Original author: @VannaCharmer
Original translation: Ismay, BlockBeats
Editor's note: In the ever-expanding narrative of the cryptocurrency market, tokens are no longer just a carrier of technological or financial innovation, but have become a bargaining chip in a structural game. From exchanges, VCs, KOLs, to communities, airdrop players and retail investors, everyone is involved in a game of "who is the last one to take over". This article does not attempt to deny the potential of encryption technology itself, but to reveal the hidden truths in the current token issuance and circulation mechanism: how it operates like a multi-level pyramid scheme, and how it systematically concentrates profits upward. I hope this article can provide you with a more sober perspective, and learn to distinguish narrative from reality in a market where illusions and hopes are intertwined.
The following is the original content:
Cryptocurrency is a re-enactment of the worst aspects of pyramid schemes—only this time it’s an internet-native version with greater marketing efficiency and less transparency. Most tokens have evolved into a sophisticated pyramid game: those at the top extract the maximum returns, while retail investors are left with a pile of worthless “air coins” in the end.
This is not accidental, but a structural problem.
In traditional MLM programs, such as Herbalife or Mary Kay, products are often overpriced but less effective than alternatives on the market. The core difference is not the product, but the sales method: instead of going through retail stores, individual agents make the purchases first and then go out and find willing customers.
As a result, the situation quickly changed from "selling products" to "recruiting people". The motivation for each person to buy a product was not to use it, but to sell it to others at a high price in the future. In the end, when there were only "speculators" left in the market and no real users, the pyramid could no longer hold on. The people at the top took away all the asymmetric benefits, while the participants at the bottom could only stare blankly at a pile of inventory that no one wanted.
Token Pyramid
The operating logic of crypto tokens is exactly the same as that of multi-level pyramid schemes. The token itself is the "product" - a digital asset with an inflated price and little practical use other than speculation. Just like the distributors in the pyramid scheme system, the holders do not buy the tokens to use them, but to sell them to the next person at a higher price later.
This pyramid structure is similar to traditional MLM, but cryptocurrencies have their own unique participant ecology, forming different levels. Compared with traditional MLM products, tokens are more ideal carriers: they can use the Internet and social networks more efficiently, are easier to trade and obtain, spread faster, and spread more widely. The operating logic is roughly as follows:
In traditional MLM, if you develop downlines and they sell the product or continue to buy, you can profit from it. The same is true for tokens: you let others take your "goods", and then pull in some new people who entered the market later than you. This is beneficial to you and those above you, because new people provide "exit liquidity" and the price goes up. At the same time, new people will also start to actively promote because they have also taken tokens (they now have "goods" too!), and early holders can cash out at a high position (the profit multiple has increased!). This mechanism is exactly the same as MLM, but it is more powerful.
The higher your position in the pyramid, the more motivated you will be to issue new coins and continue to promote this gameplay.
Godlike existence: Exchange
At the top of the crypto pyramid are the real “gods” – exchanges. Almost all “successful” tokens are deeply controlled by exchanges and their associated market makers. They control the distribution and liquidity of tokens. If project parties want to access the platform and obtain distribution resources, they often have to “pay tribute” – that is, hand over a portion of tokens for free.
If you don’t follow their rules, your tokens won’t be listed online, or they will have to stay in the “hell” of extremely poor liquidity and eventually die silently. Exchanges can kick out market makers at any time, require project parties to provide tokens for their employees to cash out, and even unilaterally change the terms of service at the last minute. Everyone knows this hegemony, but they can only endure it silently - because this is the price to pay for “liquidity” and “distribution”.
For entrepreneurs, exchanges are an insurmountable wall. Whether or not a project can be listed on a top exchange often depends on the "network of relationships" rather than the quality of the project itself. This also explains why so many projects now have "invisible co-founders" or "former exchange employees" who are responsible for matchmaking and opening up channels. Without experience or connections, it is almost impossible to complete this coin listing process.
Demigod: Market Maker
Market makers, in theory, provide liquidity to the market, but in reality they often help project owners secretly sell their tokens through OTC, while using their information advantage to reap ordinary users. They usually hold a considerable portion of the total supply of tokens (sometimes up to several percentage points), and use this to manipulate transactions and obtain asymmetric arbitrage opportunities. For tokens with a small circulation, this effect will be greatly magnified, putting them in an extremely advantageous position in transactions.
The money earned by simply "providing liquidity" is extremely limited, but by reverse trading with uninformed users, you can make a lot of money. Among all market participants, market makers have the clearest understanding of the circulation of tokens - because they know the real market floating volume and hold a large number of tokens. They are the pinnacle of information advantage.
