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> Where do these high APYs come from? Well a lot of it is coming from incentives of these protocols and speculation in those native assets. But the author doesn

by gzer0 5y ago

> Where do these high APYs come from? Well a lot of it is coming from incentives of these protocols and speculation in those native assets. But the author doesn't even know that, so I won't bother steelmanning his argument Is this not the very definition of a ponzi scheme? The returns coming from "incentives" of these protocols and "speculation" in those native assets sounds very ponzi-like to me.

roywiggins 5y ago
If the yields are actually coming from speculation, it's not a Ponzi. Ponzis don't generate real yields, they just shuffle money from new investors to old investors. If it's actually making risky bets and winning them it's more like a hedge fund or something. Of course hedge funds don't have steady 10% yields, they lose money when their risky bets don't pan out.
- adam_arthur 5y ago
  That's essentially exactly what a Ponzi scheme is. You have an asset with 0 intrinsic value that only goes up in value due to new investors buying in. You will only ever make more money if somebody buys in after you. Unlike stocks where owning a share entitles you to profit stream of the company (intrinsic value)
  - roywiggins 5y ago
    If they are actually lending the money out to people who aren't investors, earning interest on it and returning that to investors, then Celcius is not a Ponzi scheme, it's probably speculating on weird, opaque and shitty assets, but it's not a Ponzi. Like, if I set up a business "investing" in worthless penny stocks and somehow manage to generate returns, I'm not running a Ponzi. Maybe I'm pumping and dumping those penny stocks. It's still a scheme, it's just not a Ponzi- I am actually earning money for my investors! I'm defrauding other people, but I'm not defrauding my investors.
    - adam_arthur 5y ago
      Pump and dumping penny stocks works exactly like a Ponzi scheme. It's a layer removed perhaps, but the early buyers win and the later buyers lose, by definition. I'm not an expert in Celsius, perhaps it's structured a bit differently. But any system that relies on new investors paying out the old is structured akin to a Ponzi scheme, if there's no intrinsic value element to the speculation. If AAPL pays a 10% dividend, huge numbers of people would buy it for the yield. The yield comes from their underlying business, not from investor money. This puts a floor on the price. When your yield only comes from newer investors, that's not intrinsic value or sustainable
      - roywiggins 5y ago
        Not every financial fraud is a Ponzi scheme, and it's silly to call everything a Ponzi. It sounds like Celsius probably is one, though.
        adam_arthur 5y ago
        "A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors" Explain how pump and dumping penny stocks doesn't apply? I agree that it's a bit different in nature than most Ponzi Schemes due to lack of central entity orchestrating it, but the net effect is the same in the end. You get in early, you win, you get in late, you lose. Even if we call it something else, it's clear the underlying mechanism and unsustainability of returns is the same.
        roywiggins 5y ago
        I'm talking about a hypothetical scheme where you get some capital from some investors, and then go out and pump and dump penny stocks onto other people who aren't your investors, and then return your winnings as interest to your investors. You are genuinely earning money for your investors (and defrauding other people). In a Ponzi, you can't satisfy all your investors- you literally don't have the money you say you do. Eventually it will collapse and piss off most of your investors. But if you are really good at pumping and dumping you could in theory just keep doing that until you can't make money anymore, and then close up shop with a tidy profit for you and your investors. They're both frauds, but they're different.
FanaHOVA 5y ago
Yields for nascent crypto projects are basically marketing budgets and user acquisition costs passed on to the user as profits instead of going to Google Ads or being a coupon for free fries with your order. They want to incentivize people to bring liquidity to them, and pay them for it. The real question is whether or not this actually leads to retention or of it's wasted capital, but that's beyond the point of the article.

by gzer0 5y ago

roywiggins 5y ago

If the yields are actually coming from speculation, it's not a Ponzi. Ponzis don't generate real yields, they just shuffle money from new investors to old investors. If it's actually making risky bets and winning them it's more like a hedge fund or something. Of course hedge funds don't have steady 10% yields, they lose money when their risky bets don't pan out.

adam_arthur 5y ago
That's essentially exactly what a Ponzi scheme is. You have an asset with 0 intrinsic value that only goes up in value due to new investors buying in. You will only ever make more money if somebody buys in after you. Unlike stocks where owning a share entitles you to profit stream of the company (intrinsic value)
- roywiggins 5y ago
  If they are actually lending the money out to people who aren't investors, earning interest on it and returning that to investors, then Celcius is not a Ponzi scheme, it's probably speculating on weird, opaque and shitty assets, but it's not a Ponzi. Like, if I set up a business "investing" in worthless penny stocks and somehow manage to generate returns, I'm not running a Ponzi. Maybe I'm pumping and dumping those penny stocks. It's still a scheme, it's just not a Ponzi- I am actually earning money for my investors! I'm defrauding other people, but I'm not defrauding my investors.
  - adam_arthur 5y ago
    Pump and dumping penny stocks works exactly like a Ponzi scheme. It's a layer removed perhaps, but the early buyers win and the later buyers lose, by definition. I'm not an expert in Celsius, perhaps it's structured a bit differently. But any system that relies on new investors paying out the old is structured akin to a Ponzi scheme, if there's no intrinsic value element to the speculation. If AAPL pays a 10% dividend, huge numbers of people would buy it for the yield. The yield comes from their underlying business, not from investor money. This puts a floor on the price. When your yield only comes from newer investors, that's not intrinsic value or sustainable
    - roywiggins 5y ago
      Not every financial fraud is a Ponzi scheme, and it's silly to call everything a Ponzi. It sounds like Celsius probably is one, though.
      - adam_arthur 5y ago
        "A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors" Explain how pump and dumping penny stocks doesn't apply? I agree that it's a bit different in nature than most Ponzi Schemes due to lack of central entity orchestrating it, but the net effect is the same in the end. You get in early, you win, you get in late, you lose. Even if we call it something else, it's clear the underlying mechanism and unsustainability of returns is the same.
        roywiggins 5y ago
        I'm talking about a hypothetical scheme where you get some capital from some investors, and then go out and pump and dump penny stocks onto other people who aren't your investors, and then return your winnings as interest to your investors. You are genuinely earning money for your investors (and defrauding other people). In a Ponzi, you can't satisfy all your investors- you literally don't have the money you say you do. Eventually it will collapse and piss off most of your investors. But if you are really good at pumping and dumping you could in theory just keep doing that until you can't make money anymore, and then close up shop with a tidy profit for you and your investors. They're both frauds, but they're different.

FanaHOVA 5y ago

Yields for nascent crypto projects are basically marketing budgets and user acquisition costs passed on to the user as profits instead of going to Google Ads or being a coupon for free fries with your order. They want to incentivize people to bring liquidity to them, and pay them for it. The real question is whether or not this actually leads to retention or of it's wasted capital, but that's beyond the point of the article.