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It get's really old to see people to continually misunderstand the nature of what a ponzi scheme is. Things can be fraudulent or unethical without being a ponz

by anm89 5y ago

It get's really old to see people to continually misunderstand the nature of what a ponzi scheme is. Things can be fraudulent or unethical without being a ponzi scheme. Tether could be called maybe an indirect type of pump and dump on the crypto space. It could easily be called a confidence scheme. It called also involve accounting fraud and securities fraud as well as outright fraud if any of the audits were deemed to have not really happened. None of these make it a ponzi scheme because it fits essentially none of the characteristics of a ponzi scheme

threevox 5y ago
Well, the unsustainability of a negative sum game being masked by new investment is basically the most general form of a Ponzi scheme, and that's what this article is arguing Tether is
- LudwigNagasena 5y ago
  The essence of a Ponzi scheme is claims about above-average profit rate. Holding Tether by its essence can’t provide you more profit than holding cash.
  - jhayward 5y ago
    No. The essence of a Ponzi scheme is that outsized returns are fraudulently produced by using new investment funds to pay for withdrawals rather than being invested or retained. That's pretty much what Tether is alleged or suspected to be doing.
    - LudwigNagasena 5y ago
      Ugh, outsized returns, that’s what I said. What outsized returns do owners of Tether expect? How much money can I expect to earn if I buy Tether instead of stocks or bonds? I expect to earn less.
      - graeme 5y ago
        Check out Nexo and Defi. Those places claim to let you earn 12-20+% interest on USDT. There’s your Ponzi returns.
  - thirtyseven 5y ago
    No, but holding Bitcoin that is having its value artificially inflated by Tether can (for now).
    - LudwigNagasena 5y ago
      So it is a Bitcoin Ponzi scheme?
  - threevox 5y ago
    It doesn't matter what profit rate Tether or any other Ponzi scheme claims to provide. In the case of Tether, they're claiming you'll have a profit rate of 0%, which is still worse than you should be getting, given that it may in fact be not backed by anything in particular
- anm89 5y ago
  That is not at all the definition of a ponzi scheme. That's at best a single attribute of a ponzi scheme.
  - threevox 5y ago
    It's certainly the closest thing to the central idea of the Ponzi scheme https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
driverdan 5y ago
We won't know exactly what kind of fraud it is until it crashes. It has many earmarks of being a Ponzi so it's reasonable to call it that.
lvh 5y ago
Would you agree that "outflows are only possible because the inflows are big enough so that the new investors can cover the payouts for the old investors until eventually the bubble gets big enough" is a hallmark of a Ponzi scheme? You could disagree that that's the case for Tether, but that's what the article lays out, no?
- gruez 5y ago
  >Would you agree that "outflows are only possible because the inflows are big enough so that the new investors can cover the payouts for the old investors until eventually the bubble gets big enough" is a hallmark of a Ponzi scheme? that describes most speculative bubbles.
- anm89 5y ago
  This is the most egregrious of misdefinitions of a ponzi scheme that gets thrown around becuase it literally fits the profile of every security and commodity in existence. You are describing the law of supply and demand in an open market place.
  - lvh 5y ago
    Surely we can agree that every security in existence does not solely rely on inflows from new investors in order to pay out old ones. You keep saying "this isn't a Ponzi scheme" but I haven't seen you elucidate your objection. Promised returns? A charismatic wealth manager? What is it that you feel defines them?
    - anm89 5y ago
      Surely we cannot agree on this. Explain to me what would happen if I was holding an Oz of gold or copper and suddenly the entire bid side of the market dissapeared (ie there was no inflows to the market). What is the new market clearing price for the commodity. 0. That's literally what buying a thing is(in all cases and for everything). It's a an asset inflow exchanged for an asset outflow. Now replace gold or copper with any equity. Let's assume one that doesnt pay a dividend not to complicate things. Literally nothing changes. The sale value of your equity is zero when there are zero inflows to the market.
onemoresoop 5y ago
With Ponzi schemes, investors give money to a portfolio manager. Then, when they want their money back, they are paid out with the incoming funds contributed by later investors. With a pyramid scheme, the initial schemer recruits other investors who in turn recruit other investors and so on. Late-joining investors pay the person who recruited them for the right to participate or perhaps sell a certain product. Call Tether whatever it is but it's neither a pyramid scheme nor a Ponzi one. The funny thing is that people don't really understand that banks are not able to cover in case everybody wants their money at the same time either and their dollars are stretched as much as Tether is. If people have confidence in Tether it will hold, if people don't it will crumble. [0] https://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid.asp https://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid...
lamontcg 5y ago
The entirety of the crypto space is a distributed Ponzi scheme. All of it is backed by dollars[1]. That is what people want, they want more dollars so they get more out at the end. There is vastly less dollars sloshing around the system than the current ~$1.6T valuation of all crypto. Crypto as a business would have ~$1.6T in liabilities with maybe a few $10B of actual cash on the balance sheet. It is very balance sheet insolvent. Once outflows exceed inflows for a sufficiently long amount of time so that the cash drains to zero it would then hit a liquidity crisis or cash insolvency. This is basically the same thing as a Ponzi scheme, but there's no one person or entity running the whole thing. [1] Yes, really its all priced in dollars, everyone investing in it wants the number to go up, nobody barely remembers "in it for the tech" or "1 BTC = 1 BTC" these days, we're all watching the dollar value of bitcoin bounce around because that is what ultimately "backs" Bitcoin. It isn't an alternative currency at all.
- anm89 5y ago
  Again you are confusing the word "scam" with ponzi scheme. You are arguing that the crypto ecosystem is a scam or a scheme. Nothing you go on to describe past there has a resemblance to the specific type of scheme called a Ponzi scheme.
  - lamontcg 5y ago
    Yeah it is, the people cashing out now are being paid by the people buying in now and the whole thing is a grossly balance sheet insolvent entity. When the cash in the pot hits zero and there's people lined up waiting to take their money out the the Ponzi scheme is busted. This is precisely what happened to Madoff when he had no cash to meet redemptions as the market crashed in 2008. This is what is going to happen to crypto eventually, but there's no one person in charge of crypto. Hence, distributed Ponzi scheme.
    - makomk 5y ago
      Everyone cashing out of the stock market now is also being paid by the people cashing in now. That's not what a Ponzi scheme is. The defining feature of a Ponzi scheme is that it claims to offer interest on deposits in excess of what the person running the scheme can actually earn, such that the only way to pay out that interest is by stealing from other people's deposits. It's this key feature that means that Ponzi schemes inevitably fail - those interest payments mean that the amount of money the scammer tells people they have in their accounts grows larger than the actual cash available at an exponential rate, and the only way to keep the scheme going is to find an exponentially increasing amount of new cash. Tether doesn't have this issue. They don't pay interest at all, so in theory there's absolutely no reason they can't structure the thing to be fully backed at all times (whilst probably also making money from interest themselves on the cash-like instruments they use to back it).
ponzie 5y ago
A Ponzi scheme involves paying out old investors with new investors money. There's a few steps inbetween but Tether (and by extension the whole cryptocurrency market) is very much within that definition. If people stop buying cryptocurrency tomorrow, the entire system collapses, because it's entirely dependent on new money coming in. If you disagree, a breakdown of where you think this differs from a Ponzi scheme would be much appreciated -- is there another type of fraud scheme it fits into in your view?
- anm89 5y ago
  If people stop buying apples tomorrow the market for apples will collapse. That does not make apples a ponzi scheme.