For project owners, the "quotes" of market makers are also very difficult to evaluate. Unlike services such as haircuts, which have clear prices, the prices of market making services vary from person to person. As a startup project owner, you have no idea which terms are reasonable and which prices are inflated, which has given rise to another gray area: the proliferation of invisible co-founders and "market making consultants." They act as consultants to help you make connections, but this further increases the complexity and gaming costs of issuing coins.
King: VC and project parties
Below the exchanges are the project owners and VCs, who captured most of the value in the private placement stage. They got the tokens at extremely low prices before the public heard about the project, and then spun a narrative to create a "liquidity outlet" for shipment.
The business model of crypto VCs has become extremely distorted. It is much easier to get "liquidity events" in the crypto industry than in traditional venture capital, so they don't really encourage long-term builders. In fact, the opposite is true - as long as it is beneficial to them, VCs can turn a blind eye and acquiesce to predatory token economic models. Many VCs have long stopped pretending that they are supporting sustainable businesses, and are systematically participating in and supporting various "pump-and-dump" speculations.
Tokens also give rise to a peculiar incentive mechanism: VCs are motivated to artificially inflate the valuation of their portfolios (actually “harvesting” their own LPs) in order to increase fund management fees. This is especially common with tokens with low circulation - they can use FDV to mark the book value, thereby inflating the project valuation. This practice is extremely unethical because once all tokens are unlocked, it is impossible to exit at that price. This is also one of the key reasons why many VCs will find it difficult to raise new funds in the future.
Although platforms like Echo have slightly improved this reality, there are still a lot of black box operations behind the scenes of the crypto industry that ordinary investors cannot see at all.
Opinion Leaders: KOL
The next level down is KOLs, who usually receive free tokens when a project goes online in exchange for promotional content. "KOL financing rounds" have become the norm in the industry - KOLs participate in investments and then receive a full refund after TGE. They use their own communication channels to exchange for free chips, and then brainwash their fans, who eventually become their "exit liquidity."
Soldiers: Community members and porn enthusiasts
The "community" and airdrop players constitute the bottom labor of the pyramid. They undertake the most basic tasks: testing products, producing content, and creating activity in exchange for token distribution. But even these activities have now been "industrialized": the rewards are getting smaller and smaller, but the work is getting more and more.
Most community members often "work" for the project for free for a long time before they suddenly realize that they are just outsourced marketing departments of the project party - and after the TGE, the project begins to ruthlessly dump the market. Once they realize this, anger will spread and "take up arms." This "angry community" is extremely detrimental to projects that really want to make products because it creates additional interference and noise.
Leek: Retail investors
At the bottom of the pyramid are the ideal retail investors, the "exit channel" for everyone above. They are fed various narratives and stories, giving a certain asset a "meme premium" to attract more people to buy, so that the upper players such as the foundation can smoothly ship out.
However, this cycle is different from previous ones, and retail investors have not really entered the market. Today's retail investors are more cautious and skeptical, which has left community members holding a bunch of worthless airdrop chips, while insiders have already cashed out through OTC transactions. I suspect this is one of the reasons why you always see people complaining in the timeline about token crashes or worthless airdrops: because in this cycle, retail investors have not taken much, and the founders have made a fortune anyway.
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The core of the current crypto industry is not about making products, but about making stories - telling a narrative of "high illusion of yield" to induce others to buy a certain token. Focusing on product construction has become a behavior that is not encouraged (although this is slowly changing).
The entire token valuation system has been completely distorted. It is no longer based on fundamentals, but relies on "market value benchmarking" for horizontal comparison. The core question of the project has changed from "what problem does this token solve?" to "how many times can it increase at most?" In this environment, projects can hardly be reasonably priced or evaluated. You are not buying a company under construction, but a lottery ticket. You must recognize this when investing in cryptocurrency.
The script for selling a narrative is very simple: just create a story that sounds reasonable but is actually unpriced, such as:
“This is a stablecoin project backed by Peter Thiel, and its token can be seen as an indirect exposure to Tether’s equity. The reason why I am optimistic about this token is that Circle has a market value of $27 billion, and Tether’s revenue and profits far exceed Circle’s, and its operating costs are lower. Currently, there is no product on the market that allows you to invest directly in Tether, and this token fills the gap! They are also building an infrastructure similar to the Circle payment network and plan to introduce privacy features. This is the future of finance, with a market value of $100 billion!”
This type of narrative is great if you want your friends to buy a token. The key is to tell the story clearly enough, but leave enough room for imagination so that they can imagine a future with a high valuation.
What’s next? Fixing the token’s market structure
I still believe that crypto is one of the few areas that can provide huge asymmetric benefits to ordinary people, but this advantage is gradually disappearing. Speculation is the core product fit (PMF) of crypto and the "hook" that initially attracted market participants to pay attention to everything we are building. Because of this, we urgently need to fix the entire market structure.
The second part of this article will explore how platforms like Hyperliquid have the potential to completely change the rules of the game.
