Author: Encrypted Wei Tuo
TL;DR
Whether you want to admit it or not, a large part of the progress of human civilization is due to unfounded but optimistic assumptions, and money is the best example of such an assumption - a blindly optimistic assumption of the ability of other entities to "return equivalent value".
Our ancestors accepted money without question as a substitute for food in exchange for the value they created. However, the fact is that money is just a bookkeeping symbol that records social relationships between creditors and debtors and never needed to have any intrinsic value.
But now, we have given this phenomenon a more appropriate name - "Ponzi". Next, I will explain my theory on how to identify, understand, design and ultimately control Ponzi schemes in cryptocurrency and other fields to maximize profits - this is what I call "The Three Ponzi Problem".
What is a Ponzi scheme?
In short, a Ponzi scheme is an economic system in which the mismatch between capital demand and expected returns creates a "gap" that can only be filled by further mismatches. (This definition is original, so I'd like to clarify.)
Is every Ponzi scheme a “man-made” system? Yes. But it is not necessarily a scam. It depends on whether the “gap” is considered reasonable and acceptable by the audience. Historically, these “gaps” are often beautified and packaged into other terms, such as “sovereign credit”, “legitimacy” or “market consensus”. Ponzi is not an absolute concept. Its true nature often needs to be examined from a macro perspective, because many Ponzi schemes do not show typical characteristics at the micro level.
In fact, Ponzi schemes are more common in everyday life than you think, and they often seem plausible. Take the residential real estate market, for example, which has existed since 3000 BC and is considered a "productive" store of value. However, in fact, this value logic would not be sustainable if it were not for the rapid and growing inflation caused by modern fiat money printing.
What is the Three Plate Theory?
Every Ponzi scheme must be based on one or more of the following three basic forms: mining, pooling and splitting.
It may sound absurd, but the Three Plate Theory can serve as a guiding framework for designing and operating almost any Ponzi system - whether at the macro or micro level.
Three-disk - Dividend disk
A dividend-sharing system is one in which users bear the upfront sunk costs in the hope of gradually receiving the promised fixed returns over a period of time.
Types of dividend plates
A. Capital-based sunk costs Users need to invest capital (including liquidity opportunity costs) to start earning benefits. Examples include the Bitcoin/KASPA/FIL mining ecosystem (excluding Bitcoin itself), PoS staking/re-staking on L1, DePIN, and dividend-sharing platforms like Plustoken.
B. Time/Effort Sunk Cost Users invest a lot of time or energy in the hope of gaining benefits. Examples include Pi Network, Galxe badge campaigns, meaningless Discord role wars, and Telegram applets like DOGS.
Key indicators for evaluating dividends
Fixed sunk costs: one-time, irrecoverable investments (such as Bitcoin mining machines).
Incremental Sunk Costs: Recurring, non-recoverable costs (such as electricity and maintenance costs) incurred to obtain each unit of incremental revenue.
Withdrawable Return: The income that can be freely withdrawn and converted into cash.
Reinvestment cycle: The period during which sunk costs need to be reinvested after they mature.
External Liquidity: The available liquidity of this dividend token in external trading venues.
Crash Model
Conditions for the dividend plate to collapse: actual incremental sunk costs + external liquidity < extractable returns At this point, the system creator should profit by stopping dividends and "running away".
How to delay the collapse (taking BTC mining as an example)
Activate the flywheel effect: high coin price → higher demand for mining machines → higher mining machine prices → manufacturers get more cash → manufacturers further push up coin prices.
Increase total sunk cost: Continuously increase the minimum total sunk cost to acquire additional tokens, driving a higher “shutdown price”.
Pricing Sunk Costs in Fiat: Avoid using token pricing as this gives an unfair advantage to early adopters, undermining the purpose of driving higher shutdown prices by increasing sunk costs.
Control early-stage liquidity: Minimize external liquidity in the early stages to prevent premature selling and maintain control over token holdings.
Case Study: Bitcoin Mining Ecosystem
Let’s review the Bitcoin mining ecosystem — one of the most classic and well-run crypto Ponzi systems — and Bitcoin ($BTC) itself. Many historical mysteries can be explained.
Why did BTC skyrocket in 2013 ($10 → $1000)?
2013 was the year when ASIC mining machines were introduced, which allowed mining machine manufacturers to dominate revenue and sales, making them the first “market makers” for Bitcoin. At the same time, there were no efficient and liquid trading venues and liquidity models, and low external liquidity also made price manipulation easier, thus starting the flywheel effect.
How did Bitcoin rise in a miner-led cycle before 2021?
Miner costs (electricity and facilities) are denominated in fiat currency.