by anm89 5y ago

threevox 5y ago

Well, the unsustainability of a negative sum game being masked by new investment is basically the most general form of a Ponzi scheme, and that's what this article is arguing Tether is

LudwigNagasena 5y ago
The essence of a Ponzi scheme is claims about above-average profit rate. Holding Tether by its essence can’t provide you more profit than holding cash.
- jhayward 5y ago
  No. The essence of a Ponzi scheme is that outsized returns are fraudulently produced by using new investment funds to pay for withdrawals rather than being invested or retained. That's pretty much what Tether is alleged or suspected to be doing.
  - LudwigNagasena 5y ago
    Ugh, outsized returns, that’s what I said. What outsized returns do owners of Tether expect? How much money can I expect to earn if I buy Tether instead of stocks or bonds? I expect to earn less.
    - graeme 5y ago
      Check out Nexo and Defi. Those places claim to let you earn 12-20+% interest on USDT. There’s your Ponzi returns.
- thirtyseven 5y ago
  No, but holding Bitcoin that is having its value artificially inflated by Tether can (for now).
  - LudwigNagasena 5y ago
    So it is a Bitcoin Ponzi scheme?
- threevox 5y ago
  It doesn't matter what profit rate Tether or any other Ponzi scheme claims to provide. In the case of Tether, they're claiming you'll have a profit rate of 0%, which is still worse than you should be getting, given that it may in fact be not backed by anything in particular
anm89 5y ago
That is not at all the definition of a ponzi scheme. That's at best a single attribute of a ponzi scheme.
- threevox 5y ago
  It's certainly the closest thing to the central idea of the Ponzi scheme https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme

driverdan 5y ago

We won't know exactly what kind of fraud it is until it crashes. It has many earmarks of being a Ponzi so it's reasonable to call it that.

lvh 5y ago

Would you agree that "outflows are only possible because the inflows are big enough so that the new investors can cover the payouts for the old investors until eventually the bubble gets big enough" is a hallmark of a Ponzi scheme? You could disagree that that's the case for Tether, but that's what the article lays out, no?

