Thread by @smdiehl

Let's talk about the world's longest running Ponzi scheme, MMM, which has been running in some form for 32 years. And the uncanny similarities to crypto investments. (1/)🧵

Like so many of these stories go, when countries have a major shift in their economic model or political upheaval there is a vacuum left by non-functioning institutions and fraudsters come out of the woodwork to defraud the public. (2/)

Albania saw this in 1997 when it moved from a communist system to a market economy and the massive proliferation of pyramid schemes collapsed the economy and drove the country into civil war. (3/)

https://twitter.com/smdiehl/status/1398575803361808385

Similarly in the late 80s Russia was transitioning from a communist model and we saw the same pattern emerge there. A Russian voucher investment fund scheme emerged that began promising 3000% annual returns to early investors. (4/)
en.wikipedia.org/wiki/MMM_(Ponz…

Ponzi schemes maintain their existence by supposing that you can rob Peter to pay Paul by infinitely recruiting more people into the scheme and controlling redemptions. All the while the operators are robbing everyone. (5/)

The only difference between the Albanian schemes is that MMM is unapologetically non-economic. And just like crypto tokens there's no pretense that the money is being invested in *anything* at all to generate a yield.

It's based purely on bringing more suckers in. (6/)

"People were perfectly aware that MMM was not a honest company. Their motive was that they thought they could withdraw money before it collapsed." (7/) csmonitor.com/1994/0811/1108…

The clever trick this scheme first invented is that you can exploit the fact that most low-information investors simply aren't capable of understanding the structure or won't care if you obscure it with enough populist rhetoric. (8/)

There's nothing new under the sun. In times of political crises these financial frauds wrap themselves in this folk-hero narrative and market themselves as providing financial inclusion untethered from the corruption of the economic orthodoxy. (9/)

MMM wrapped itself in Marxist ideology as a "mutual aid network" that claimed to let its investors circumvent the corrupt government of the day and support their fellow man. While in reality the promoters were just stealing from everyone. (10/)
ft.com/content/cf854b…

When MMM collapsed, like all Ponzi schemes must, the promoter tried to embed himself in government in hopes of gaining immunity from his crimes and using public funds to make his victims right. The revolving door of government and fraud is a common theme in these stories. (11/)

The initial scheme was shut down in Russia, but the same promoters realised they had to go global and moved their operations to Africa where there are less regulatory controls to prevent these things from systemically spreading through the public. (12/)
en.wikipedia.org/wiki/MMM_Global

These schemes have absolutely ravaged Nigeria, where three million investors lost 18 billion naira (the local currency) to this one this scam. Since then they simply moved their operation on to the Ethereum blockchain to avoid controls. (13/)
arxiv.org/abs/1910.12244

This should all sound familiar The United States has its own version of MMM Global now. It's called cryptocurrency and it's exactly the same story to a tee. (14/)
vice.com/en/article/wx5…

We see this pattern repeated over and over again, just with different names and different structures replacing the old scams that collapsed. Cryptocurrency and mutual aid investment scams are entangled in Africa and now claim millions of victims. (15/)
finance.yahoo.com/news/look-insi…

1) Vacuum left by distrust in institutions
2) Ponzi structure, outsized non-economic returns
3) Negative-sum investments which funnels money up the pyramid to promoters
4) Populist folk-hero narrative
5) Expansion of victim pool to developing countries with less regulation
(16/)

History has a lot of insight into how crypto scams evolve. In times of political upheaval charlatans and hucksters and sell financial snake oil as a way to capitalise on public anger and institutional distrust.

And it always end badly unless we stop it before it spreads.

/fin