A simple guide on how to avoid the next Crypto Ponzi and how to stop giving people like Do Kwon your hard-earned shekels.

I am well aware that the complexity of crypto infrastructure gets people confused a lot and thanks to that confusion they end up investing in very obvious ponzi schemes. If you are easily persuaded that the crypto future is already here and that everyone is missing out except you here is a set of very simple questions that you should ask yourself before going all-in on almost anything.

• Where is the yield coming from?

If you are ready to ape into a shitcoin because it offers 20% returns on your stablecoin holdings be sure to check where that money is coming from. In the case of UST, it was mostly subsidized by investment funds and Terra Labs because the Anchor protocol wasn't able to generate nearly enough revenue to cover the promised returns. This, as we all now know, is an unsustainable model that makes absolutely no sense.

• How quickly can I get out?

In crypto, disaster is always waiting around the corner. We are working with decentralized protocols (most of the time) and they don't care who is using them. Be 100% sure that you understand the tokenomics and the rules of the game you are playing. Going back to Luna you could easily see the disaster unfolding if you did a simple thought experiment in your head.

If the peg breaks down to $0.9 whales can still redeem Luna with UST at a $1 valuation per UST. If you were a whale in this situation you would simply have to capitalize on the opportunity. Buy UST at a 10% discount on a CEX, redeem Luna tokens with UST and sell it in the open market. Rinse and repeat until the peg comes back to normal or you run Luna into the ground.

If such a scenario is a possibility make sure that your exit plan is ready for when it comes because it will come.

• Why do they need my money in the first place?

If you keep using your common sense on a daily basis you will eventually end up asking yourself why is someone offering you 20% returns only because you let your money sit on a specific blockchain and in a very specific protocol like Anchor. Better yet, ask yourself why are centralized exchanges offering 3-4-5% returns on "crypto staking"?

If they can give you 20% they surely must be making a 25% return on your investment PER YEAR which is insanely ambitious in any industry. Sooner or later you will realize that this is not the case and the only reason they need your coins is because they benefit them.

Exchanges will use your capital to do whatever they want because you can't track it and a project like Anchor will just use your funds as exit liquidity if the shit ends up hitting the fan.

• Am I stupid or is the idea stupid?

Lastly, you will want to simplify things as much as possible. If I tell you that my Monopoly money is always pegged to the US Dollar because I backed it with a volatile asset like Monopoly houses and hotels, the first thing you should be asking me is how large is the backing.

If the backing is 2:1 meaning that my backing assets are worth twice as much as my Monopoly money supply then my scam money can survive a 50% market correction and still be fully backed but as soon as we go above 50% someone is going to be left holding the bag because I obviously don't have enough money to pay everyone at the same time.

This, just like Luna and UST, is a very stupid idea and there is no shame in calling it stupid. If the math doesn't check out don't be afraid to ask questions and doubt the system and if the answer is you are just dumb and poor, that's why you don't understand the future of finance move on with your life and never look back. People that have great ideas are always willing to explain them and gain more exposure while people running ponzis will always be on the defense.

P.S.

I know that all of this became common sense after the Luna aftermath but I'm sure that there are still people that don't understand what went wrong. I have been calling out UST and Do Kwon for months (you can verify that by checking my post history) and trying to explain why the model is broken but every time I would get blasted to downvote hell by the 20% APY bros that took out loans in hopes that UST yield will take care of them.

Stay safe and stay curious.