to acknowledge them, let alone control them.

The second, and more interesting, development direction: building TEQ into a new financial and gamified underlying component.

NetNet Capital proposed the concept of "RW-Play," the core of which is to use tokenized stocks as programmable modules within games and DeFi products. COINflip uses tokenized Coinbase stock as winner rewards; SpaceX Invaders distributes tokenized SpaceX stock as prizes; MSFT Flight Simulator rewards tokenized Microsoft stock.

Tokenized stocks are no longer limited to simple buy-and-hold; they can also serve as trading pairs, collateral, reward prizes, and liquidity sources, embedded in all kinds of new applications.

The current market mostly just replicates the old DeFi playbook of 2020 with new assets. But what is more worth thinking about is what the market will evolve into when TEQ develops its own native underlying components.

Setting aside the on-chain surge in Robinhood's K-line, the combination of stocks and tokens can be considered a highly original innovation in the recent on-chain space. At this stage, Robinhood's stock tokens make that chain the main battleground for this track, but this position will not remain unchallenged forever.

Galaxy has already proven that Solana can host TEQ deeply bound to real equity, and the Base public chain will likely launch its own similar solution in the future. The core of competition in this track is not about who puts more stocks on-chain, but about who builds a more valuable bridge between on-chain assets and real equity, and ultimately, who can uncover more interesting application scenarios for tokenized stocks.

It is very interesting to witness the birth of a completely new narrative. There are certainly opportunities for speculative profit here, but more importantly, a large number of unprecedented financial mechanism designs will emerge in the future.

Robinhood's co-founder stated that Robinhood Chain is positioned as a high-quality RWA real asset chain, while also accommodating meme coin-style speculative play.