The incremental cost is much higher than electricity, especially in China, where the CCP’s policy crackdown starting in 2019 has resulted in many miners facing possible complete losses in pursuit of lower electricity prices.
Because of these policies, the total sunk costs and “shutdown prices” are much higher than they appear on paper, which objectively and unintentionally pushes up the price of Bitcoin.
Three-way - Mutual Aid
Mutual Aid is a system where users provide liquidity in exchange for a promise of a fixed return per unit of contribution. Unlike dividend sharing, mutual aid does not require locking assets, but relies on high trading volume to operate, just like a casino does not directly profit from individual wins and losses, but takes a certain percentage from the total transaction amount.
Types of mutual aid
Pure MLM type: Users get dividends by attracting more participants, relying only on capital inflow (for example: Forsage.io, 1040 Sunshine Project).
Quasi-option type: funds circulate between participants, and new funds are used to pay returns to old participants (for example, A transfers money to → B transfers money to → C transfers money to → A), usually including liquidation or restart clauses to deal with situations where funding targets are not met (for example: FOMO3D, 3M, the overall meme coin market).
Liquidity Mining Users earn income by providing liquidity, usually sacrificing exit opportunities in exchange for higher returns.
DeFi users are no strangers to mutual aid, as most DeFi tools are essentially part of the "macro L1 mutual aid", such as lending protocols, and the speculative token dynamics in these systems are the core source of mismatch.
Crash Model
Conditions for the collapse of the mutual aid market: systemic debt > liquidable assets + external liquidity.
The profits of Ponzi scheme designers usually come from fees or front-running profits.
How to delay the collapse
Clear liquidation thresholds Set a maximum profit cap or enforce a stop loss/restart mechanism;
Prohibit arbitrage Eliminate arbitrage opportunities that could undermine systemic debt rules and drain liquidity;
Preventing bank runs Allowing orderly exits without disruptive impacts on the remaining assets in the pool;
Case Study: The Evolution of AMMs and Mutual Aid
AMMs (Automated Market Makers) have achieved a major breakthrough in mutual trading infrastructure, comparable to the emergence of commercial banks.
Why did LP liquidity mining collapse after DeFi Summer?
Why do new income mutuals tend to be more Uni V3-like models, such as @MeteoraAG’s LP Army?
Uni V2 Liquidity Mining:
In Uni V2, users can provide liquidity indefinitely and be rewarded in the same token through a high annualized yield (APY).
Why it crashed:
There is no liquidation threshold. The income is distributed to the entire liquidity pool, even if only a small part is actually used. However, as long as the provided liquidity is in the pool, the local currency output can be obtained without limit;
Arbitrage loophole: The “mining, selling and withdrawing” strategy allows early participants to quickly recover their capital, which is equivalent to risk-free arbitrage, and exhausts the liquidity of the remaining LPs by selling their own coins;
No run prevention measures and no exit restrictions lead to panic selling when APY drops, which eventually leads to the collapse of the entire pool;
How to fix the problem with Uni V3:
Liquidation Threshold Only liquidity within a certain price range is eligible for yield rewards.
Run prevention: The withdrawal of liquidity in a certain price range will not affect the rewards or liquidity in other ranges.
Fixing arbitrage loopholes Most projects have removed immediate token rewards and switched to a points mechanism (Post-DeFi Summer), although this mechanism has caused new problems in the split-plate design.
Three Plates - Split Plates
A stock split is a Ponzi system in which the total capital remains constant at a certain point in time, but the number of equity or assets corresponding to each unit of capital is multiplied, and the price of the newly generated equity or assets is reduced proportionally to attract subsequent capital inflows. This is very similar to stock splits in traditional finance.
In my opinion, the split plate is the most complex and difficult to control Ponzi system. It usually does not exist alone, but is embedded in one or two other Ponzi forms as a "de-bubble" mechanism.
Crypto Split
In Crypto, all L1/L2 are essentially dividend-sharing platforms, and as long as they need to build an "ecosystem", they are also split-up platforms. For example:
BTC inscriptions/runes/L2 to BTC;
PumpdotFun for Solana;
aixbt/Luna/Game to Virtual;
The ultimate goal of the split is to convert a token into a unit of account for as many assets as possible, just like the U.S. dollar is to U.S. stocks.
Why?
Because both the US dollar and the L1 token are essentially created out of thin air. By providing a higher nominal ROI, alchemy is achieved, "fake money for real money".
Crash Model
Conditions for a split disk crash:
ROI is below market benchmark Beta Competing split systems with higher ROI and similar risk attract churn.
Split Ratios Too High or Too Low A high split ratio dilutes liquidity, while a low split ratio fails to sustain ROI.
