If you’ve spent time in crypto, you’ve likely heard whispers—or outright accusations—that the industry is a pyramid scheme. It’s easy to see where the comparison comes from, particularly when we look at how early crypto ecosystems have operated. But is it entirely fair to paint the industry with such a broad brush? And even if some parts of crypto do bear a resemblance to pyramid dynamics, is that necessarily a bad thing?

To understand this paradox, we need to unpack the mechanics behind crypto’s “pyramid” dynamic, its impact on onboarding, and what this means for the maturing industry.

The Pyramid Effect: Why Onboarding Drives Prices

Let’s start with the analogy. In early crypto, onboarding often follows a pyramid-like structure. One person buys a token, nudging the price upward. To see further growth, that buyer has to encourage others to buy in, repeating the cycle and increasing the token’s value bit by bit. This dynamic is especially prominent in new assets, where onboarding drives both adoption and price.

It’s not a pyramid scheme in the traditional sense—there’s no central figure profiting disproportionately or requiring participants to recruit others to earn rewards (A caveat I would just add here though is that some protocols do in fact do this specifically and lean into something called “Ponzinomics”). Instead, this is an emergent feature of crypto markets, where demand directly influences price. It’s part of what makes crypto so accessible but also so volatile.

Ponzinomics in Action

Nowhere is this more evident than in projects like Illuvium and Terra Luna, where “ponzinomics” have been at play.

Take Illuvium, for example. Their token, $ILV, soared from $40 to $1,300 in a matter of months thanks to heavily gamified staking mechanics. Investors were incentivised with high APYs and locked staking rewards, creating immense buy pressure. But what goes up must come down—unsustainable incentives eventually led to a sharp crash, with $ILV now trading closer to $60.

Similarly, Terra Luna’s dual-token system with UST and LUNC relied on circular mechanics to maintain value. For a while, it worked—until it didn’t. When the mechanics broke, the entire ecosystem imploded, wiping out billions of dollars and leaving its founder, Do Kwon, in jail.

Both cases highlight the dangers of over-engineering tokenomics in ways that prioritise short-term growth over long-term stability.

Why the Pyramid Isn’t Always a Problem

Despite these high-profile failures, the pyramid-like dynamics in crypto aren’t inherently negative. In fact, they’ve been a key driver of adoption. Early investors are rewarded for taking risks, and this incentivises others to join the ecosystem. It’s a model that has fuelled rapid growth, albeit with significant risks along the way.

Compare this to Bitcoin. BTC’s steady, decentralised growth over nearly two decades demonstrates the opposite side of the spectrum—a fundamentally sound ecosystem with sustainable adoption and no central authority manipulating the process.

The takeaway? It’s not about whether pyramid-like dynamics exist; it’s about how they’re designed and whether they’re transparent.

Lessons for Founders: Design Over Hype

The real problem lies in poorly designed tokenomics. Founders who rely on hype and unsustainable incentives often set their projects up for failure. Instead, the focus should be on:

• Transparency: Investors need to understand what they’re buying into, especially if the tokenomics are designed to rely on onboarding for growth.

• Utility: A token with real-world applications or intrinsic value is more likely to endure beyond its initial hype cycle.

• Longevity: Founders should forecast sell pressure and supply shocks to mitigate risks and maintain stability over time.

Illuvium, for example, might have avoided its crash with better foresight and more balanced incentives.

A New Era: Maturity on the Horizon

The good news is that crypto is evolving. The industry’s early days were the Wild West—a time of unchecked experimentation, speculative mania, and regulatory uncertainty. Critics were right to call it out then.

But today, the landscape is changing. Projects with tangible utility, institutional adoption, and robust governance structures are becoming the norm. The crypto market is maturing rapidly, and the “pyramid scheme” dynamic is being relegated to niche sectors like shitcoins.

We’re entering an era reminiscent of the post-dot-com boom in the early 2000s—a time when sustainable, long-term growth replaced speculative mania.

The Role of Hype and Culture

Hype isn’t inherently bad. It exists in every industry, from fashion to tech to finance. In crypto, hype has often been the catalyst for adoption and innovation. But for hype to work, it needs substance behind it.

Memecoins are a perfect example of this balance—or lack thereof. As Richard Dawkins once said, a meme is a unit of culture. Memecoins represent that unit in the digital age. When done right, they monetise culture and create communities. When done poorly, they saturate the market and lose all value.

Tokenise: Shaping the Future

At Tokenise, we see ourselves as part of this maturing ecosystem. Our mission is to push the industry forward by standardising digital asset creation and ensuring projects are built on solid foundations.

We aim to make it easier for founders to launch tokens with transparency and utility while relegating ponzinomics to their appropriate niche. By focusing on sustainable growth and meaningful innovation, we believe the next wave of crypto will be more robust, trusted, and impactful.

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