Authors: Iris, Xu Xiaohui
On February 12, 2025, OKX released an "exciting" announcement: OKEx's announcement on the launch of Pi (Pi Network) spot trading.
According to the announcement, Pi Network, a highly controversial domestic crypto project with a large community, will finally launch its mainnet after 6 years. I believe that once this announcement comes out, a large number of domestic users will cheer. Finally, we can no longer generate electricity with love!
However, Pi Network is rarely mentioned in the mainstream Web3 circle.
Regarding the mainnet launch, the well-known Web3 media Planet Daily wrote an article titled "Countdown to the mainnet of "MLM King" Pi, 60 million people who have been brainwashed for six years are about to "realize their dreams"?" It pointed out: Six years of sharpening the sword or the sickle? The day Pi was launched became the "ultimate test site for IQ tax". Previously, the relevant information that could be retrieved in the mainstream media was also mostly linked to regulatory news and keywords such as "MLM".
In addition, my country's regulatory authorities have taken a more stringent attitude towards Pi Network and related projects. For example, the Nantong police issued an announcement in April 2022, reminding the public to be alert to the risks of Pi mining; also in 2022, Ping An Sanming published an article "Organizing lectures, dinners... Sanming has a "π coin" scam, and many people have been scammed" to warn the public; subsequently, local public security and related regulatory agency accounts, such as Wuxi Online Public Security, Dehong Police, Linyi Banking Association, etc., have successively issued warning announcements/articles.
In fact, attorney Mankiw found that although official agencies have more warnings about fraud, when it comes to Pi Network, most people criticize it as a "Ponzi scheme" or "pyramid scheme." Why is there such a saying?
Pi's "crazy" fission growth
From 2019 to now, in 6 years, Pi Network has accumulated more than 60 million users with the model of "free mining + fission promotion", which is really an amazing development speed. Among them, community fission promotion is the core growth method - users can get Pi coins by clicking sign-in every day, and the mining speed can be increased by inviting new users.
Since there is no need to invest money in the whole process, and the community promotion model is simple, low-threshold, and easy to form community consensus, coupled with the team's long-term market expectations of "high value in the future", this model has been rapidly spread around the world.
However, this growth model also almost crosses the red line of all pyramid schemes.
In a previous article, Attorney Mankiw reviewed the nature and characteristics of pyramid schemes. The article pointed out that as long as the business activities meet the requirements of paying entry fees, developing downlines, and paying according to levels, it constitutes a pyramid scheme.
The fission model of Pi Network is exactly similar to this.
First, the revenue model relies on attracting new users . Pi's mining mechanism does not rely on the computing power of users, but is based on whether users are continuously active and invite new users. This means that users' revenue does not come from real production activities, but depends on whether they can bring in more new users. This model can easily evolve into a typical "recruiting" model rather than a real decentralized economic system.
Secondly, the market value is controlled by the team . Although Pi does not require users to pay directly in fiat currency or crypto assets, its "threshold for obtaining tokens" is to bind personal information and complete KYC (identity authentication), and the issuance process of KYC qualifications is controlled by the team, and even "black market KYC services" have been derived in some markets, forming a disguised "entry cost". At the same time, the team has long restricted the circulation of Pi, preventing users from buying and selling freely, and the market value of the token depends entirely on when the team opens trading permissions. This practice of artificially creating a sense of scarcity makes it more like a "Ponzi scheme" than a real Web3 project.
In addition, the implicit design of hierarchical compensation . On the surface, Pi users will not directly receive benefits from offline payments, but inviting new users can increase their mining speed, which is actually a kind of implicit "hierarchical benefit". Users at different levels enjoy different token appreciation rights, and early joiners are in an advantageous position in the community, similar to the "pyramid structure" in the MLM model. This model that relies on community fission and encourages hierarchical growth makes Pi more like a fission system with financial Ponzi attributes, rather than a true decentralized financial innovation.
Although Pi is called a pyramid scheme, it is undeniable that the development of Pi has shown us an extreme fission expansion capability, which is exactly the scarce capability of Web3 projects.
However, will all fission methods really touch upon the problem of pyramid schemes? Can other Web3 projects learn from the fission model?
Fission growth ≠ pyramid selling
Since the development of traditional Internet, the methods of attracting new users and fission have been played out in various ways. However, the core factor that really determines whether fission promotion is legal is actually the way users contribute value .
Looking at the Web3 industry, many projects have tried similar promotion strategies, such as GameFi's task incentives, SocialFi's social fission, and even some projects are task marketing platforms that specialize in attracting new users. However, to avoid being identified as a pyramid scheme by regulators, Web3 projects need to be built on real user contributions and a transparent token economic system, rather than simply relying on attracting new users to create value.
1. User growth = actual contribution
If the problem with Pi is that "fission rewards are directly linked to the number of new users attracted", then a compliant fission model must ensure that users' rewards come from actual behavioral contributions, rather than simply attracting new users . It cannot form a relationship between upper and lower lines and a layered remuneration method for attracting new users .
For example, Galxe adopts "on-chain behavioral incentives", requiring users to complete on-chain interactions (such as governance voting and NFT holding) before they can receive rewards.
The core logic of these models is that fission promotion is only a means, and value contribution is the core . As long as the user's reward is linked to the actual contribution, rather than simply relying on the development of downlines, the risk of pyramid schemes can be avoided.
2. Transparent Token Circulation Mechanism
Another key problem with Pi is that the project has long controlled the circulation of tokens, preventing users from buying and selling freely. This makes the market completely subject to team decisions, making it very easy to form a Ponzi structure and easily be identified by regulators as market manipulation or even illegal fundraising.
Therefore, a compliant fission growth model needs to have a more transparent and secure mechanism based on tokens, including actual usage scenarios, decentralization (i.e. not completely controlled by the team), and compliant registration and supervision.
Simply put, a truly compliant fission growth model must conform to the closed loop of value contribution → community fission → transparent market circulation , rather than the Ponzi scheme logic of attracting new customers to make profits → market hunger → speculative exit .
3. Community fission + DAO governance, replacing hierarchical compensation
"Inviters enjoy higher mining benefits" is a marketing method that can be considered as invisible hierarchical benefits , which is easy to form a pyramid structure. This is also the obvious feature of Pi being considered a pyramid scheme. Therefore, compliant fission promotion needs to avoid this structure.
At present, some Web3 projects use the DAO governance model to guide the value of community fission back to ecological contribution. In this way, the overall fission model is no longer a one-way hierarchical incentive, but a decentralized contribution mechanism to ensure that the growth brought by fission is sustainable.
Attorney Mankiw's Summary
Pi Network once again proved to the Web3 industry that strong community fission is one of the strongest drivers of crypto market growth. However, its model also exposes the dilemma of Web3 growth - when the value growth of tokens is decoupled from real economic contributions, projects rely on attracting new users to create bubble value. This model is often easily identified by regulators as a "pyramid scheme" or "Ponzi scheme."
At present, the global regulatory environment is becoming increasingly strict, and the growth logic of Web3 has long been separated from the previous "barbaric development" and moved towards "compliant fission". If you just copy the Pi model without making any adjustments, what you may eventually receive is not user dividends, but heavy regulatory blows.
Because true innovation is not simple imitation, but finding ways to achieve sustainable growth within a compliance framework.
