The Uncertain Future of dApps: Will Promising Platforms Overcome Ponzi Schemes?

By Kris Coward, CSO, Shyft Network

In 2015, Ethereum was born, ushering in a new smart contract blockchain ecosystem where users have the ability to create new decentralized applications (dApps) with seemingly boundless functionality. Over the course of the next three years, dApps underwent a meteoric rise to prominence within the cryptocurrency community, facilitating — at its 2018 peak — a combined trade volume of 96,578.72 ETH .

Yet, almost suddenly, the market plummeted. Following a string of fraudulent projects, dApps depreciated in overall value by an estimated 3,351% in just a few short months. With the future of the dApp in flux, many industry experts are working to identify the reasons for why this once promising technology fell from grace, as well as pinpoint strategies to bring it back to its former glory.

In the world of cryptocurrency, dApps are are no stranger to criticism. In fact, an increasing number of critics have labelled dApp projects as multi-million dollar sinkholes with huge development costs, poor user interface (UI), and no users. A technology that once promised to diversify and expand upon Ethereum’s potential has instead made way for ponzi schemes seeking to take advantage of the broader cryptocurrency community.

After months of increasing risk, users have finally come to the realization that dApp platforms may not be worth the gamble, and, as a result, many have migrated to other aspects of the cryptocurrency landscape in search of stability.

Two gaming dApps, PoWH3D and FOMO3D, are excellent examples of this. In July, both PoWH3D and FOMO3D amassed a staggering 20,000 ETH in 24 hours, building enough capital to compete with even the most established decentralized exchanges. The only distinction between them, however, is that both dApps are ponzi schemes. Take PoWH3D, for example. Akin to a pyramid scheme, PoW3HD’s value proposition rests almost entirely upon an individual’s ability to attract new users to its platform. Whenever P3D tokens are purchased, a cut of the transaction fee is distributed to the community, incentivizing users to expand the popularity of the platform and remain in the game.

It’s a model that, over time, became too high risk to be sustainable, and many users stopped using it as a result. During its July peak, PoWH3d had nearly 5,000 nearly users and a trade volume of 4,905 ETH, however at the time of writing, it’s since dropped to 67 users and a trade volume of only 25.84 ETH.

FOMO3D, on the other hand, was based on a 2015 reddit game called “the button,” where a ticking timer starts and users pay to postpone its inevitable countdown. Similar to PoWH3D, players are rewarded each time the timer is postponed, incentivizing users to make payments and expand the platform. If and when the timer runs out, the game’s smart contract is programmed to drain the entire winning pool to the last person to conduct a payment, keeping players invested in continuing each round.

For months, FOMO3D was extraordinarily popular (with more than 10,000 users in July alone) until one user hacked the system, decreasing the number of transactions and thus increasing the probability of winning — making off with 10,469 ETH as a result. Much like other high-risk dApps, FOMO3D depreciated in value as users realized the instability of the platform, and now only has only 71 active users and 3.28 ETH in circulation.

It’s becoming increasingly self-evident that platforms like PoWH3D and FOMO3D have had a detrimental effect on the cryptocurrency community’s perception of dApp platforms, leading many to unfairly assume that all dApps are high risk. This is a shortsighted assumption. While there are, admittedly, many high-risk dApps on the market, there is an even larger percentage that have tremendous potential, and ensuring their longevity is essential to expanding upon the mainstream use cases of cryptocurrency. It’s not the technology that needs to be changed, it’s the infrastructure.

What if there was a way to guarantee that dApps were not only useful, but created by ethical parties? Users could participate with confidence in a dApp’s inherent value, and developers could build platforms without being inadvertently be labelled as fraudulent. This is the justification behind most Know Your Customer (KYC) and Anti Money Laundering (AML) platforms, which create a system of checks and balances that certify a platform’s integrity on the blockchain.

Using due diligence protocols, interested parties enter pre-determined criteria that can then be vetted and authenticated by other users in the network, providing the community with irrefutable certainty that a platform (or a user) is acting ethically. Changing misguided perceptions about the dApp ecosystem is going to require more than blind trust; It’s going to require a sound due diligence infrastructure with long-term potential. These are tools that KYC/AML protocols provide.

At Shyft, we face the same challenge as many other blockchain networks — creating a trusted ecosystem that’s optimal for dApp development while simultaneously encouraging developers to use our platform to build dApps that are actually useful. The key roadblock now is that developers haven’t quite nailed down what is made better by decentralization; in other words, what benefit is there for using a dApp that a normal, centralized application cannot offer?

Until we can build dApps that are useful, secure, and intuitive to users, the demand will remain low and the dApp ecosystem will remain stagnant. However, with networks such as ours and others who are facing the same challenges, we’re hoping to open the door for stronger dApps with proven market potential. With this, we may bring about an end to the string of scams and and ponzi schemes that have, for far too long, tainted the widespread perception of the technology.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.