[idea] Ponzi plus. Bet against ponzi's

[Puppet]

Like many others, Im getting tired of all those ponzi's and I want to create a way to bet against them. Betsofbitcoin or even escrowed bets arent that useful, because believers (or gamblers) will think they make more by buying in to the ponzi than by betting against nay sayers. So I came up with this idea instead:

First, we set up an asset, lets call it ponzi plus,  where the naysayers can buy shares to gather working capital.  The funds raised will be used as collateral to issue bonds that will mimic other obvious ponzi's. For instance, lets say we detect a new blatantly obvious ponzi like "W Investment Technology Research Center" (link). A motion would be raised among Ponzi Plus shareholders to bet against it, and when it passes we create a new bond, "WITR+" which will pay out the same coupons as the original ponzi, plus a bonus for as long as the ponzi runs. I would even suggest we guarantee a minimum buy back price at 10% or so of face value. Then we promote this +bond among believers of the original ponzi as a lightly less disastrous alternative to the original ponzi. Once the original ponzi collapses, we stop coupon payments on our +bond too and pay out the rest as dividends to shareholders of ponzi plus.

Some pitfalls:

- One might argue we would be running a ponzi ourselves,  but I think not, since our dividends would be assured by our working capital, and not be dependent on  new investors. We would also have to provision a failsafe in case by some miracle the ponzi does not collapse or does not collapse fast enough, that we can issue a buy back before we run out of funds. This would cost the ponzi plus shareholders obviously as we would have lost the bet, but there would be nothing misleading about our offering.

- The ponzi operator could buy our bonds and use our coupon payments to pay his investors. To avoid this, we would have to make sure we issue significantly less bonds than the original ponzi operator, probably on the order of 10% or so.

Other thoughts or comments ?

[dust]

If anyone is certain pirate is running a ponzi and wants to bet BTC100,000+ against him, PM me.  I have an idea.  You must be willing to risk large amounts of BTC.

Anyone remember this (days before pirate shut down)?

I think it is a cool idea, but I would be cautious of the legal liability of making money off of scam victims.

[Puppet]

I think it is a cool idea, but I would be cautious of the legal liability of making money off of scam victims.

Thats why Im posting for comments. Since we would pay higher coupons and at least some guaranteed % of the principal, you could look at it as an insurance policy, no ?

[WITRcenter]

As I have been prepared for kinds of trolls, so my reply seems a little bit harsh but it's really not personal. I predict that after 30 posts of reply, you will find yourself a loser. Your plan sucks. Other people will tell you why.

Warnings:

I'm not running a ponzi. My business is mildly risky but it is truly profitable.
Puppet could run away with the investors money. Puppet should bring up some solution for this Principal-agent risk associated with him.

[Deprived]

Like many others, Im getting tired of all those ponzi's and I want to create a way to bet against them. Betsofbitcoin or even escrowed bets arent that useful, because believers (or gamblers) will think they make more by buying in to the ponzi than by betting against nay sayers. So I came up with this idea instead:

First, we set up an asset, lets call it ponzi plus,  where the naysayers can buy shares to gather working capital.  The funds raised will be used as collateral to issue bonds that will mimic other obvious ponzi's. For instance, lets say we detect a new blatantly obvious ponzi like "W Investment Technology Research Center" (link). A motion would be raised among Ponzi Plus shareholders to bet against it, and when it passes we create a new bond, "WITR+" which will pay out the same coupons as the original ponzi, plus a bonus for as long as the ponzi runs. I would even suggest we guarantee a minimum buy back price at 10% or so of face value. Then we promote this +bond among believers of the original ponzi as a lightly less disastrous alternative to the original ponzi. Once the original ponzi collapses, we stop coupon payments on our +bond too and pay out the rest as dividends to shareholders of ponzi plus.

Some pitfalls:

- One might argue we would be running a ponzi ourselves,  but I think not, since our dividends would be assured by our working capital, and not be dependent on  new investors. We would also have to provision a failsafe in case by some miracle the ponzi does not collapse or does not collapse fast enough, that we can issue a buy back before we run out of funds. This would cost the ponzi plus shareholders obviously as we would have lost the bet, but there would be nothing misleading about our offering.

- The ponzi operator could buy our bonds and use our coupon payments to pay his investors. To avoid this, we would have to make sure we issue significantly less bonds than the original ponzi operator, probably on the order of 10% or so.

Other thoughts or comments ?

For my post:

ponzi = the investment believed to be a ponzi (whether it is one or not).
Investors = people investing in your company who are betting the ponzi will collapse.
Depositors = believers in a ponzi who instead invest with your company for a slightly higher rate.


There's (at least) a few problems:

1. It wouldn't fly with a guaranteed buyback of 10% - to get believers to depositors you'd have to guarantee full value of their investment if the ponzi you were betting against closed down and paid everyone out.  Now as long as you didn't touch original invetsors' funds you wouldn't be running a ponzi (as depositors would be being paid from investors cash - not from the cash of fellow depositors).  So if the ponzi ran too long and investors funds were near exhausted you'd have to force buy-back at original value all deposits - then they could laugh at you and deposit them in the original ponzi.

