I agree with you, but looking at what comes out of Silicon Valley these days, there is a fine line between "ponzi scheme" (in the broad sense) and "re-invest everything in growth and hope to get acquired". I'd push back that many traditional startups, most of which end up never being profitable but still exit in one way or another due to hype and investor relationships, are just as close to pump and dump schemes as many crypto projects are. It just isn't as obvious because the time scale is usually a bit longer.

> But a crypto project is not a traditional scalable company

Why is that true? There are DeFi crypto projects that are scalable companies with big revenue streams. Sure, the space is driven by speculation, but you can argue the same about Robinhood.

Cryptocurrencies, DeFi, and retail trading are all areas where more skilled traders take money from less skilled traders.

These venues can be distinguished from a Ponzi scheme because the participants are traders in a market, not investors in a company or managed financial product.

I agree with you generally and consider stock-picking to be gambling.

But retail traders can use the markets to make bets on overall economic growth. Buying a stake in hundreds or thousands of public companies is a clear bet, and you actually do own something in a legal sense.

With crypto trading, it's unclear what your bet is -- other than the continuation of the Ponzi scheme. You don't own anything, and the coin has no value as soon as people stop believing in it.

If retail investors understood that nature of crypto, I'd be fine with them gambling on it. But most of them are tricked into believing there is underlying value in the coin when there actually isn't (see also: NFTs).

I agree; cryptocurrencies are a scam. But in general they're not Ponzis, with some exceptions e.g. the situation the parent poster describes where VC investors get "early coins" which are sold to later buyers.

To be clear, you're saying that you believe that every last cryptocurrency is a scam with no exclusions? To me it seems absurd that none are non-scams, and makes me think you're just making baseless claims.

It's been 14 years and if the whole space disappeared overnight what would change? The news cycle would be less entertaining I guess. So much so China was able to nuke the whole space from orbit and what? Crickets.

But I am referring to investing into a DeFi project as a VC (= receiving tokens), not trading in Defi. Why is that not equivalent to investing in Robinhood as a startup?

With that clarification I agree that it would be a Ponzi scheme. If the project is mainly accepting money from new buyers and routing it to early participants who are selling, then it's a Ponzi.

The reality is that we need a new term than ponzi scheme to determine if we are willing to respect a financial model or not

The state (us government) has made it clear that there is no distinction it can stand behind anymore

sometimes earlier investors get paid out by newer investors

whether it’s a high yield investment program, a poorly run hedge fund, or the entire corporate bond market, or social security, or herbalife, or defi

The debate over the name of the payout system is no longer productive, as ponzi scheme - as a pejorative term - doesn’t tell you anything

> need a new term than ponzi scheme

"Fraud" works for me.

All nascent markets are wildcat melees. https://en.wikipedia.org/wiki/Wildcatter

Useful markets are eventually regulated. To save the market from itself, to calm down the townsfolk brandishing pitchforks and torches, to assert central control over a proven grift.

Time will tell if all these crypto kittens prove useful for more than fraud.

It doesn’t work for me because it has a legal meaning applied retroactively

Your proposal of using it would at best case simply dilute that word until it was no longer useful, and worst case open its users up to libel due to being a legal term

In theory, a crypto project could provide value (not money, they're different things) to its users. For instance, there are experiments with distributed games where assets are NFTs. In theory, this provides the basis for independent games sharing unique assets among themselves.

In practice, nobody's doing this (even those game devs who are minting assets as NFTs are keeping the assets to one game, making the whole exercise pointless) and it seems probable that nobody really wants it.

But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful. I just have yet to see an example in the wild (or even to imagine a concrete thing I could make where this would really be the case).

There is still no value over a trusted third party, keeping all this in a central database. These games you are talking about just agree on this third party and that's it.

And they already do that. The third party is states backing traditional banking systems.

> There is still no value over a trusted third party, keeping all this in a central database. These games you are talking about just agree on this third party and that's it.

There is value - with a trusted third party, you are "trusting" that the third party will stick around, won't block you, and won't arbitrarily change the rules on you.

Same goes for all makers of those "independent games". If just one of those goes rogue, th system is void. You need trust in all of them, not just those that you are playing.

Worse, if your game currency is a decentraliced ledger, then it's much harder to do something about the rogue participant. That's by design. If it's instead a central entity, they can kick out that party on a whim.

And who hosts those assets? How does this not apply to them?

An NFT is simply a signed URL to an image. That the assets are NFTs are meaningless, because (a) they're only relevant in the context of that game and (b) there's no guarantee the hosting will remain (c) they don't come with a license to use or display the asset. No other game developer could create a game leveraging these NFT assets without being on the receiving end of a DMCA claim.

[edit] Just try and leverage some NBA Top Shots on your own website and let me know how that goes.

> But the point being I do believe theoretically there are "legitimate" applications where the decentralization of assets is useful.

It's been 14 years, it's not still early, there's just no "there" there.

> It's been 14 years, it's not still early, there's just no "there" there.

Although I agree with everything else you wrote, I don't think this follows.

As a counterexample, Secure Scuttlebutt was created for a specific problem, which was that the creator was a sailor and wanted an offline-friendly social media platform. By using a blockchain, users would have a copy of the database locally that they could interact with and then synchronize when they either cross paths with other sailors (because as long as there's a local network, they can synchronize with peers without the need for internet access) or reconnect to the internet. In this case, the blockchain is relevant in that it enables the network to work independently of internet access and provides decentralized eventual consistency guarantees. A centralized solution would unavoidably require internet access.

It's not a million-dollar idea, and further development is fragmented due to there deliberately being no centralized leadership of the project, but it seems to fit its intended niche use case.

I think why people treat them differently comes down to informed consent. With a true Ponzi scheme, the managing investor makes you believe that they're doing something that they're not. You think you're investing in some underlying asset, but you're just buying out they previous wave of investors.

With crypto/VC/normal stocks all having many characteristics in common with Ponzi schemes, at least the game is relatively well understood. For all of them, there are institutional investors capable of market manipulation, as well as the information and know-how so as to typically adjust their positions so that the majority of the people left holding the bag are retail investors.

I challenge the notion that people who invest in crypto "understand the system". There is no regulation in this market to protect the fools from themselves and it shows.