Capital drain: New inflows dry up and existing holders quickly exit using it as exit liquidity.
The main profit point for Ponzi scheme designers lies in front-running behavior.
Case Study: Ethereum, ICOs, and Solana
Ethereum is a classic dividend-for-profit, but it became the most important split mechanism in history through the ICO era.
Why does Ethereum need an ICO?
Mining is inflation: rising “shutoff prices” that are too high will naturally discourage new participants from entering.
The split mechanism attracts funds: ICO attracts participants to hold $ETH, and these participants need to purchase ICO tokens to convert $ETH into units of account and achieve de-bubble.
Why do ICOs succeed/fail?
High ROI: The yield from ICOs far exceeds holding $BTC or other obsolete tokens. Many ICOs have close to 100% circulating supply and low FDV, creating explosive ROI in a low liquidity environment.
High split rate: Too many ICOs too quickly dilute overall liquidity.
Capital loss: Most ICO tokens lacked liquidity at the time, and participants were unable to recover their funds, but $ETH was not like this. Developers sold ETH faster than funds came in, turning ICO participants into liquidity withdrawals. This ultimately led to a collapse in ROI.
As a result, $ETH experienced a “Davis Double Click” at the time.
Ethereum’s Dilemma in 2024
Capital loss: Locking up funds through LSD, restaking, and PointFi reduces the effective circulation (the amount of transactions that can be used for speculation).
The split rate is too slow: new projects are mainly led by the inner circle, in the name of "alignment and orthodoxy with the Ethereum Foundation and Vitalik", to V startups.
Low ROI: Compared to Solana, which has restored the ICO model of the ETH era (such as Pump.fun), Ethereum’s ROI is less competitive.
Why is a 2024 split like Solana successful?
Balance split ratio and dilution with Pump
Memecoin is a Solana spin-off asset, priced in $SOL and accelerated by the Pump mechanism. Pump itself operates as a mutual aid platform, and its liquidity turnover is so fast that it almost simulates a quasi-option cycle. This effectively alleviates the liquidity dilution problem caused by the high spin-off rate, allowing funds to remain in the market and continue to participate in speculation, while maintaining the opportunity for new users to enter with a low threshold.
Boost your ROI with the marketing machine
Solana is the only L1 with its own dedicated “marketing machine”, from the Colosseum/Superteam community to a large network of video bloggers and KOLs (such as Jakey, Nick O'Neil, Banger, Threadguy, etc.).
Combined with core influencers like Toly, Mert, and Raj, Solana intentionally brings liquidity to emerging illiquid memecoins and projects, providing super-exponential ROI (outperforming market benchmarks) and driving the $SOL-memecoin flywheel effect.
Similar strategies have also been imitated by Sui and Virtual (such as Luna and aiXBT).
Three-disc design philosophy and three-disc combination
Each Ponzi scheme operates under the assumption of a closed system, subject to the inherent limitations of its collapse model. These limitations can be mitigated by integrating the characteristics of mining, pooling, and splitting, each with its own unique role:
Dividend-sharing: Locking up assets to maximize assets under management (AUM).
Mutual aid: making money through high trading volume.
Split the plate: eliminate bubbles in the main plate through price fluctuations of sub-plates.
When designing a Ponzi scheme, start with these basic questions:
How does the dealer make money in this design?
How can Zhuang accept its collapse?
Then you will know which plate type to choose.
Choose your cabal and know your target audience.
Ponzi schemes are a zero-sum game, with profits and losses coming from the same source. The key question is: who are your allies and who are your “prey”?
First, understand the scope of your cabal's capabilities:
a. People who directly influence and persuade
b. People who can be reached but not necessarily fully convinced
c. People who are completely unreachable
An effective cabal should:
Maximize the coverage of a + b
Highly aligned in interests
Assign clear roles to each member
The number of members should not exceed 7 to ensure smooth collaboration
This also explains why some “particularly popular” advisors appear on multiple teams, or why certain VCs are replaced by exchange VCs in early financing rounds.
Second, understand your audience and their characteristics. Key indicators include:
Age group: Are they from the 80s, 90s or 00s? How free was their upbringing?
Information sources: Do you use Twitter, Telegram, TikTok, or WeChat?
Financial attitudes: What are their attitudes toward freelancing, financial freedom, and time autonomy?
Knowledge level: Can they grasp the basics of cryptocurrency?
Risk appetite: Do they prefer passive income (interest) or active returns (trading)?
A typical portrait of "destined to join the cryptocurrency community as a family":
At least those born in the 80s, 90s, and 00s
Use Twitter, TikTok or Telegram
Prefer to be a freelancer and reject the institutionalization of social animals
Prefer active financial activities and value transactions
TikTok users are slightly different - they tend to prefer the PVP model. After all, most of them grew up in an era of stock games lacking macro growth.
