Chapter 1: The Answer to the Ultimate Question about Life, the Universe, and All Things
I heard you want to learn how to navigate the uncharted waters of the Ponzi universe!
Now that you've been gone for so many years to get here, let me get straight to the point:
The answer to the ultimate question you are seeking is (-4, +2).
This game-theoretic symbol represents the result of an interaction — (X, Y) means that player 1 ends up getting X and player 2 getting Y.
The truth is that if one player in a Ponzi scheme ends up winning, the other player loses even more.
Simply put, for every 2 Lamborghinis earned by a Ponzi scheme, it draws more tickets from people who return empty-handed.
The game of pooling resources is as old as human history, and after centuries of evolution, it has become more and more efficient at tapping into our basic human needs.
Human beings aspire to success, to belong to a community, to be part of something bigger than themselves.
As we enter the web 3.0 era, everything around us is becoming financialized and tokenized, and these mechanisms are only going to become more complex and strange.
Complexity is the liar's favorite weapon. The more time and expertise required in a game, the easier it is for people to be fooled by scammers and have the illusion that they can win.
So, fasten your seatbelts and sit firmly, and we'll take a super-high-speed tour of the Ponzi universe to explore the "three fundamental laws" of the Ponzi universe.
Chapter Two: The Three Fundamental Laws of the Ponzi Universe
In thermodynamics, an "isolated system" describes a system that is completely isolated from the environment.
This introduces the concept of an "isolated investment system":
Funds that enter into an agreement purely in the expectation of generating monetary returns.
If you want to illustrate the point of image, think of it as a poker table of 8 people.
If 4 of them are pros working there and the other 4 are for social and entertainment, then this table is an open system.
But if all 8 are pros, then this table is an economically isolated system.
The First Law of Ponzi Economics:
The amount of money in an isolated system can be moved, but it cannot grow more than the money invested.
An economically isolated system cannot create money, it can only redistribute the money it has invested. So while it can produce winners, that win can only come at the expense of other players.
Zero-sum games can have some cooperative places, where people will band together against others and eventually become the Hunger Games. But in the end, they are still opposed, and it will become a fight between players, a war between the nameless and the nameless.
If you take into account the hidden costs, it's not just a zero-sum game, it's a negative-sum game.
The Second Law of Ponzi Economics:
Entropy losses in isolated systems only increase over time.
Transaction fees; arbitrage bots and sandwich attacks lurk around us with the intention of sucking away value; high mining costs; potential code vulnerabilities.
The cost of operating systems alone will continue to increase...
... And all of this doesn't even take into account whether the founders have left a backdoor to redistribute the money to themselves.
Over time and costs pile up, players win less and less money. In the poker example, if they continue to play for a long time, the casino's draws will get higher and higher, and eventually all the money on the table will be taken away by the casino.
As the losses in the system continue to increase, we get the last law.
The Third Law of Ponzi Economics:
As the amount of money in the system begins to decrease, so does the activity of the system to zero.
Without enough fresh income, once the rocket's power is exhausted, the death spiral begins. People lose hope of future wealth, the wind is blowing, and the share of communities and ideas will spiral downward.
This vortex of death may take months or years to emerge, but eventually as the Ponzi scheme grows in size, it will require exponentially more capital to keep the game going.
Once a Ponzi scheme grows to a multibillion-dollar scale, it relies on a large number of new entrants just to sustain the organic loss of the system, creating an insurmountable gravitational pull.
In the world of cryptocurrencies, we've seen this evolution countless times in the field of DeFi protocol forks. They don't add anything particularly useful other than logos and new chains, and they enter the Ponzi cycle. The positive rewards of liquidity mining gradually attract users to farm, increasing the total value of lock-in (TVL), and the momentum has developed.
But without open systems flowing in, their final solution is the death spiral. The next stop is Goblin Town:
Chapter 3: Framework of First Principles and Frequently Asked Questions
The basic structure of each game is the same:
1. Opening: People gather money together;
2. Middle part: mechanism for shredding and moving money;
3. Closing: The pooled funds are redistributed, deciding on winners and losers.
As we know, the middle part is where psychological problems occur. So ignore this part and go straight to the final "closing" session.
Whether you're entering the future of the financial farm or earning the web 3.0 revolution by dancing, it's time to ask yourself:
"Who will be the benefactor of providing returns to investors, and what good reason do they have to choose to do so?"
Legitimate projects will have a clear answer to this question. They will explain the execution risks involved in the project so that potential investors have a transparent understanding of it and make a decision.
At the same time, the modern Ponzi brothers have learned the art of speaking with vague circular logic. When confronted with this problem, they will constantly return to the mechanics of psychology.
Here are pure scams and "social ponzi schemes" that are common (and unimaginative) plots.
