GuShiio.com Is fission a pyramid scheme?
Authors: Iris, Xu Xiaohui
On February 12, 2025, OKX issued an “exciting” announcement: Ouyi’s announcement on the launch of Pi (Pi Network) spot trading.
According to the announcement, Pi Network, a highly controversial encryption project with a huge community in China, will finally officially launch its main network six years later. I believe that once this announcement is released, a large number of domestic users will cheer. Finally, I can no longer use love to generate electricity!
However, for Pi Network, mainstream Web3 circles rarely mention it.
Regarding the launch of the main network, the well-known Web3 media Planet Daily wrote an article,”The countdown to the” King of MLM “Pi’s main network, is the 60 million people who have been brainwashed for six years about to” realize their dreams “?” It points out: Six years to sharpen the sword or sharpen the sickle? Pi launches the ultimate test ground for Nissei IQ tax. Relevant information that could previously be retrieved on mainstream media was also mostly linked to regulatory news and keywords such as “pyramid schemes.”
In addition, my country’s regulatory authorities have a stricter attitude towards Pi Network and related projects. For example, Nantong police issued an announcement in April 2022 reminding the public to be wary of the risks of distributing coins for mining; also in 2022, Ping An Sanming published an article “Organizing lectures, dinners… Sanming has launched a “π coin” scam, and many people have been caught “to warn the public; subsequently, accounts of local public security and relevant regulatory agencies, such as Wuxi Online Public Security, Dehong Police, Linyi City Banking Association, etc., issued warning announcements/articles.
In fact, lawyer Mankiw found that although official agencies gave more warnings about fraud, when it comes to Pi Network, most people criticized it as “Ponzi” or “pyramid scheme.” Why is there such a saying?
Pi’s “crazy” fission growth
From 2019 to now, in six years, Pi Network has accumulated 60 million + users with the “free mining + fission promotion” model, which is truly developing at an alarming speed. Among them, community fission promotion is the core growth tool-users can get Pi coins by clicking in every day, and mining speed can be increased by inviting new users.
Because there is no need to invest funds in the entire process, the community promotion model is simple, has low threshold, and is easy to form community consensus, coupled with the long-term market expectation of creating “high value in the future”. As a result, this model was quickly spread around the world.
However, this growth model has also stepped on almost all the red lines of pyramid schemes.
In his previous article, Lawyer Mankiw sorted out the nature and characteristics of pyramid schemes. The article points out that as long as you meet the requirements of paying entry fees, developing offline and hierarchical remuneration in business activities, it constitutes a pyramid scheme.
The Pi Network’s fission model is similar to this.
First,Income model dependencepull new。Pi’s mining mechanism essentially does not rely on the user’s computing power, but is based on whether the user continues to be active and invites new people. This means that user revenue does not come from real production activities, but depends on whether more new users can be brought in. This model can easily evolve into a typical “head-pulling” model rather than a true decentralized economic system.
Secondly,Market value controlled by team。Although Pi does not require users to directly pay fiat or crypto assets, its “threshold for obtaining tokens” is to bind personal information and complete KYC (identity authentication). The process of issuing KYC qualifications is controlled by the team and even in some markets.”Black market KYC services” have been derived, which in disguise forms “entry costs”. At the same time, the team has long restricted the circulation of Pi, preventing users from buying and selling freely. The market value of the token depends entirely on when the team opens up trading rights. This artificial sense of scarcity makes it more like a “Ponzi scheme” than a real Web3 project.
Also,Hidden design of hierarchical remuneration。On the surface, Pi users will not directly receive the benefits of offline payments, but inviting new users can increase their mining speed, which is actually a hidden “hierarchical benefit.” Users at different levels enjoy different token value-added rights, while early participants are in an advantageous position in the community, similar to the “pyramid structure” in the pyramid scheme. This model of relying on community fission and encouraging hierarchical growth makes Pi more like a fission system with financial Ponzi attributes than true decentralized financial innovation.
Although Pi is known as a pyramid scheme, it is undeniable that the development of Pi has demonstrated us an extreme fission expansion ability. And this is what Web3 projects lack.
However, will all fission gameplay really touch on pyramid schemes? Can other Web3 projects learn from the fission model?
Fission growth ≠ pyramid scheme
Since the development of the traditional Internet, the gameplay of creating new divisions has long been played out. But the core factor that really determines whether fission promotion is legal is actuallyHow users contribute value。
Throughout the Web3 industry, many projects have tried similar promotion strategies, such as GameFi’s task incentives, SocialFi’s social fission, and even some projects themselves are task marketing platforms that specifically provide ways to create new fission. However, to avoid being identified as pyramid schemes by regulators, Web3 projects need to be based on real user contributions and a transparent token economy system, rather than simply relying on innovation to create value.
1. User growth = actual contribution
If the problem with Pi is that “fission rewards are directly linked to recruiting new people,” then a compliant fission model must ensure thatUsers ‘rewards come from actual behavioral contributions, rather than simply pulling people, it is not possible to form an up-and-down relationship and to obtain new commissions in a layer-by-layer manner。
For example, Galxe uses “on-chain behavioral incentives”, requiring users to complete on-chain interactions (such as governance voting, NFT holding) before receiving rewards.
The core logic of these models is:Fission promotion is only a means, and value contribution is the core。As long as users ‘rewards are linked to actual contributions, rather than simply relying on developing downlines, the risks of pyramid schemes can be avoided.
2. Transparent Token circulation mechanism
Another key problem with Pi is that the project party controls the circulation of tokens for a long time, preventing users from buying and selling freely. This makes the market completely subject to team decisions and is easy to form.Ponzi structure, and can easily be identified by regulatory agencies as market manipulation or even illegal fund-raising.
Therefore, a compliant fission growth model requires more transparent and secure mechanisms based on tokens, including actual use scenarios, decentralization (i.e., not fully controlled by the team), and compliance registration for supervision.
Simply put, a truly compliant fissile growth model must comply withValue contribution → community fission → transparent market circulationclosed loop rather thanpull newProfit → Market Hunger → Speculative ExitThe logic of the capital market.
3. Community fission +DAO governance, alternative hierarchical remuneration
“Inviters enjoy higher mining profits”, which can essentially be regarded asHidden hierarchical benefits, easy to form a pyramid structure, which is also the obvious feature of Pi being considered a pyramid scheme. Therefore, the fission promotion of compliance requires avoiding this structure.
Currently, some Web3 projects use the DAO governance model to guide the value of community fission back to ecological contributions. In this way, the overall fission model is no longer a one-way hierarchical incentive, but a decentralized contribution mechanism to ensure the sustainability of the growth brought about by fission.
Lawyer Mankiw concluded
Pi Network once again proved to the Web3 industry that strong community fission is one of the strongest drivers of growth in the crypto market. However, its model also exposes the dilemma of Web3 ‘s growth-the value growth of contemporary coins is decoupled from the real economic contribution, and projects rely on users to create bubble value. This model is often easily identified by regulators as a “pyramid scheme” or a “Ponzi scheme”.
At present, the global regulatory environment is becoming increasingly strict, and the growth logic of Web3 has long departed from the previous “barbaric development” and moved towards “compliance fission.” If we just copy the Pi model without making any adjustments, what may ultimately be ushered in is not a user dividend, but a regulatory punch.
Because true innovation is not simply imitating, but finding ways to sustainable growth within a compliance framework.
