Many scams disguised by holy grails pave the route of investment. They include insane APYs, promising tokens, and methods to become rich quickly. It is a chess game where people get played. Apart from the hacking in the sphere, other scams and rug pulls happen through ponzinomics.
What are ponzinomics in crypto? And how can you protect yourself from them?
What is a Ponzi?
To make it simple, it is a fraudulent scheme that involves paying existing investors in a nonexistent project or company with the funds collected from new investors.
This is why most of the time, it is also called the Pyramidal scheme.
Ponzi-Nomics
You probably heard about this concept many times, especially in crypto, where the use of this word is ubiquitous due to the abundance of scam projects. It combines Ponzi and Economics and defines the economy inside a Ponzi scheme.
The economy itself is a neutral tool. What makes the difference is the human desire to use it for the bad or the good. Both economics and ponzinomics have similar fundamental characteristics, but one differentiates the two concepts.
In economics, we have:
Supply
Demand
Opportunity cost dictated by human will
However, in ponzinomics, we have:
Supply
Demand
Strange economics for substantial short-term gains.
Ponzinomics Framework
The core thesis is that the price of a Ponzi is not determined by the free market or sustainable methods that increase the demand but by short-term appeals like astronomical gains that drive FOMO and push the price up.
You can think about creating a Ponzi like some roadmap:
Start to influence people via social media by creating an attractive account and fake promises of big rewards. The ratio has to be 1/10, where 1 is the risk, and 10 is the potential reward.
Figure out hope much money you want to make, giving an exact value for the Ponzi.
Send small token accounts to the exchange, making it valuable as there will be a minimal amount to buy: low supply available= attractive tokens.
Use your influence to force people to buy the token through FOMO.
The FOMO you have used will generate compulsive purchases driving insanely up the price of your Ponzi: low supply + Big demand= Huge price skyrocket.
Finally, slowly dump your remaining tokens to take advantage of the price increase while watching out for inject low sell pressure. This will create a death spiral where investors will be sucked in, and the price will slowly go to zero.
Unfortunately, most tokens from different sectors (gaming, DeFi, etc.) work as ponzis. This does not mean they cannot be legit projects, but the tokenomics infrastructure is broken and designed as a Ponzi.
Final Thoughts
Whenever you see something shiny, attractive, and with promises of quick gains, that would be a sign of a scam. Usually, founders and relative projects are wolves disguised as sheep. Remember that you will buy a token, not a share or something else.
And lastly, be skeptical. Skepticism creates the assumption of rationality and severe due diligence. Don’t be scared of being a critic. Your primary goal is always to protect your capital and only in a second round to make money.
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