Deciphering Ponzi Schemes in the Crypto World

• Understanding Ponzinomics in the Crypto Sphere
• The Ohm Controversy
• What is Ponzinomics?
• Ponzinomics in Multi-Level Marketing
• Ponzinomics: Not Always Negative?
• When Does Ponzinomics Becomes Fraud?
• The Tale of HyperVerse
• Conclusion

Understanding Ponzinomics in the Crypto Sphere

The ongoing crypto bull market has sparked debates around the nature of Ponzi schemes and their relation to blockchain protocols. Prominent figures from the "Crypto Critics Corner" podcast as well as crypto traders and meme creators have engaged in heated discussions about the validity of "ponzinomics" in the financial and crypto arenas.

The Ohm Controversy

The debate was triggered when the then trending crypto project, Ohm, was compared to a Ponzi scheme due to its unusual attempts to foster adoption. While the comparison was intended to affirm Ohm's financial incentives, it was met with resistance. The potential success of Ohm could establish it as a reserve currency across DeFi, similar to the role the U.S dollar plays globally.

What is Ponzinomics?

Ponzinomics, though not officially recognized, is a term used to describe a project that encourages adoption through implicit or explicit promises of wealth. The term is derived from the investment fraud named after Charles Ponzi, who promised high returns to investors, using the funds of new investors to pay off the older ones.

Ponzinomics in Multi-Level Marketing

Author Robert FitzPatrick popularized the term ponzinomics in his book about multi-level marketing (MLM) schemes. He argued that companies like Nutrilite and Amway function like financial pyramids, primarily generating income through deceptive recruiting techniques.

Ponzinomics: Not Always Negative?

Ponzinomics might not necessarily be harmful if the capital is used productively. Still, it inherently increases risk for later adopters who may face the collapse of a financial system unless it can be made sustainable.

When Does Ponzinomics Becomes Fraud?

The line between ponzinomics and illegitimate fraud is often blurred. One recent example is the U.S. Securities and Exchange Commission's indictment of HyperVerse. After the scam collapsed, it was discovered that Sam Lee, an Australian "blockchain entrepreneur," operated a scam defrauding investors of $1.89 billion.

The Tale of HyperVerse

HyperVerse has garnered attention due to the significant losses incurred and its bizarre nature. The operation involved paid actors impersonating CEOs and endorsements from celebrities. The SEC described HyperVerse as a pyramid and Ponzi scheme that lured investors with high returns from crypto mining and other false promises.

Conclusion

As the crypto market evolves, it becomes increasingly crucial for investors to recognize and understand the implications of ponzinomics. While some may argue for the potential benefits, the risks posed to late adopters and the increased likelihood of financial collapse cannot be ignored.

Edited by Jonathan Stoker