Scam: We have a secret system that generates high yields through super ARTIFICIAL machine learning trading/mining/Mumbo Jumbo. But don't ask what it is, because it's exclusive to the secret alpha.
Social Ponzi scheme: We are like Bitcoin, but because we have a superior design, we will replace the dollar as a "reserve currency" and Bitcoin will fail.
While these stories can be great marketing slogans, it seems obviously untrue to offer this alpha to the public or the world to decide to live with XYZ coins. If you have a Ponzi scheme detector, it will certainly sound the loudest alarm in these cases.
Free-riding FAQ 1: If it's not black and white, how do you consider the extent of the Ponzi scheme? Isn't everything somehow a Ponzi scheme?
In fact, the Ponzi scheme has a sliding scale, which is divided into 4 levels in order from worst to best:
Overt scams: founders have been plotting to pull people's heads;
Crypto Ponzi scheme: an unreal, misleading scheme aimed at achieving real utility;
MIGHT FAKE IT TILL MAKE IT: There are revenues, but they are greatly motivated and are still trying to achieve enough moats to undo some of the incentives.
Not a Ponzi scheme: there is a moat and can generate sustainable income.
Free-rider FAQ #2: Where are memecoins like $DOGE on the spectrum?
Memecoins are also a Ponzi scheme, but not malicious. Since everyone is generally joking, they can be seen as willing to invest and derive entertainment value from the community of the memo. You can even further understand it as:
Haha, this is a funny meme (terrier). Other people may love it too, and it may catch on! In addition, some of them may be rich and powerful whales and decide to spend resources to create real utility for the coin! That's why our coin is called DOGE.
For example, holders of $DOGE can bet that Elon will use his money to create value for the holder in exchange for his daily LOLs (laughs).
Free-Rider Guide FAQ 3: If the first law is true and the protocol mechanism itself does not generate money, then how can it pay the rate of return? Some of them say they can even maintain an annual interest rate of 50,000%.
It's important to understand that the yield paid by the protocol in its own tokens is misleading.
The value of the protocol remains unchanged at Y tokens *V per token value.
Think of it as a rectangle with a constant area, where you can increase the length, but the width will decrease proportionally. The value of each token is diluted in this way at the same rate.
An annual interest rate of 10% per day (3660% a year) reduces the value of each coin at the same rate of 10%/day. The Smart(er) Coin game demonstrates this destructive effect.
The coins that people initially bought for 6 cents ended up with less than one part of a million worth, diluted by the high annual interest rate.
However, high APY allows for a fight between players like Squid Games, who sells first and lowers the price to match V, and can get new value from other users.
Free-Rider Guide FAQ 4: But what if no one sells and the price rises? Isn't that increasing market capitalization?
Indeed, this is why market capitalization is not a good measure for tokens that are manipulated or held on. If liquidity is low, its price can easily be artificially kept high while pumping supplies, at least for a while.
Here is the (generous assumption that there is no entropy) zero-sum version:
However, this is always a game in which selling is the dominant strategy, and any equilibrium other than (sell, sell) will not stabilize over time.
The only possible way to have a (3,3) outcome between two users who don't sell is to join a bigger fool as a third player.
(3, 3) Is false.
(3, 3, -6) May be true, but should not be praised.
Chapter Four: The Possibility of Redemption
If we give a very broad definition of utility, then protocols can exit the segregated investment system and introduce utility in a number of ways.
Some are more suspicious, but if a Ponzi scheme decides to abandon its mob and go legal, here's the exit path.
Gambling Entertainment: The prevalence of brick-and-mortar casinos and online casinos is a testament to the huge market for people willing to trade monetary EVs for interesting speculative experiences. Make the power of PvP fresh and interesting enough that they can be sustainable projects.
Community and meme:Creating a sense of belonging that people are ultimately willing to pay for. Interesting content will further increase this opportunity. NFTs are probably the best design for this.
Charity/Donation: If people believe the project is good for the world, they can make a "money-> feel good charity" deal. So far, this is an unproven token model, but it may come into play at some point.
Investment Plan: Pooling funds from a Ponzi scheme into a decentralized hedge fund/income aggregator/venture capital fund. While the business model itself has been validated, if it were to move from a different ending to an investment plan as a starting point, it would leave a lot of questions to answer and keep people stuck in it.
Group and sell attention: Time and attention are ultimately scarce, and now that there are thousands of agreements/products competing for people's time and attention at the same time, it's increasingly likely to be monetized.
Once enough users are captured, a protocol can try to generate revenue from the open system by packaging them into marketable products.
The new agreement will provide their first users with a working capital mining incentive to guide the campaign, in which case the reward can be directly attributed to the agreement.
In web 2.0, if you don't pay for a product, you're a product.
In web 3.0, if you don't pay for your attention, someone else grabs your attention and pays for it.