Web3 Faces Challenges as Ponzi Structures Emerge in Token Deals
Web3 aims to create a user-owned internet, but current investment practices resemble exploitative schemes. Key points include:
- Global venture financing dropped to $23 billion in April, a third of March's total, with a significant portion still funneled into quick-exit token deals.
- The SEC's recent fraud case highlights the trend of token structures functioning like Ponzi schemes, relying on new investors for sustainability.
- Insider liquidity from token offerings often occurs before products reach maturity, distorting early-stage funding dynamics.
- A New York federal judge sentenced a virtual currency platform co-owner to 97 months for operating a Ponzi scheme, raising concerns about accountability.
- High-profile collapses and legal actions erode public trust, making it difficult for legitimate projects to differentiate themselves from scams.
- Regulatory measures, like the European Commission's stablecoin oversight under MiCA, indicate a shift toward greater consumer protection.
- Funding models must evolve to reward real user needs rather than hype, emphasizing utility milestones and long-term commitments over quick returns.
Without reform, Web3 risks becoming an avenue for exploitation rather than innovation.