Token sales are a pathetic affair, attended to by the crazed and insolent, so are Ponzi schemes. Coincidence? I think not.
Are Tokens Advanced Ponzi Schemes?
Which isn’t unlike the dynamics of a Ponzi scheme.
Therefore, it’s a fair criticism to say that Ponzi schemes and token sales are pretty similar. During the 2017 wave of token sales, after all, there were a number of sales designed just like Ponzi schemes – the earlier you bought in, the more you got, or that was the idea. when you consider the inherently low value of all of these actual projects, it’s no wonder that faith and FOMO are what drive their prices.
If one looked too closely at it all, one might get discouraged and think there was no hope for blockchains at all. But that would be nonsense. There have been some token offerings that made sense. Various blockchain, including Ethereum, NEO, and TRON, spring to mind. While these are all a long way from their all-time highs, they’ve consistently outperformed their ICO prices. They’re also delivering on most of their promises.
That’s the virtue of investing in a blockchain platform. While still hit or miss, most of them have kept going in some form or fashion. Enterprise blockchains are taking off as well, but unlike these public chains, it’s not as easy to just buy in and hope for the best. Instead, the companies that produce the technology onboard various users of the platform.
But if the conclusion is that tokens are similar to Ponzi schemes, then the obvious question is, so what?
Blockchain Marches On
Leave the basic economics out of it all for a moment, and consider the technological boom brought on by blockchain. It would seem the literally dozens of failed ICO projects from the 2017 wave have taught us valuable lessons about what can and cannot be successfully built using the ICO model. Mostly what we’ve seen emerge, though, is solid blockchain projects.
What will the next wave hold? If the first wave was unsuccessful altcoins, and the second wave was mainly new blockchains and token platforms, the next wave will likely be some fusion of the two. People expect a severe bull market to kick-off when Bitcoin’s mining reward is again cut in half, an event that’s expected to take place in May. If that’s the case, this is probably when we can expect a new wave of token sales.
Who knows what they’ll call themselves? The latest rendition is the “Initial Exchange Offering.” In this configuration, the sale is conducted by an exchange, which is supposed to increase your confidence in the underlying product.
Should it, though?
From my perspective, probably not. The IEO is no better or worse than the ICO, ITO, STO, or any other type of sale. They all amount to the same thing. The investor, or mark, depending on how we’re characterizing the particular set of events, takes a risk that the thing he is investing in will return value for not just himself, but everyone. Everyone collectively risks their money on the idea that the thing will materialize (often based on “roadmaps”) and that it will have value.
What Gives Tokens Value?
Usually for things to have value, they need to be in demand. That’s where the Ponzi dynamics work in. The investors feel compelled to stir up said demand, so they advertise. In some cases, there are even rewards for this type of behavior, doled out through affiliate marketing schemes.
These might be the most obvious signs of a bad IEO or something close to Ponzi, affiliate marketing setups. After all, things that have real value have a tendency to stand up on their own two legs.
It’s never too late to invest in something, as long as it’s possible to invest in it at all. You have to consider that the vast majority of all tokens launched on the ICO/IEO model peak just shortly after their launch. More often than not, they never see those levels again. There are notable exceptions, like we were talking about above, chains like Ethereum. But these really are the exceptions.
Therefore, if something really does interest you, it makes more sense to wait until it’s had some time to price itself through the market. Then you’re likely paying a more fair price than you could at ICO, regardless of the things done to sweeten the pot.
There are other metrics worth considering when investing in ICOs and the like, such as the supply of the token and how much the “founders” get to keep. Pushing on three years later, no one remembers other projects, like Universa or the countless, nameless tokens that came and went during the 2017 boom.
Be careful out there, as token sales and Ponzi schemes are much more similar than you might think.