I've been noodling around with the idea that the ease with which these schemes are forming is based, in part, on the fact that these companies are often just running their own currencies. Because they're running their own currencies, there's no risk that they won't be able to make the payouts they promise to investors in their schemes denominated in the native currency. But investors get crushed because they basically don't realize that they're making foreign exchange bets that violate interest rate parity theory.
In short, when one of these crypto companies is offering their own tokens, they're basically like a foreign country that's got its own currency. They're asking you to invest in this foreign country, and offering all kinds of goodies and returns for that investment. Which they are absolutely able to do, because they control the "mint" for their little "country's" economy. So hey - no ponzi scheme, right? You will always get paid the promised return, regardless of whether any new investors come in, right?
Well, yes - but what you're doing is making the equivalent of an uncovered forex bet. All your investments are denominated in the host currency of the crypto market. Eventually, you will want to convert your foreign exchange to a domestic one - whether it's another token like ETH or BTC, or back to USD. How much you get is based on the exchange rate on offer. And if the foreign token is offering you a crazy return, interest rate parity strongly suggests that there's a massive devaluation coming down the pike. You can earn 20% on your investment in ALB tokens....but by the time you get your 20% premium paid in ALB, the value of ALB tokens relative to other currencies will probably have devalued.
So that's what's been happening. Rather than traditional ponzi-scheme frauds, where investors just don't get their invested assets back, these guys are mostly running massive inflationary schemes. They sell tokens at a given exchange rate, pay themselves a bunch of tokens out of the "mint" as compensation for running this system, which they convert to other currency at the given exchange rate, and then the currency devalues once people stop buying the currency - sometimes down to zero. "Not a ponzi scheme!" they will cry - "everyone still has all of the tokens that they're supposed to have in their account, and they can withdraw them and sell them!" Because it's a currency devaluation, not moving tokens out of people's accounts, that let them steal all the invested value out of a system that generated no new value.
Al
(TMF post today)
Best explanation I've seen so far...
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