Cryptographic Level Pyramid: The higher you climb, the greater the rewards

Original Title: “The Secrets of the Crypto Pyramid!”

Written by: Duo Nine⚡YCC

Compiled by: Deep Tide TechFlow

I accidentally became a KOL, a fortunate coincidence that gave me a deeper understanding of how this field operates. A lot happens behind the scenes, and this is a window for you to understand it.

The operation of cryptocurrency is hierarchical; it resembles a classic pyramid. The higher your level, the more substantial the rewards. You, or the retail investor, are at the bottom of the pyramid. Here’s how it works.

Around 2020, I started posting my technical analysis on Twitter, and to my surprise, my content quickly went viral. Four years later, I have a great community that I call home.

I got involved with Bitcoin in 2014, and for a long time, I felt lost. Most of the places I visited were terrible, and in most cases, it was easy to get scammed, manipulated, or experience similar issues.

That said, let me introduce another side of cryptocurrency that most retail investors rarely see.

Overview of the Crypto Pyramid and Its Levels

Level One: You, the Retail Investor

Naive and easily trusting, retail investors are often abused and exploited. They are lured into the game by promises of 100x returns. Very few actually achieve this, and those who do quickly lose everything in the crypto gamble due to newfound greed.

This is the foundational layer of cryptocurrency. It feeds and sustains all those at higher levels. When venture capitalists make 1000x returns on one of their investments, that money comes from retail investors. Every time a token is released through a TGE (Token Generation Event), IDO (Initial Dex Offering), or other methods, it’s the layers above you that profit. This includes KOLs, media partners, development teams, exchanges, and venture capitalists.

Who is buying and being hyped? It’s you.

This is the purpose of those at higher levels: to make you believe this narrative. If a big KOL says this is a great investment, it must be true, right?

Wrong.

They just want your money. It’s that simple.

Those at the top of the pyramid buy tokens at a significant discount before the TGE/IDO, or development teams can simply generate them out of thin air with a few lines of code.

Your buy-in is assigning value to that token, or in other words, you are transferring value to the upper layers. This is your critical function in the pyramid, being exploited and providing value to something created out of nothing.

Level Two: KOLs and Media

KOLs and media companies in the crypto space serve the upper layers. They say and do whatever they are told because they are paid to do so. They get their food from the upper layers and pass on anything retail investors want to hear (for example, a new token that will 100x in value).

Most KOLs cannot be trusted by retail investors due to conflicting interests; the more influence someone has, the more you should be suspicious.

Why?

They may be sponsored by any party at the upper layers, promoting narratives that may not be in your best interest. That new token is likely just a copy-paste project from the last cycle with a new name. Don’t be fooled; always do your own research. Most memes are like this.

Media companies may also collaborate with one or a group of KOLs to create “spontaneous” engagement around a token or topic as a whole, which is nothing new. Crypto protocols and venture capitalists have marketing budgets, and they will leverage that.

You are their target; the role of this layer is to sell it to retail investors.

Whenever you see KOLs listing a series of new crypto projects in their posts, most of these projects are promotional pieces mixed with real tokens, making uninformed readers think it’s a legitimate research article. In reality, they haven’t discovered any good projects; they are just being paid to do so.

Over time, you will be able to discern who is real and who isn’t, but if you are new to the crypto space, assume everyone is eyeing your money, and then backtrack, only trust Bitcoin because it is the most decentralized and hardest to control.

Level Three: Crypto Protocols and Development Teams

The most honest developer is Satoshi Nakamoto. Everything after him has been distorted. That’s why there are over 13,000 altcoins in 2024. 99% of them are shameless money grabs, lacking technology or innovation, and most are hyped to profit from retail investors.

Whenever a development team releases a new crypto protocol or blockchain along with its associated tokens or coins, they are essentially conducting an unregistered securities offering.

This is mostly illegal in the U.S., but largely unregulated in most parts of the world. It’s the fastest and easiest way to make money. The merits of that new protocol or network don’t matter. Terms like DeFi, RWA, DePIN, SocialFI, or GameFI are used to confuse you, mostly to obscure the truth.

That’s why when you read the documentation of a new project, the most prominent parts relate to the functionality of their tokens or useless coins. Note that some teams do this under a new name or brand every cycle, and they have raised substantial funds from previous cycles to pay lower-tier KOLs to work for them.

If developers can raise funds based solely on a promise, then they have succeeded. Fulfilling that promise is not the point. Their only reason for existence is to make money for themselves and the upper layers. The venture capitalists sponsoring these teams expect to profit from their investments, not innovate.

