Pyramid Scheme VS MLM | Whats The Difference
Hello SPIers, today look at the difference between a SCAM and MLM (Multi Level Marketing). Both appear to be scams because they are very similar and as we head into the next bullrun, we will all be exposed to many new defi scams that try to appear or promote themselves as a MLM project but really be a pyramid-style scam. There is 1 reason difference between the 2 and I think it is important people know how to identify a scam from a real MLM project.
What is a Scam?
Scams are mostly Ponzi's that pay out old investors with new investors' money. The best example of this was BitConnect which went busto over the 2017 bubble popped. Each cycle, the scam repeats and one of the most popular during the 2021 cycle was DRIP which used the exact same model of paying out 1% per day. Both of these projects used "MLM" as part of their referral programs but both were shilling a pyramid scheme.
If you're the product, if new investors are required to keep the project going, it's a scam. If there is no actual product or service attached, it is a scam. If the product earns a high return on your investment, it's a scam. If you go to Google and type "is (insert platform name)" and Google auto-fills in your search with "a scam", it's a scam. Any single red flag should be enough for you to move on.
Scams are mostly set up in a way where referral incentives are juicy for bringing in new money. Crypto YouTubers will shill these to the moon for referrals and jump from project to project on a weekly/monthly basis. A small amount of that money is to pay old investors while the operators pocket the rest for themselves. Operators will encourage investors to stake or lock up tokens in some shape are form to stop them from impulse selling. In the end, they have the same end were 95% of trading transactions are from sell orders and the price of the token goes to $0 are is close to it.
If you are the product, its a scam!
What is MLM? - Multi-Level Marketing
These will appear to be the same as a pyramid scheme because the higher up the pyramid you are the more you earn but a MLM is not dependent on recruiting new investors to survive or grow. An example of a real-world MLM would be Avon, the catalogue global beauty company.
They work by selling products are services. A MLM company will make money from a selling product and distributors earn money on a commission basis based on sales generated. 1st level distributors will normally pay a fee to the MLM company for a territory. These distributors can recruit 2nd-level distributors with both the 1st-level distributor and MLM company taking a commission on the 2nd-level distributors' sales.
Many people think MLMs are limited to real-world physical products but they can be digital and defi as well.
Example of legit MLM
SPI could release a project like SBI - Steem Backed Income type service. If you do not know what this is, you earn SBI units to get a HIVE upvote for life. You buy 1 SBI unit for 1 HIVE and the more SBI units you have the higher the upvote you get. We call our SPI unit, SPIU and we sell it for for 1 HIVE per unit.
In SPI's version, we sell top-level distributors' licences. We sell 10 licences for 100 HIVE each. These will let the licence holders exclusively be able to sell SPIU units. Distributors would earn a 10% commission on SPIU unit sales they generate.
Referrals would be tracked using memos. For each incoming 1 HIVE, 10% would go to the distributor, 10% to SPI and 80% powered up to provide upvotes for life.
SPI collects 1000 HIVE from selling distributor licenses and 10% of incoming HIVE. Distributors would start to profit after they sell over 1000 SPIU and earn 10% of whatever SPIU sales they generate.
After some time, we could let top-level distributors recruit new distributors under them and build a team of /distributors/sellers. This is where the multi-level comes in because both SPI and the top distributor would earn some sort of commission from this 2nd level distributor. This repeats on each level with the ones above it earning a cut from sales commissions earned.
MLM projects require a product or service to be legit
Example of a scam MLM DEFI Project
Most crypto projects acting as MLM will not be a crypto farm. They will sell "income" packages that they sell them for BTC/ETH/BNB. Investors can buy a package for a $ amount with the promise to earn 200% a year are something. They buy a package for $1000 and they get back $3000 split into 12 monthly payments for the next year.
The idea is you buy a small package and see it working so you buy into a bigger package. You see they have a nice referral program so you start sharing links to your social media. These thrive during a bull market because they have people paying a dollar amount with BTC so if BTC 5x's in a bullrun year and they promise to pay out 3x, they have a 2x dollar profit. They work until the bubble pops and they have no BTC left to pay people.
To Wrap Up
Is easy to get the 2 mixed up sometimes because clever wording can be used to trick investors but the best thing to do is don't believe what everything you you read or what someone says even if it is the project/platform founder. Don't believe what you read on Twitter, telegram, YouTube, Facebook, any legacy media are even HIVE.blog (unless it comes from @spinvest🤣) and believe only what you can see posted to the blockchain. Thats were you do your research.
If it's passive, it's not a MLM. If it requires active input and has a product are service attached, it's an MLM.
Be careful out there, when the next bullrun proper hits, we'll all be exposed to tons of new defi or investment oppuntities that are launched purposely at the start of the bullrun to take advantage of increasing prices. This lets them operate well for 12-18 months until the bubble pops and everyone gets wrecked.
Thanks for checking out todays post, have a great day.
| Token Name | Main Account | Link to hive-engine |
|---|---|---|
| SPI token | @spinvest | SPI |
| LBI token | @lbi-token | LBI |
| Top XV token | @spinvest | XV |
| Eddie Earners | @eddie-earner | EDS |
| EDS miners | @eddie-earner | EDSM |
| EDS mini miners | @eddie-earner | EDSMM |
| DAB | @dailydab | DAB |
| DBOND | @dailydab | DBOND |
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MLMs may not be a scam but they are always hard work. Some people are able to make a living/business from them but generally, it's very tough. I prefer the more collaborative methods where we pool some funds, represented by a token, and use it to build something. With collaborations like @eds-vote, delegators can directly influence how soon the EDS fund flips and starts to see an increase in its APY.
I remember when the mother of a collegue of mine came to our house to make a presentation about the Amway MLM and my father was amazed about the big scores they had, because we were also pretty poor back then. I know now that not every MLM is a scam, I have noticed that while working in insurances system as well. But I dislike both these models, deeply, even if the MLM seems somehow fair. I see ASEA Global and other these days...Lifewave and more...I understand their purpose. I have noticed another one, a real scam about Tesla solar panels in October...a friend of mine got scammed....we need transparent info, in order to do our research and not get scammed. Thanks for this article.
MLM decides how your commission will be calculated from a group sales while scam is more like how your commission is counted from an investment or revenues, not from sales.
I have been in MLM for a decade, getting a few trips to some countries for free before my group went down due to online marketplace competition. in choosing MLM, the basic knowledge we should have is the product first... how long it can compete in the market, and will people willing to resell it or not.
If an MLM starts a presentation about how high % you can get, most likely it wont survive long. Because they can only put their focus on the commissions system, not the product which means their product might not be competitive
MLM are often pyramid schemes but do pay decent money for the people that work in them. We’ve done MLM’s before and it can be tricky but you can find a way to make money and it not be a waste. Just about diligence really.
I think the crypto SBI version you spoke of was a good example of how people could do it on this end