These are the "new humans" (what Godard calls them) who have bought into the hyper-financialized worldview. They are sold the narrative of "fair start", "anti-institutional", and "anti-political correctness".
If the above personas don’t fit your audience:
Borrowing or forging the endorsement of the authority they blindly believe in, they are more like obedient subjects under the authoritarian rules.
The first principle of three-disk design: Never go against human nature
History has proven that the developer’s beliefs are irrelevant. For any cryptocurrency project (not just Ponzi), sustainability usually gives way to popularity (you need to survive first), and popularity relies on being consistent with human nature:
Nothing lasts forever: don't expect your project to be an exception.
Perception is better than reality: At its core, Ponzi schemes are about the art of manipulating people’s minds. Your project doesn’t need to be what you claim it is, it just needs to fit your audience’s perception and make them believe it is.
Let them gamble: Don’t make decisions for your users and sacrifice gambling opportunities for security. Your audience likes risks, otherwise they wouldn’t get involved in crypto.
Say "thank you for participating" frankly: face it rationally. Your first priority is to make a profit, not to be emotionally invested in the project. When the trend is no longer there, retreat decisively.
opportunity
"When luck arrives, heaven and earth are on your side; when luck is gone, heroes are helpless." How successful you can be depends on resources, but whether you can succeed depends entirely on timing. Many Ponzi schemes take off simply because they go online at the right time, while others with comprehensive products can hardly break even.
How to assess timing?
For crypto users, the primary consideration is the risk-return ratio — the balance between perceived risk and expected return.
Two expectations to consider:
Liquidity expectations relative to the market Users are influenced by the average daily volume they are accustomed to. For example, in a bull market, $SOL may have a daily volume of $1 billion, while in a bear market, most coins may only have a daily volume of $500,000 on Binance. - Why it matters: Liquidity determines how easily users can convert book value into cash, which is a key factor in decision making. - How to measure: Analyzing 30 days of DEX and CEX volume can provide a clear indicator.
Expected Market Beta ROI Under Similar Risk Conditions In a bull market, even 100% APY may struggle to attract $1M TVL, while in a bear market, people may be more inclined to chase the safer 10% mining yield. - Why it matters: Users will compare returns based on market conditions and adjust risk appetite accordingly.
Specific to the disk type:
Liquidity: Mining type (early stage) < Split type < Funding pool type < Mining type (mature stage)
Expected rate of return: Mining type (mature stage) < Mining type (early stage) < Funding pool type ≤ Split type
Quick test:
Liquidity test: If the liquidity of the Ponzi is lower than the current market expectations, it is not a good time to launch.
Return Test: If the Ponzi's return rate is lower than the market beta return rate, it is not a good time to launch.
Don't be too confident, the opportunity is fleeting.
Opportunities are like flowing water, constantly changing. If your resources are not enough to change the tide, focus on speed: fast delivery and quick market entry. In this case, leveraging an industrialized, replicable, and cost-effective product framework may be the key.
Can Ponzi finally be rationalized?
Dear, isn't this what we have been doing for thousands of years - rationalizing and integrating predatory systems into social norms? This process is so efficient that people no longer pursue predictable returns, but instead pursue "give me a chance" and blame their losses on their own "technical problems." So what is the end of the three Ponzi schemes?
Mining type: Evolved into a similar form of mutual funds (by locking TVL dividends, such as mining pools, JITO models)
Funding pool type: Evolved into a casino (such as PumpdotFun, Crash Games, JLP/GLP pool)
Split: Evolving into an alternative asset market (such as Pop Mart, BTC inscriptions, NFT, ICO)
Before the End
Thank you for taking the time to read this long article. I tried to be concise but comprehensive. The Three Plate Theory was first published last year as part of my teaching project Open Rug (Open Source Scythe) for Chinese cryptocurrency traders. This series of articles is based on my experience accumulated over the past 8 years, both in victory and failure, including Ponzi projects with a peak fund volume of more than $1 billion and exits of tens of millions.
Today, the Three-Disc Theory has become one of the most cited analytical frameworks among degens and developers in the Asian community. From a relatively mild perspective, the Three-Disc Theory is a very lethal growth hacking methodology.
The real purpose of the Three-Disk Theory is to demystify and deconstruct the overly complex and hypocritical narrative woven by the Western cryptocurrency circle, and refocus developers' attention on what is really important: through ubiquitous Ponzi economics, to build a hyper-financialized world where everything can be priced, traded, and frictionless.
Of course, the main thing is - to make a lot of money.
Hope this helps you, in any way.