Mutual-Aid Ponzi Explained

+-----------------------------------------------------------+
|                   MUTUAL AID PONZI                        |
+-----------------------------------------------------------+
|                                                           |
|   A owes B --> B owes C --> C owes D --> D pays A --> 0   |
|                                                           |
|   What if all this happens in ONE DAY? APY 696969%        |
|                                                           |
|   Pool: NO | Free Exit: NO | Fixed Return: YES            |
|   Risk: MID | Analogy: Loan Shark                         |
+-----------------------------------------------------------+

1/ Mutual-Aid Definition

A Ponzi scheme using fund lending as its form, with providing returns on lent funds and mismatching capital as its purpose.

The larger the mismatched capital scale and the longer the duration, the more the operator profits

Banks, P2P lending, and bonds are the most typical mutual-aid schemes. Banks and P2P attract deposits through interest to form capital pools. They fundamentally don't have 100% of funds in the vault (banks call this the reserve system), instead lending money out to earn the spread.

As long as deposits from others exceed withdrawal amounts, the scheme can sustain. Otherwise, a bank run crisis occurs

2/ Collapse Models

Operator Profit Methods:

3/ Crypto's Revolution for Mutual-Aid

Crypto, especially smart contracts, is to mutual-aid what the steam engine was to the industrial revolution. It technically eliminates centralized capital pool risk

Silicon Valley Bank's bankruptcy and China's P2P explosions were essentially collapses caused by centralized capital pools. Smart contracts solved this problem.

4/ Pure Dynamic Mutual-Aid Model - 3M/Forsage

Classic Chinese 3M/Forsage rules:

• Based on system queue, transfer money via bank account to designated accounts per instructions
• Receive corresponding returns (from later participants queued to pay you)
• Returns calculated based on referral performance + base per-transaction returns
• Forsage has no queue, later participants' ETH directly distributed to uplines

Characteristics:

• ❌ No static returns, purely relies on referral dynamic rewards
• ❌ No capital pool

Operator Profit Model: Disguised Rake

• 3M reserves a % in daily queuing to change receiving accounts to operator accounts
• Forsage operators occupy advantageous positions, raking from a portion of subsequent player deposits as "tribute"

Collapse model: Project stops when deposits/payments stop, no liquidation
*Forsage as an '18 legacy scheme still runs today

5/ Pure Dynamic Model Summary

• ✅ No reserves
• ✅ No bubble in payout ratio
• ❌ Extremely high market costs (equivalent to pure shilling)

Hard to form today, but usable for airdrop campaign models.

Pure dynamic models as the most basic mutual-aid architecture can be combined into various complex mutual-aid schemes (high composability)

6/ Options-Like Model - FOMO3D

Options-like models refer to mutual-aid pools that aggregate capital, using new deposits to pay dividends or profitable exits to participants. Triggers liquidation restart when certain end conditions are met.

FOMO3D Rules Simplified:

• Buy pool bonds at continuously rising entry prices
• How long dividends last depends on when deposits stop
• Portion of total funds allocated to lottery + last-buyer game
• Everyone keeps buying to get prizes and bet on being the last one

Operator profit: Occupy early positions + 2% team share
Liquidation mechanism: 100% principal liquidation (unlucky may lose all principal)

Bitcoin Super3/Taishan Crowdfunding Improvements:

• Returns have ceiling
• Last two rounds only lose a percentage
• Priority entry on restart
• Lost % goes to pool (project team)

7/ Options-Like Model Characteristics

• ✅ No reserves
• ✅ No bubble in payout ratio
• ✅ Lower market costs, easy FOMO and spread

But regardless of which model above, they're pure money distribution, hard to integrate asset issuance

Issuance = Minting, Minting needs bubble

8/ Importance of Asset Issuance

1. Moral Hazard — Angel investing distributing coins has lower moral hazard than distributing shares
2. Minting Rights — Asset issuance means having minting rights, can "exchange paper for gold" like governments, expanding revenue ratio

This problem was finally solved in 2020's DeFi Summer, a true mutual-aid "Bretton Woods Moment"

9/ Crowdfunding Pool Model - Liquidity Mining/OHM

Asset issuance essentially means pricing new assets and finding liquidity.

ICO Era Problem: After selling coins, money goes to operator, forming centralized pool easy to rug

AMM Solution:

• Money is in decentralized pool
• Coins are also in pool
• LPs use money to buy coins from pool then do financial leasing
• Rent coins and money to pool for coin-denominated interest

Liquidity mining = Achieved liquidity and pricing + No project team advantage
Problem = LPs can mine infinitely and exit disorderly (can exit LP or mine-dump anytime)
Result = External buying insufficient for inflation, extremely easy stampede, can't scale capital mismatch

10/ OHM's Improvements

OHM changed LP to mining rigs (one-time investment to buy bonds), coin-denominated returns, using rig sales revenue and buyback-mint mechanism to support OHM price.

MoneyArk (MARK) Further Improvements:

Theoretically: As long as 85% buyback + 10% buy/sell tax forming the base pool can cover global remaining debt when liquidating $MARK, nobody loses

11/ MoneyArk's Open Conspiracy

Advantages over OHM:

• Global debt doesn't increase with mining coin appreciation (pay USDC, debt constant)
• External secondary market trading can extract value

Project Team Profit Logic:

• 5% unclear allocation from deposits
• Non-transparent "automated trading contract strategy" (proxy contract)
• Early low-price acquisition of massive MARK chips
• Pump and market-make using deposits to cash out

This perfectly fits mutual-aid's open conspiracy nature. Making you think it's reasonable and safe on the surface enables scaling mismatch capital size and duration. Taking 10% from the 85% principal black box definitely beats FOMO3D

12/ Algorithmic Stables: Ultimate Form of Mutual-Aid

The biggest sector born from mutual-aid: Non-overcollateralized algorithmic stablecoins

Including: LUNA, OHM all belong to this category

Because they're mutual-aid, their vulnerabilities are also consistent with mutual-aid:

Collapse condition: Global debt > Liquidatable assets + External liquidity
Key control: Exit order must be controllable, no arbitrage space allowed

13/ Mutual-Aid Design Iron Laws

1. Liquidation Threshold — Must have clear liquidation threshold, avoid LUNA-style infinite debt expansion

   • Like Super3 liquidation
   • FOMO3D last-buyer game
   • MoneyARK withdrawal deducts TVL

2. Exit Order — Must have strict exit order

   • OHM bonds + Dynamic entry cost
   • Forsage locked output mode + Payout ratio

3. Bubble Control — Asset issuance bubble growth rate must match treasury growth rate

Assets are for cutting later primary and secondary entrants, not for giving away money

Core Formulas

Operator profit = Total funds in mutual-aid state × % insider account ratio

Collapse condition: Global debt > Liquidatable assets + External liquidity

Mutual-aid vulnerabilities:
├── Design and parameters must be clear upfront
├── Minimal adjustment room after launch
└── Classic mutual-aid hard to do asset issuance, must combine with dividend and split

Summary

Mutual-aid is a scheme with no centralized capital pool, nominally no bubble, with capital maturity mismatch as purpose, and rake/treasury occupation as operator profit method

Mutual-aid has characteristics of large scale, fast speed, but design and parameters must be clear upfront with minimal adjustment room after launch.

Classic mutual-aid is hard for asset issuance, must combine with dividend and split to simultaneously harvest secondary markets.

Next: Split Ponzi Explained