FOMO3D and PoWH3D, the biggest Ethereum decentralized applications by users and volume, proved to be a success last week, but they both turned out to be ponzi schemes where virtually everyone who plays loses.
Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. You are supposed to transfer your money to some account and the you are promised giants profits in a super short period of time. Generally, dozens percents of profit within a day. The Ponzi scheme generates returns for older investors by acquiring new investors, which is similar to a pyramid scheme based on using new investors’ funds to pay the earlier backers. The scheme is able to maintain the illusion of a sustainable business as long as most of the investors do not demand full repayment and are willing to believe in the non-existent assets that they are purported to own, and there continue to be new investors willing to contribute new funds.
Both FOMO3D and PoWH3D have been developed by Team JUST group, the creators of which are keeping themselves anonymous. During the last week, these DApps have surpassed a combined trading volume of about $85 million. The creators themselves do not consider the apps fraudulent:
“We recognize that a trustless smart-contract managing value in this way simply was not possible before this point in computing history. There’s no scheming here at all – it’s upfront, honest and completely transparent.”
FOMO3D is a decentralized game where players must purchase a key with ether. The ether used for the purchase is sent to a smart contract (“pot”). For every key bought, 30 seconds is added to a timer. The last person to buy a key wins the whole pot. If the timer goes to zero, user with the last purchased key receives the jack pot 28,000 ETH).
“Welcome to a psychological social experiment in greed” the website states. “Come on buy a key, all the cool kids are doing it anyway”.
You can purchase a key for 0.005 eth, but the price is growing, while the chances to win the prize are becoming lower and lower. Currently, FOMO 3D generates about 25,000 transactions on the Ethereum network.
“Fomo3D is putting every player in the terrifying and tempting position to Exit Scam everything and run away with massive life-changing amounts of real Ethereum,” the game developers say. “You should take it…The game runs entirely on human greed, to the profit of everyone playing.”
Another game, PoWH3D (“Proof of Weak Hands 3D”), is a cryptocurrency exchange which allows you to trade Ethereum for P3D tokens. Every P3D holder receives a fee in Ethereum every time that anyone else trades the token based on the amounts of tokens (in % out of total amount minted) held. That fee is then distributed to everyone still holding the token.
Both the products have sparked a furor among crypto enthusiasts, who are warning buyers to be cautious and not to support these schemes. JP Thor, CEO of CanYa, a startup funded with an initial coin offering (ICO), said that the thing with the apps won’t certainly end well.
Financial blogger JP Konig noted that Ponzi schemes are not new on the blockchain.
…It is human nature to seek out gambling opportunities like ponzis. Till now the only option has been shoddily-run offline ponzis. If Ethereum's relatively clean ponzis displace the bad ones, the world is (a bit) better off. I wrote about this here. https://t.co/fRizFx9CxK
— JP Koning (@jp_koning) July 22, 2018
The scheme is not new, but it is still used to pull a con game on credulous users. That’s why crypto enthusiasts warn to be cautious and ask to count the cost of innocuous-looking apps.