2.  What happens with investors' funds? Either they sit around in some escrow account earning no interest or you use them to make profit. But if you actually try to use them to make profit then they're no longer reliably there to back your payments.

3.  The scheme if it succeeded could become a victim to its own success.  Say some new obvious ponzi starts up - so you run a company paying slightly more.  As your company pays more, is transparent AND has secured funds to pay investment there's very little risk - so everyone would invest in your scheme rather the ponzi.  The ponzi would thus get little funds in (and so little liability out) - whilst you rapidly depleted investors' funds.  You'd soon have to shut down - at which point the ponzi can say "Hey! THEY ran out of funds and weren't a ponzi -I'm still here so obviously aren't one either".  And the depositors can then flock to it with all your payouts and give the ponzi not just their own funds but what your own investors lost betting against the ponzi.  You'd have to bet ONLY against (suspected) ponzis that had built up to a certain critical mass - where the weight of their liabilities would prevent them continuing for long if their income stream dried up.  Put simply, IF you believe them to be ponzis then OBSI.HRPT would be great to bet against along your lines, WIT a bad idea.  Ideally you'd want to bet against things like Pirate where withdrawals are possible.

The big problem with it is the sheer quantity of investment you'd need to have to make any impact - investment which couldn't really be utilised for anything if deposits were to be properly secured.

[Factory]

I am against any security that is involved with ponzi schemes.

Even when betting against ponzi schemes, such securities benefit from their existence and promote their existence..

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

[Puppet]

1. It wouldn't fly with a guaranteed buyback of 10% - to get believers to depositors you'd have to guarantee full value of their investment if the ponzi you were betting against closed down and paid everyone out.  Now as long as you didn't touch original invetsors' funds you wouldn't be running a ponzi (as depositors would be being paid from investors cash - not from the cash of fellow depositors).  So if the ponzi ran too long and investors funds were near exhausted you'd have to force buy-back at original value all deposits - then they could laugh at you and deposit them in the original ponzi.

Which is why you must keep the ponzi+ considerably smaller than each original ponzi. The ponzi operator has an incentive to maximize his returns, keeping it running so long that he loses 90% of his potential profits by paying almost all of his deposits as coupons doesnt make much sense.  The investors in the ponzi have no influence over how long it runs.

2.  What happens with investors' funds? Either they sit around in some escrow account earning no interest or you use them to make profit. But if you actually try to use them to make profit then they're no longer reliably there to back your payments.

Investors money would just sit there and slowly be depleted for as long as the ponzi runs to pay for coupons. It wouldnt earn interest obviously, but it would assure depositors  and would earn investors a lot more than any other credible investment if/when the ponzi collapses.

3.  The scheme if it succeeded could become a victim to its own success.  Say some new obvious ponzi starts up - so you run a company paying slightly more.  As your company pays more, is transparent AND has secured funds to pay investment there's very little risk - so everyone would invest in your scheme rather the ponzi.  The ponzi would thus get little funds in (and so little liability out) - whilst you rapidly depleted investors' funds

Thats why you have to limit its size to a small fraction of the original ponzi. Just dont issue more than x% bonds as the original ponzi. I suggested 10%.

The big problem with it is the sheer quantity of investment you'd need to have to make any impact - investment which couldn't really be utilised for anything if deposits were to be properly secured.

You would need only as much capital as the amount of bonds your are selling to guarantee the buyback at face value if you lose your bet. The sale of the bonds themselves generates the rest, just like in the original ponzi.  In fact you would even need less if you assume you are betting against a rational ponzi operator, since he wouldnt pay out 100% of his bond sales back as coupons, but only a small fraction of it.

[Puppet]

I am against any security that is involved with ponzi schemes.

Even when betting against ponzi schemes, such securities benefit from their existence and promote their existence..

I do agree its morally ambiguous, but I dont think this scheme would promote ponzis. The very fact you create a bet in the other direction and people pour money in it should have a shilling effect on potential investors . Since its more attractive than the original ponzi, it also would cause people to stop buying the original ponzi making it collapse faster.

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

Yeah thats working really well.

[Factory]

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

Yeah thats working really well.

Promises of shockingly high returns will blind the sheep.

The reason that Ponzi schemes work is because there are always people who 'believe the story' and do not do their due diligence.

We can't stop ponzi schemes; we can only attempt to limit their size by attempting to educate others of the risks.

[Deprived]

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

Yeah thats working really well.

The reason that Ponzi schemes work is because there are always people who 'believe the story' and do not do their due diligence.

I think a lot of the reason is that people look at it, see that it's too good to be true - but then keep looking and looking trying to find something to convince them that it's actually real.  Once they'd seen it was too good to be true they should walk away unless convincing proof is provided of it not being a ponzi.  A 'good' ponzi operator won't try too hard to prove they're not a ponzi - as there's no way they can prove it to someone with any sense, and every post they make is another opportunity for them to accidentally mess-up and contradict themself/be caught in an obvious lie.  Instead they'll be vague - and allow the people who WANT to invest to formulate their own explanations so as their greed/ignorance can overcome their common-sense and make them part with their money.

