Editor's Note:

In the narrative flood of the continuously expanding cryptocurrency market, tokens are no longer merely carriers of technological or financial innovation, but have become chips in a structural game. From exchanges, VCs, and KOLs to communities, airdrop players, and retail investors, everyone has been drawn into a game of "who will be the last bagholder". This article does not attempt to deny the potential of cryptographic technology itself, but rather to reveal the hidden truths in the current token issuance and circulation mechanisms: how it operates like a multi-level pyramid scheme and systematically concentrates benefits upward. We hope this article can provide you with a more clear-headed perspective, helping you distinguish between narrative and reality in a market where illusion and hope intertwine.

Original content follows:

Cryptocurrency has replayed the worst aspects of pyramid schemes - only this time, it's an internet-native version with higher marketing efficiency and lower transparency. Most tokens have evolved into a sophisticated pyramid game: those at the top extract maximum profits, while retail investors are left with nothing but a pile of worthless "air coins".

This is not coincidental, but a structural issue.

In traditional pyramid schemes like Herbalife or Mary Kay, products are often overpriced and less effective than market alternatives. The core difference is not in the product, but in the sales method: not through retail stores, but through individual agents who first purchase and then seek customers willing to take over.

The result quickly transforms from "selling products" to "recruiting people". Everyone's motivation for buying products is not for use, but to sell at a higher price later. Eventually, when only "speculators" remain and no real users exist, the pyramid collapses. Those at the top take all the asymmetric profits, while bottom-tier participants are left staring at unsellable inventory.

Token Pyramid

The operating logic of crypto tokens is identical to multi-level marketing. The token itself is the "product" - a digital asset with an inflated price and almost no utility beyond speculation. Like distributors in a pyramid scheme, token holders don't buy to use, but to sell to the next person at a higher price.

This pyramid structure is similar to traditional pyramid schemes, but cryptocurrency has its unique participant ecosystem with different levels. Compared to traditional marketing products, tokens are a more ideal carrier: they can more efficiently utilize the internet and social networks, are easier to trade and acquire, spread faster, and disseminate wider. The operating logic is roughly as follows:

In traditional pyramid schemes, if you develop downline members who sell products or continue purchasing, you profit. Token mechanics work similarly: you get others to take your "goods" and bring in new participants who enter later. This benefits you and those above you, as new entrants provide "exit liquidity" and drive price increases. Meanwhile, new participants, now holding tokens, will actively promote (they now have "goods"!), while early token holders can cash out at high prices (increasing profit multiples!). This mechanism is identical to pyramid schemes, only more powerful.

The higher your position in the pyramid, the more incentivized you are to continuously issue new tokens and perpetuate this mechanism.

God-like Entities: Exchanges

At the top of the crypto pyramid are the true "gods" - exchanges. Almost all "successful" tokens are deeply manipulated by exchanges and their associated market makers. They control token distribution and liquidity, and projects wanting platform access and distribution resources must often "pay tribute" by freely surrendering a portion of tokens.

If you don't follow their rules, your token won't be listed or will be stuck in a low-liquidity "hell", ultimately dying silently. Exchanges can kick out market makers at any time, demand that projects provide token loans for employee cash-outs, and even unilaterally change service terms at the last moment. Everyone knows this tyranny but can only silently endure - because it's the price of obtaining "liquidity" and "distribution".

For entrepreneurs, exchanges are an insurmountable wall. Whether a project lists on top exchanges often depends on "network connections" rather than project quality. This explains why so many projects now feature "hidden co-founders" or "former exchange employees" who facilitate connections and open channels. Without experience or connections, navigating the listing process is nearly impossible.

Demigods: Market Makers

Market makers, theoretically providing market liquidity, often help project teams secretly offload tokens through OTC trades while exploiting information advantages to harvest ordinary users. They typically hold a significant portion of total token supply (sometimes several percentage points) and use this to manipulate trading and gain asymmetric arbitrage opportunities. For tokens with small circulating supply, this influence is extremely magnified, placing them in an extremely advantageous trading position.

Earnings from pure "liquidity provision" are extremely limited, but reverse trading against uninformed users can be extremely profitable. Among all market participants, market makers understand token circulation most clearly - because they know both real market float and hold large token quantities. They represent the pinnacle of information advantage.

For project teams, market makers' "quotations" are difficult to evaluate. Unlike services with fixed pricing, market-making services vary by individual. As a startup, you can't discern reasonable terms or inflated prices, which has spawned another gray phenomenon: proliferation of hidden co-founders and "market-making consultants". They bridge connections under the guise of advisors, further increasing token issuance complexity and game theory costs.

Kings: VCs and Project Teams

Below exchanges are project teams and VCs, who capture most value during private sales. Before the masses hear about a project, they acquire tokens at extremely low prices, then weave narratives to create "liquidity exits".

Crypto VC business models have become extremely distorted. Compared to traditional venture capital, achieving "liquidity events" is much easier in crypto, so they don't truly encourage long-term builders. In fact, it's the opposite - VCs can turn a blind eye to predatory token economic models if it benefits them. Many VCs no longer pretend to support sustainable businesses but systematically participate in and support various "pump-and-dump" speculative behaviors.

Tokens have also spawned a peculiar incentive mechanism: VCs are motivated to artificially inflate valuations of their investment portfolios to increase management fees (essentially "harvesting" their own LPs). This is especially common in low-liquidity tokens - they can use FDV to mark book value, thereby artificially increasing project valuation. This practice is highly unethical because once tokens fully unlock, exit at such prices is impossible. This is also a key reason why many VCs will struggle to raise new funds in the future.

Although platforms like Echo have slightly improved this reality, behind crypto's curtain, numerous black box operations remain invisible to ordinary investors.

Influencers: KOLs

The next level down consists of KOLs, who typically receive free tokens during project launches in exchange for promotional content. "KOL financing rounds" have become an industry norm - KOLs invest, then receive full returns after TGE. They leverage their distribution channels to obtain free chips, then brainwash followers into promotion, with these followers ultimately becoming their "exit liquidity".