What if the crypto industry was just a gigantic 2.0 pyramid system? Behind technological innovation, a well-oiled mechanics always benefits the same actors: Exchanges, venture capital companies, influencers … while individuals serve as exit liquidity. Diving behind the scenes of an ecosystem that recycles multi -level marketing codes (MLM).
Crypto industry assimilated to a pyramid system
The crypto industry has developed a disturbing resemblance to multi -level marketing systems (MLM) like Herbalife. This is the observation that a content creator recently shared on X. We explain all of this in detail in this article.
Although technologically innovative, The crypto industry has reproduced certain aspects of the pyramidal diagrams of the MLMbut with a tenfold sophistication and scope thanks to the Internet.
This analogy is not accidental: it reveals a systemic structure where private investors (the famous retail) are systematically disadvantaged. Understanding these mechanics becomes essential for anyone who wishes to sail in this universe knowingly.
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The mechanics of a pyramid system
In a classic MLM system like Herbalife, distributors buy overvalued products that they then struggle to sell from real consumers.
The emphasis quickly moves from the sale of products to the recruitment of new participants. Everyone buys in the hope of reselling more, creating a bubble where no one really wants to use the product.
Image representing the pyramid system of the Herbalife company
Most altcoins work according to identical principles. The crypto in question becomes the “product”: an overvalued digital asset whose utility often remains questionable beyond speculation. Like MLM distributors, The majority of cryptos holders do not buy for cases of concrete uses, but to resell at a higher price.
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The major difference lies in efficiency: Cryptos exploit the Internet and social networks in a much more powerful way than traditional MLM. The transactions are simpler, the acquisition faster, and viral propagation is multiplied.
The mechanism remains the same: By inciting other investors to buy your “bags” (positions), you create exit liquidity while giving new arrivals an incentive to promote the crypto in turn in question. This self-central dynamic forms the basis of the modern pyramid system.
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The hierarchy of the Crypto market: who really benefits?
The exchanges occupy the top of this pyramid. They control distribution and liquidity, forcing projects to pay a tribute in the form of tokens “Free” – Some exchanges like Coinbase are not affected by this observation – to deploy on their platforms.
Image representing the pyramid system of the crypto industry
Without listing on a major exchange, a crypto remains condemned to low liquidity and a good chance of failure. This dominant position allows exchanges to impose their conditions: exclusion from market makers (liquidity suppliers), tokens allowance requests for their employees, etc.
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The opacity of the listing process promotes personal relationships and explains the emergence of a worrying phenomenon: “ghost” co -founders. These individuals, often former employees of major exchanges, discreetly appear in the management team of crypto projects without being officially announced.
Their role? Facilitate negotiations with exchanges thanks to their privileged contacts. In exchange, they recover a significant part of the project tokens, creating an institutionalized “cronyism” system where access to listings depends more on relations than on the technical merit of the project.
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Market makers, founders and venture capital funds
Theoretically responsible for providing liquidity, market makers actually exploit their informational advantage to trade against ordinary users. Often holding several percentage points of the total offer of a crypto, they benefit from a privileged position for trading.
Their exact knowledge of the quantity of tokens in circulation and their important reserve give them a considerable advantageespecially on low -movement tokens where their movements have an amplified impact.
Capital venture companies (VC) and the founders of projects appropriate most of the value during the price discovery phases. They acquire tokens at derisory prices Before the general public even knew the existence of the project, then orchestrate narratives to create exit liquidity.
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The model of VC Crypto has particularly been unscrewed: unlike traditional venture capital where the exit can take years, VC Crypto can regularly liquidate – all or part – of their positions from the Public Listing of the Token.
This quick exit ease discourages investment in long -term projects. Many VCs are looking at predatory tokenomics as long as they benefit them, abandoning any pretension to build sustainable businesses.
Influencers, community and private investors
Influencers, also called KOL for Key Opinion Leader in English, form an ante-tennier level. They generally receive free tokens in exchange for promotional content. The “Kol Rounds” where influencers invest and are reimbursed during the Token Generation Event (TGE) have been standardized in recent years.
At the bottom of the pyramid are the community/the hunters of Airdrops, then the private investors. The first provide free work (tests, content creation, activity generation) in exchange for often derisory tokens allowance. The latter ideally constitute the exit liquidity for all the upper levels.
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The consequences for the particular investor
The current Crypto market is no longer based mainly on the construction of products, but on the sale of attractive concepts designed to arouse expectations of disproportionate gains and encourage the purchase of tokens. Building a real product even becomes discouragingthe emphasis being placed on the ability to generate media threshing.
The tokens evaluation model is fundamentally obsolete, based more on hazardous comparisons rather than a fundamental value. The question “How much can x crypto mount?” “Replaced” What problem does it solve? », Mounting a rational evaluation of projects impossible.
The manufacture of attractive narratives
The recipe to sell a narrative is simple: create something understandable but difficult to assess precisely.
For example: “First decentralized AI token which is revolutionizing machine learning. Imagine Openai (company behind Chatgpt) but on the blockchain, with yields for tokens holders. The AI market weighs x billion dollars, if we capture just 1 % we are already worth more than Ethereum! »»
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This type of narration is digestible enough to be sold easily, while leaving room to imagine a high valuation.
Unlike the previous cycles where private investors were rushing into the new tokens, The current retail shows more skepticism. This distrust has left many members of communities with worthless Airdrops, while The initiates continue to liquidate their positions for sale of over will (OTC).
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Navigate with knowledge of causes in this ecosystem
Despite these criticisms, the crypto industry retains a potential for positive asymmetry for the informed investor, even if This advantage seems to be gradually eroding.
The main thing is to understand that you participate in a game where the rules structurally favor certain actors. Before investing in a crypto project, ask yourself these essential questions:
- Who are the real beneficiaries of this token?
- What is the real distribution of tokens between initiates and the public?
- Does the project solve a concrete problem or only sells a narrative?
- What level of the pyramid do you sit?
Recognizing these dynamics does not mean avoiding the Crypto investment completely, but rather participating in knowledge of the facts. Because in a game where Information is the main advantage, understanding the rules remains your best protection.
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Investments in cryptocurrencies are risky. There is no guaranteed high yield, a product with high performance potential implies a high risk. This risk taking must be in line with your project, your investment horizon and your ability to lose part of this savings. Do not invest if you are not ready to lose all or part of your capital
Passionate about the blockchain ecosystem, I like to deepen my knowledge and share my discoveries. In perpetual quest to learn more about cryptos, I recently joined the Cryptoast Research team where I provided a weekly fundamental analysis.
Théo Zananiri
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