The unregulatable Ethereum pyramid scheme

The intentions may be good but the result is quite clear: Ethereum's Smart Contracts are currently being used to build pyramid schemes that can not be regulated. With Fomo3D and PoWH3D two such pyramid schemes are among the top dapps of Ethereum. One threatens to devour all existing ethers.

Alchemists have tried to turn iron or lead into gold. Because that did not work out they had tricked their clients with windy tricks and the transformation of the metals had worked to get her fee. One could say that a modern version of this story is currently taking place on Ethereum.

The "Dapps" - decentralized applications or apps - were supposed to free all sorts of processes from middlemen and ensure that no central manipulate things. This is actually happening - just in an area that the founders of Ethereum probably did not want: Financial puzzles and pyramid schemes.

Top-Dapps on Ethereum. Source: DappRadar

One could say that the last few weeks mark a turning point in the history of ponzi, snowball and pyramid schemes: The moment when they are forever beyond the reach of regulators. The Ponzispiele of Ethereum founded Web3.0 can no longer control, prohibit or disable.

Fomo3D: Snowball or Black Hole?

The first currently hot pyramid on Ethereum is Fomo3D. The gameplay is explained quite simply: everyone pays in a pot, and the last who pays into this pot, gets everything that is in it. There are also some modifications that are likely to motivate the players, so there are some small part payments for it, if you have paid something. The website of the game calls the deposit "buy a key." But I think that does not matter much.

The website of Fomo3D runs under the domain exitscam.me. She alludes to the famous Exit Scam in the Darknet Markets: The site administrators dive in and take everything that's in their wallets. Examples were evolution and nucleus. A DAO member who forms the Fomo3D Smart Contract will also deduct an Exit Scam: The one who bought the last key will cash out the entire pot.

Game theory Fomo3D is brilliant. The bigger the pot, the greater the motivation not to let others get away with it, to clear everything away. At some point, the Fomo - "Fear of Missing Out", "the fear of missing something" - will keep anyone from paying in and keeping the contract alive. Like a black hole, Fomo3D will devour ethers until the last one turns off the light or completes the Exit Scam. In conventional finance, such a game is limited in scope, as there is always someone who has control over the pot of money and who abandons the game voluntarily or by force if it goes too far. There is no such instance with a smart contract. It is theoretically conceivable that Fomo3D eats all existing ethers.

So far, a good 21,600 ethers - almost nine million euros - are bound by the Fomo3D contract. In the ranking of Dapps, the snowball system is currently in third place. In the last 24 hours it had nearly 2000 users and a volume of around 124 ethers. Thus, the popularity of Fomo3D is already dropping compared to last week, when the volume was nearly 90,000 ethers in more than 100,000 transactions.

But whether the contract is ever emptied is an open question. I'm curious how it turns out. Will Fomo3D be a black hole that absorbs more and more ethers - or will it become a lottery where somebody wins once, because everyone else loses interest?

PoWH3D: Obviously a pyramid

No less brilliant is PoWH3D. Like Fomo3D, this pyramid game was developed by Team Just and runs as an indestructible and unstoppable smart contract on Ethereum.

Officially, PoWH3D sells as a "unique exchange" where you can swap ethers for P3D tokens. P3D tokens are ERC20 tokens with a modification: "Each owner of P3D tokens receives direct revenue in ethers whenever someone buys, sells or trades other tokens." The amount of revenue is measured by the amount of tokens in relation to the number of tokens entire offer of tokens.

Owners of tokens thus earn when they bring other users on the stock market of P3D. In itself, the model is based on Altcoin exchanges such as Binance or Coinex.com (here my affiliate link), which have issued their own tokens, with which the shareholders contribute to the revenue of the stock exchange. The difference, however, is that PoWH3D's Smart Contract only allows trading between P3D tokens and ethers. Say: To earn, you have to persuade another Ether owner to trade his ethers for P3D tokens.

PoWH3D stands for "Proof of Weak Hands" and it insists that the "weak hands" will sell once. The Dapps began as a joke and presents itself unveiled as a pyramid play. At first, the makers have even pointed out that the users will lose their money, because that's how it goes with every pyramid game. But meanwhile PoWH3D became immensely popular.

The Smart Contract currently stocks a good 76,600 ethers - around 31 million euros. With more than 2000 users and a volume of over 4200 ethers in the last 24 hours, PoWH3D is currently the most active dapp on Ethereum.

Brutal and primitive but unstoppable

Both PoWH3D and Fomo3D are pyramidal and pyramidal systems that inevitably redistribute assets in a way that leads to centralization. This they have in common with all pyramid schemes. Unlike these they elude the access of regulators and overseers.

PoWH3D does not try to hide that it is a pyramid scheme.

Currently the volume of the two pyramid schemes are still manageable. Comparable concepts such as OneCoin or MMM have brought significantly more capital to the balance, before their scope has been limited by the legislators more and more. In particular, MMM has presented itself as a kind of social insurance for the third world through its strong criticism of capitalism and the solidary narrative. In fact, one could say that social insurance and fiat money are not much more than a state-sanctioned and stabilized pyramid scheme, and where there is no basic state security, pyramid-like constructs can actually take on such tasks by earning a large part of the money but allow if necessary a deduction of the multiple of the amount paid.

Of such ideas, PoWH3D and Fomo3D are still a long way off. These are brutal and stupid, but cleverly constructed and cheekily staged pyramid schemes that fulfill no other function than to take the money from many and give to a few. Nevertheless, they represent a milestone - they are the first decentralized, unstoppable pyramid schemes that have received a reasonably relevant reach. That was not the innovation we wanted but it is undoubtedly something new. One does not want to be in the skin of supervision when the phenomenon continues to spread ...