Bernie Madoff Move Over: ‘Stablecoins’ Have You Beat.
Everybody is familiar with the Ponzi scheme: the scammer dupes investors into giving him their money, paying out early investors with incoming investments, thus presenting a veneer of respectability.
The great thing about Ponzi schemes? They really work. Investors are all happy with their returns, whether they stay in or get out.
Ponzi schemes work, that is, until they don’t. Eventually losses steamroll, and the Ponzi schemer is quickly out of business.
Today’s cryptocurrency world is rife with scammers to be sure, and the number of different scams is as great as the number of marks willing to fall for them.
But with the price of Bitcoin and other cryptocurrencies in the doldrums, a new scam is rising to the top, like bits of toilet paper in sewage: stablecoins.
How the Con Works
A stablecoin is a cryptocurrency whose value is pegged to an existing asset – potentially gold or some other commodity, but most commonly to a fiat currency like the US dollar.The stablecoin con begins with a simple value proposition. “[Stablecoins’] main use case is to provide cryptocurrency users with the ability to convert volatile crypto positions into anti-fragile or ‘stable’ alternatives,” explains Sam Ouimet, market analyst at CoinDesk.
In other words, if Bitcoin or some other crypto is too volatile for your liking, move your crypto investment into a stablecoin. Its value will go up or down with the value of the underlying asset, but will be far more stable than the crypto you had invested in before.
Just one problem: as with any Ponzi scheme, the value of your investment is stable until the bottom falls out, and it becomes worthless. Your money, meanwhile, is in the pockets of the scammers.
The Three Types of Stablecoin: From Bad to Worse
Take, for example, the Dai stablecoin from MakerDAO, which runs on the Ethereum blockchain. “[The MakerDAO Dai stablecoin] system makes zero sense and is broken to the core: it only works if the price of Ether goes up,” says Preston Byrne, attorney/solicitor at Byrne & Storm, P.C. “Unfortunately for them, history shows that this investment thesis has been wrong 100% of the time, and Ethereum is as user-friendly and scalable as an angry rhinoceros experiencing heroin withdrawal.”