During
last
crypto
bull
market,
I
got
into
an
argument
with
a
few
people
I
admire
—
the
co-hosts
of
the
“Crypto
Critics
Corner”
podcast
Bennet
Thompson
and
Cas
Piancey
and
pseudonymous
crypto
trader
and
renegade
meme
maker
Poordart
—
about
the
nature
of
Ponzi
schemes,
and
how
they
relate
to
blockchain
protocols.
In
short,
I
tried
to
argue
that
“ponzinomics”
were
everywhere
in
finance,
including
crypto.
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The
debate
started
after
an
ex-CoinDesker
compared
the
then
hot-crypto
project
Ohm
to
a
Ponzi
scheme
in
its
novel
attempt
to
bootstrap
adoption.
It
was
meant
to
ironically
affirm
Ohm’s
financial
incentives,
which,
if
successful,
could
serve
as
a
reserve
currency
across
DeFi,
in
the
way
the
U.S.
dollar
is
for
the
world.
My
interlocutors
took
offense
to
the
idea
that
the
greenback
is
a
Ponzi
scheme.
But,
isn’t
it
—
sorta?
Ponzinomics
is
not
a
real
word,
as
far
as
I
know,
but
it
is
a
recognizable
quality.
You
know
it
when
you
see
it.
A
project
is
“Ponzi-like”
when
it
incentivizes
adoption
through
implicit
or
explicit
promises
of
wealth,
fraudulent
or
not.
It
is
derived
from
the
formally
defined
investment
fraud
named
after
Charles
Ponzi,
who
lured
investors
with
promises
of
high
returns
and
“robbed
Peter
to
pay
Paul.”
The
term
ponzinomics
was
popularized
by
author
Robert
FitzPatrick
in
a
book
about
multi-level
marketing
schemes,
“Ponzinomics:
The
Untold
Story
of
Multi-Level
Marketing,”
where
he
said
companies
like
Nutrilite
and
Amway
operate
like
financial
pyramids
because
money
primarily
comes
in
via
deceptive
recruiting
techniques
and
mostly
flows
to
the
top.
MLMs,
which
are
legal
in
the
U.S.
due
to
lobbying
efforts,
offer
the
guise
of
a
legitimate
business
where
products
or
services
are
sold.
Similar
ponzinomic
incentives
are
everywhere,
if
you
keep
an
eye
out.
Economist
Hyman
Minsky
uses
the
term
“ponzi
finance”
to
describe
zombie
corporations
that
are
functionally
dead,
but
continue
to
function
and
meet
debt
commitments
by
continuously
gaining
new
sources
of
funding.
Several
other
economists
have
theorized
national
debts
can
become
“Ponzi
games,”
if
governments
continually
pay
off
existing
debt
by
issuing
new
bonds.
Ponzinomics
may
not
even
be
a
bad
thing,
necessarily,
if
capital
is
being
put
to
productive
use
—
but
it
does
almost
by
definition
increase
the
level
of
risk
for
later
adopters,
who
may
face
the
collapse
of
a
financial
system
unless
it
is
made
sustainable
or
successfully
wound
down.
This
is
part
of
the
game
theory
behind
bitcoin,
afterall,
often
bought
with
hope
it’ll
become
more
valuable
overtime
either
because
it
keeps
its
value
relative
to
the
dollar
or
is
widely
adopted.
The
question
is
when
does
ponzinomics
cross
the
line
and
become
legitimately
fraudulent?
It’s
not
often
the
case
that
crypto
scams
are
called
Ponzi
schemes
when
regulators
are
involved,
like
in
the
recent
U.S.
Securities
and
Exchange
Commission
(SEC)
indictment
of
HyperVerse
on
Monday.
After
the
scam
imploded,
and
authorities
got
involved,
they
found
Australian
“blockchain
entrepreneur”
Sam
Lee
operated
a
scam
that
defrauded
investors
of
$1.89
billion.
The
HyperVerse
story
has
been
getting
a
lot
of
mainstream
attention
in
part
because
of
the
“staggering”
figures
involved,
as
U.S.
Attorney
Erek
L
Barron
put
it,
but
also
because
of
how
weird
it
is.
Apparently,
Lee
and
his
co-conspirators
Brenda
Chunga
paid
an
actor
to
pretend
to
be
a
CEO
and
somehow,
likely
over
Cameo,
received
endorsements
from
celebrities
including
Chuck
Norris
and
Apple
co-founder
Steve
Wozniak.
Court
documents
describe
HyperVerse
(also
variously
called
HyperCapital,
HyperFund
and
HyperNation)
as
a
“pyramid
and
Ponzi
scheme”
that
attracted
investors
with
the
allure
of
high
returns
from
crypto
mining
and
other
false
promises
including
a
metaverse.
“The
only
thing
that
HyperFund
mined
was
its
investors’
pockets,”
SEC
Enforcement
Director
Gurbir
S.
Grewal
said
in
a
statement.
Obviously,
nothing
was
built
with
the
money
that
was
raked
in
from
around
the
world.
What’s
interesting,
when
considering
how
Lee
and
Chunga
reportedly
spent
the
money,
is
that
the
alleged
scheme
does
not
even
seem
very
profitable.
Sure,
they
bought
cars,
property
and
designer
clothing
—
but,
considering
the
nominal
figure
raised,
it
seems
like
the
HyperVerse
Ponzi
operated
for
so
long
because
it
paid
out
incoming
revenue
to
existing
users.
The
scheme
had
an
MLM
component
to
it,
which
is
how
Chunga
got
involved
when
she
was
recruited
in
2020
and
invested
$500.
Recruits
were
promised
passive
income
at
a
rate
of
0.5%-1%
per
day,
or
an
“accelerated”
program.
Chunga,
one
of
only
six
“corporate”
presenters,
and
the
only
one
named
besides
Lee
in
the
documents,
received
more
than
$3.7
million
from
the
HyperFund
platform
and
directly
from
recruiting
investors
in
the
U.S.
Things
worked
until
it
didn’t,
and
eventually
unraveled
when
withdrawals
were
frozen
in
2022.
By
the
end,
the
promoters
were
attempting
to
bilk
investments
by
selling
users
$10,000
NFTs
and
promising
a
“university-level
blockchain
education.”
Very
rarely
can
Ponzi
schemes
survive,
eventually
there
is
no
one
left
to
trick.
Perhaps
that’s
another
similarity
with
certain
cryptos.