Cryptocurrency generally isn’t a Ponzi scheme. That doesn’t mean that there aren’t specific crypto projects that are complete scams, intended by the creators from the start to steal investors’ money.
Exhibit A perhaps?
https://m.slashdot.org/story/402766
The firm Sky Mavis makes an online video game called Axie Infinity that uses its own crypotokens to reward winners. The tokens DO have some value to customers paying to play the game. The firm had a cyber breach earlier in the year that resulted in the loss of $600 million of these tokens and the firm just recently informed its customers of the breach and the need to suspend redemption of cryptotoken winnings for real cash.
Except its CEO initiated transactions prior to that public announcement to cash out roughly $3 million in tokens. A trade to protect the FIRM’S cashflow to allow it to continue operating and protect its customers’ ability to transact with those tokens, perhaps? Nope. The CEO was trading with his personal accounts.
Use of cryptocurrency as a vehicle for micropayments that settle in real time back to real currencies while isolating in-flight transaction processes exposed to the entire web from the engine room handling “real money” makes perfect sense.
Until a G7 level country begins accepting tax payments via cryptocurrencies, using cryptocurrency for material business transactions (involving more than one comma, say) or as a store of value is essentially entering into a never-ending race to stay ahead of criminals. The party YOU are dealing with using cryptocurrency may be on the straight and narrow but can still be wiped out by one flaw in their security systems. And unless your government has a stake in protecting the integrity of that cryptocurrency, it is likely your beef with the other party will be viewed as a battle of equal fools by the courts, leaving you on your own.
Need an Exhibit B?
https://www.theblock.co/post/160230/babel-finance-crypto-los…
An Asian firm named Babel Finance promotes itself as a crypto-lender. It isn’t clear if that means they
A) make loans denominated in common cryptocurrencies while internally funding those loans with traditional funds sources like any other bank or mortgage operation or
B) they sell loans in regular currencies but leverage internal cryptocurrency “investments” as the source of funds or
C) they lend in cryptocurrencies and internally fund those loans with crypto-centric investments.
The firm apparently had two different types of internal investment teams – a “Trading Team” that executed trades to fund its “retail” lending to its customers with typical reporting and controls and a “Proprietary Trading Team” that operated in parallel playing with the company’s money but apparently without any normal reporting about their positions and trades. It turns out the Proprietary team lost a boatload of money when Bitcoin dropped from $31,000 to $22,500 from June 6 to June 14 of 2022 and those losses so impaired the company’s own account that it starved the firm of liquidity to operate on behalf of its customers.
In other words, the Trading versus Proprietary Trading distinction was completely pointless. It turns out it is impossible to “hedge” bets in the cryptocurrency sector when the entire sector drops like a stone simultaneously. Who knew? In this case, it isn’t even clear if they made attempts to hedge those trades in the Proprietary account.
WTH