This is the primary purpose of most altcoins. They are not here to help you or solve any problems. They are here to make quick money because bull markets are fleeting, and bull markets are like a forest after rain, with new mushrooms or altcoins everywhere. But be careful—some are toxic!

Very few protocols are genuinely building something long-term. That’s why I recommend focusing more on tokens that have been around for a while and truly have real utility. Ideally, they should have survived at least two crypto cycles.

Only consider those genuinely innovative new projects; the rest are hype promoted by KOLs. The AI narrative in the crypto space is the latest example, with 99% being hype and only 1% being real use cases.

Cryptocurrency is driven by greed, and part of the blame lies with retail investors who have always dreamed of that 100x return, while those at the top of the pyramid are happy to oblige and create various crypto projects that shatter retail dreams.

Level Four: Venture Capitalists

These are the tycoons of the crypto space, wealthy and powerful, controlling everything. They can pump or dump the market, exchanges, or even choke off tokens. They also drive the development of the cryptocurrency casino by investing in various new projects proposed by crypto developers.

There’s no doubt that venture capitalists are here to make money. While retail investors dream of 100x, venture capitalists are actually making 1000x profits during crypto bull markets. They buy in for pennies and sell to retail investors for hundreds of dollars.

They are the ones who initiate bull markets and sell when the market hits new highs because they profit from these 1000x investments (i.e., smart money). Once the hype disappears, they stop playing and enter what we call a bear market.

In this game, if venture capitalists choose the wrong side, they can be crushed because it’s a free competition game. There have been many such examples in the last cycle due to the collapses of Terra Luna and FTX.

Venture capitalists receive funding from the upper layers, but if their investments succeed, they can also sit on a large pile of their own profits. Just look at Solana’s price to see that some venture capitalists made a fortune. Vitalik Buterin was surrounded by venture capitalists in the early days of Ethereum development. They are all wealthy now.

Venture capitalists use this money to sponsor the development of new crypto projects. They facilitate the growth of the space, which is a good thing, but they can also cause massive destruction. Venture capitalists are as greedy as retail investors; they just add a few zeros to their greed. Nevertheless, they play a crucial role in the crypto cycle because they are part of it.

Sometimes development teams hate venture capitalists and refuse to work with them or accept their bribes because they would lose their freedom. In such cases, venture capitalists call the shots, and sometimes retail investors get hurt; some development teams care about this, while others do not.

This is also why some excellent development teams with outstanding projects never succeed; they are not in the venture capitalist club. If you mingle with members of the venture capitalist club, then all layers below them will support your project, including retail investors who are ready to accept anything fed to them from above (i.e., dumb money).

Level Five: BlackRock and the Federal Reserve

BlackRock recently joined the crypto space in a public manner through their Bitcoin ETF. Privately, they have been deeply involved in this field for years through venture capital. They own traditional finance, and cryptocurrency is their latest expansion. The role of the Federal Reserve is quite simple; they print dollars whenever and wherever needed, deciding when the market thrives or collapses.

BlackRock is the world’s largest asset management company, and they naturally won’t ignore the latest asset causing a stir—Bitcoin. This year, they joined the Bitcoin train in a public manner with the approval of the Bitcoin ETF, while those at the bottom of the pyramid have been trying for over a decade to get Bitcoin approved for a spot ETF, but it was only when BlackRock decided to join that it was truly approved; we call this power.

For years, BlackRock has been privately (and mostly secretly) accumulating Bitcoin through its Bitcoin private trust fund, and their listing was inevitable. They know the direction of Bitcoin, and they have become part of it.

The Federal Reserve’s role in the crypto space is simple; they decide when to let liquidity flood the market, just like in traditional markets. Cryptocurrency is no exception. When the Federal Reserve prints dollars out of thin air, the crypto market thrives. When they stop, the market collapses.

They effectively control the lives of everyone at all levels, and BlackRock completes the rest. BlackRock or the Federal Reserve don’t care about 1000x returns; they can print as much money as they need anytime, anywhere; for them, money is not an issue.

Their primary task is to control and master the power of the lower layers. They maintain this control through monetary policy and other tools. We are the victims of their decisions, with no rights to influence or stop those decisions; they act as the kings of the pyramid at their whim.

* Disclaimer

The above is merely an illustration of how the crypto pyramid works and the relationships between its layers. The entities mentioned are not exclusive or exhaustive, and there is much left unsaid.

There are some legitimate participants in this space working hard to promote the vision set by Satoshi Nakamoto, but they are in the minority; most participants are players in the crypto pyramid.

Finally, anyone who harms the upper layers will be swiftly punished, like CZ from Binance, who will end up in prison for this. That’s why Satoshi Nakamoto’s true identity remains unknown. He understands better and correctly assesses the impact of his creation on the upper layers.