gruez 5y ago
>Would you agree that "outflows are only possible because the inflows are big enough so that the new investors can cover the payouts for the old investors until eventually the bubble gets big enough" is a hallmark of a Ponzi scheme? that describes most speculative bubbles.
anm89 5y ago
This is the most egregrious of misdefinitions of a ponzi scheme that gets thrown around becuase it literally fits the profile of every security and commodity in existence. You are describing the law of supply and demand in an open market place.
- lvh 5y ago
  Surely we can agree that every security in existence does not solely rely on inflows from new investors in order to pay out old ones. You keep saying "this isn't a Ponzi scheme" but I haven't seen you elucidate your objection. Promised returns? A charismatic wealth manager? What is it that you feel defines them?
  - anm89 5y ago
    Surely we cannot agree on this. Explain to me what would happen if I was holding an Oz of gold or copper and suddenly the entire bid side of the market dissapeared (ie there was no inflows to the market). What is the new market clearing price for the commodity. 0. That's literally what buying a thing is(in all cases and for everything). It's a an asset inflow exchanged for an asset outflow. Now replace gold or copper with any equity. Let's assume one that doesnt pay a dividend not to complicate things. Literally nothing changes. The sale value of your equity is zero when there are zero inflows to the market.

onemoresoop 5y ago

With Ponzi schemes, investors give money to a portfolio manager. Then, when they want their money back, they are paid out with the incoming funds contributed by later investors. With a pyramid scheme, the initial schemer recruits other investors who in turn recruit other investors and so on. Late-joining investors pay the person who recruited them for the right to participate or perhaps sell a certain product. Call Tether whatever it is but it's neither a pyramid scheme nor a Ponzi one. The funny thing is that people don't really understand that banks are not able to cover in case everybody wants their money at the same time either and their dollars are stretched as much as Tether is. If people have confidence in Tether it will hold, if people don't it will crumble. [0] https://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid.asp https://www.investopedia.com/ask/answers/09/ponzi-vs-pyramid...

lamontcg 5y ago

The entirety of the crypto space is a distributed Ponzi scheme. All of it is backed by dollars[1]. That is what people want, they want more dollars so they get more out at the end. There is vastly less dollars sloshing around the system than the current ~$1.6T valuation of all crypto. Crypto as a business would have ~$1.6T in liabilities with maybe a few $10B of actual cash on the balance sheet. It is very balance sheet insolvent. Once outflows exceed inflows for a sufficiently long amount of time so that the cash drains to zero it would then hit a liquidity crisis or cash insolvency. This is basically the same thing as a Ponzi scheme, but there's no one person or entity running the whole thing. [1] Yes, really its all priced in dollars, everyone investing in it wants the number to go up, nobody barely remembers "in it for the tech" or "1 BTC = 1 BTC" these days, we're all watching the dollar value of bitcoin bounce around because that is what ultimately "backs" Bitcoin. It isn't an alternative currency at all.

anm89 5y ago
Again you are confusing the word "scam" with ponzi scheme. You are arguing that the crypto ecosystem is a scam or a scheme. Nothing you go on to describe past there has a resemblance to the specific type of scheme called a Ponzi scheme.
- lamontcg 5y ago
  Yeah it is, the people cashing out now are being paid by the people buying in now and the whole thing is a grossly balance sheet insolvent entity. When the cash in the pot hits zero and there's people lined up waiting to take their money out the the Ponzi scheme is busted. This is precisely what happened to Madoff when he had no cash to meet redemptions as the market crashed in 2008. This is what is going to happen to crypto eventually, but there's no one person in charge of crypto. Hence, distributed Ponzi scheme.
  - makomk 5y ago
    Everyone cashing out of the stock market now is also being paid by the people cashing in now. That's not what a Ponzi scheme is. The defining feature of a Ponzi scheme is that it claims to offer interest on deposits in excess of what the person running the scheme can actually earn, such that the only way to pay out that interest is by stealing from other people's deposits. It's this key feature that means that Ponzi schemes inevitably fail - those interest payments mean that the amount of money the scammer tells people they have in their accounts grows larger than the actual cash available at an exponential rate, and the only way to keep the scheme going is to find an exponentially increasing amount of new cash. Tether doesn't have this issue. They don't pay interest at all, so in theory there's absolutely no reason they can't structure the thing to be fully backed at all times (whilst probably also making money from interest themselves on the cash-like instruments they use to back it).

ponzie 5y ago

A Ponzi scheme involves paying out old investors with new investors money. There's a few steps inbetween but Tether (and by extension the whole cryptocurrency market) is very much within that definition. If people stop buying cryptocurrency tomorrow, the entire system collapses, because it's entirely dependent on new money coming in. If you disagree, a breakdown of where you think this differs from a Ponzi scheme would be much appreciated -- is there another type of fraud scheme it fits into in your view?

anm89 5y ago
If people stop buying apples tomorrow the market for apples will collapse. That does not make apples a ponzi scheme.