How to grow a Ponzi

Reviewing TeamJUST’s new game,

If someone offers you an investment vehicle that guarantees a very high return with very low risk, it might be a ponzi scheme. Here’s how that works:

  • Investor 1 through N all put in $10

  • Investor 1 gets paid out with some of Investor 2’s investment

  • Investor 2 gets paid out with some of Investor 3’s investment

  • And so on until the Ponzi operator decides to take the rest of the money and run

These schemes can last a long time. If you can continue to attract new capital, you can pay out prior investors, yielding an above-average return on your “fund” and attracting new capital, continuing the cycle.

Bernie Madoff’s famous scheme started in 1960 and operated until his arrest in 2008! (His scheme is a bit more complicated than what I outlined by the concepts stand.)

This is fraud. Don’t do it. And try to avoid getting scammed by these frauds.

But if you knew this was how this system worked, then you might view it as a game where everybody tries to time the exit scam. Because as long as the system continues to attract new investors, old investors are made whole and more. Then the game would be about studying the operator of the scheme to try and predict the conditions for them to let the spinning plates fall to the ground. At which point, everybody left with money in the fund loses everything.

Indeed this is exactly the premise of TeamJUST’s FOMO3D, which I wrote about to members in October of last year. In that post, I predicted a gradual death for that game:

I think something that sticks will emerge from this [crypto gaming] experimentation, but it’s not FOMO3D or Pixelmaster (or Cryptokitties). Barring substantial changes to the rules or an unexpected wave of users, both of these games will continuously see lower and lower engagement until they die.

Why? They are–at their core–greater fools games. Assuming a relatively fixed player base, greater-fools games churn fools.

And as of Q2 of this year, it is virtually dead with zero users (dappradar).

My argument from last year was round-based autonomous games eventually die if they are primarily greater fools games–where a user can only “win” if there are fools that will show up to bail them out.

That’s how a real-life Ponzi scheme operates–even if its participants don’t know it. If there isn’t enough new capital for the scheme, the operator can’t pay existing capital out, and is more likely to run away with what’s left.

(Actually, this games like FOMO3D are technically Pyramid schemes, which are a superset of Ponzi schemes. It’s only a Ponzi when participants do not know the scheme is a Pyramid.)

What further reduces the likelihood of players is the economics of the greater fools games. In FOMO3D’s case, fees were very high. Every transaction was sliced up by many fees: the founders, a weird semi-native token called F3D, future pot, and more. More fees means you rely on even more fools to show up before you’re made whole in the game.

This context sets the stage for TeamJUST’s new game:

It’s kind of fun to skim the paper but if you don’t want to, is FOMO3D with three major changes:

  1. More winners per round (100 “jackpot winners” in vs 1 in FOMO3D)

  2. A native cash-flow claiming token with some speculative mechanics

  3. A conceptual emphasis on virtality and marketing

The second half of the whitepaper isn’t out yet, so there isn’t much concrete about (3) especially or e.g. fees. But these changes make sense viewed through the lens of sustaining a ponzi system. More winners means that fools will churn out less quickly (there’s a greater chance for more people to make back their money), the native token is a sort of derivative on the main game and both affords more speculative markets for players of the main game (which is fun) and creates a community of token holders with an additional vested interest in the main game. These two changes alone should increase the likelihood that the players of the game go out and try to attract more players.

Because the equation for success is simple: grow or die.

NetGrowth = NewUsers - ChurnedUsers.

Once NetGrowth goes below zero, your game is dead. So changes (1) and (2) attempt to reduce ChurnedUsers by making it easier to break even or win money playing the game. The team also theorizes that (1) and (2) will drive new users by removing the incentive to keep the game a secret and maybe even create evangelists out of the native token holders. And the unreleased half of the whitepaper is meant to focus primarily on other ways to drive (3).

While these games may seem trivial or “scammy,” they’re some of the better ways to test the designs of these networks. Because just as a ponzi game needs growth, so too do non-sovereign moneys and smart-contract protocols. And we’re still in the early innings of figuring out how do grow these networks without the heavy hand of an operator.How to grow a ponzi