Once they have a few idiots on the hook, others who were initially marginally less stupid will follow - as they now have fear of "missing an opportunity" to add to their other reasons to invest and tip the scales.

[Explodicle]

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

Yeah thats working really well.

I know you're being sarcastic, but I do think it's working really well. It teaches greedy people to do their homework and stop deluding themselves. Eventually they'll get used to investing without a safety net, and learn to say "no" to an offer that's too good to be true.

If you make being a fool easier, we'll just have more fools.

[WITRcenter]

OK, we now still need another 18 post to make the OP looks like a stupid loser.

[FreeMoney]

I am against any security that is involved with ponzi schemes.

Even when betting against ponzi schemes, such securities benefit from their existence and promote their existence..

I feel the best way to handle potential ponzi schemes is to highlight all of the concerns and make such information visible to the public and then keep our distance.

No. Think about this. Identify Ponzi X, offer exactly what they offer as long as they offer it, be completely honest and up front that if/when they stop paying so will you. If you don't want to pay any more (decide they aren't ponzi, run out of funds, whatever) you return all money. You offer a little bit extra too, maybe 10%, maybe less. If the original is a ponzi and you are trustworthy enough that everyone believes you will do as you say and pay as long as the original pays then most money will leave the ponzi and it will fail faster and make less money.

You only make money if you identify ponzis really well.

The main risk I see in running this is that if you are transparent about how much capital you have a ponzi could specifically plan to outlast you at which point they'd get a lot of people rushing to them after you pay back principle.

[WITRcenter]

I'm afraid of that the Nefario will not let this security listed on his private owned exchange, and will eat the application fee the stupid OP spend.

[Puppet]

The main risk I see in running this is that if you are transparent about how much capital you have a ponzi could specifically plan to outlast you at which point they'd get a lot of people rushing to them after you pay back principle.

Its very unlikely a ponzi operator would take the risk of paying out more than 100% of his deposits, and also keep in mind we would generally start a lot later, when the actual ponzi  has already spent a fair amount of his investment in paying coupons/dividends.

There are risks of course, the biggest is perhaps if the original ponzi would continue attracting new capital at a faster rate than the payouts, while we would not; then the ponzi might outlast us. Again this seems very unlikely though, since we would sell far less bonds and I cant see why investors would keep spending on the lower paying actual ponzi and not on the lower volume, but guaranteed ponzi plus. All in all,  Id be shocked if we lost one out of 10 bets, and winning just over half of them against rational ponzi's would guarantee a positive ROI.

A bigger concern is probably reassuring depositors that we will not run off with the money. Since we dont need the coins for anything other than paying out  dividends at a predictable rate (and at worst, a known fixed amount for a buy back), I wonder if opentransactions and/or multisig could be used here somehow?

[Francesco]

Now this would be great 

Even if the outcome is just to destroy ponzies without any earning on our part (because people realize the bank run will end the ponzi, and so they would lose their money with us as well) I would invest something as a service to the community.

Ther's only one problem: how exactly do you estimate the size of a Ponzi, to stay under its 10%? They won't honestly tell you, of course... you can tell how many OBSI.HRPT have been sold, but we only have wild guesses on the amount of coins Pirate put his hook on. How we avoid the risk of the operator making us believe he's 10x bigger, and then paying his coupons with ours indefinitely?

[Puppet]

How we avoid the risk of the operator making us believe he's 10x bigger, and then paying his coupons with ours indefinitely?

I was thinking mostly of the ponzi's on glbse and cryptostocks. You are correct of course, for an off-exchange ponzi like pirate's, we would have to try and make a (very conservative) guess; if we cant, we should not be betting against it for the reason you state.

That said, I would want to keep this small anyway, the point would mostly be educating users rather than making large amounts of money. And if I could think of a way to return at least some of our profits to scam victims without creating a moral hazard, I would like to do that, but I fear that will be impossible.  Guaranteeing future victims at least 10% or so seems like a reasonable compromise to me.

[Vandroiy]

There are some attacks against this.

For one, the Ponzi operator can join your system, and withdraw everything a moment before he shuts down. So you require some sort of lock-in mechanism that's spread out over time. Still, you need to measure the Ponzi's actual size, or else someone can burn you out by using massively inflated numbers. They never offer internal bookkeeping, so that's also an annoying task.

As Pirateat40 said, the market for his kind of operation will be saturated after he leaves. I don't see a big BTC Ponzi coming up any time soon, now that everyone is more skeptical.

The good thing is, if you offer means to bet against Ponzis, you'll always find capital for it.

[markm]

I don't see a profit mechanism here. How do you make anything doing this?

-MarkM-

[Puppet]

I don't see a profit mechanism here. How do you make anything doing this?

-MarkM-

Same way as the ponzi operator; if you bet against an actual ponzi, your dividends/coupons would never exceed the sell value of the bonds, and in most cases they will only be a small % of them. Since you only have pay dividends for as long as the original ponzi does, you make a big profit on every winning bet.