It’s been a while since I wrote about Drip. Funnily enough, my article on Drip was my first article on Medium, and also one of my most popular.
After spending more time looking into the project, gaining insights from interacting with its community, and watching it develop, I’ve decided to write a new article exposing Drip’s lack of sustainability and lies.
Introduction
First and foremost, if you haven’t heard of Drip before, here’s a quick summary:
Drip is a project that lets you deposit the DRIP token into the “Faucet”, which provides you with 1% interest a day. The interest is paid for by “taxes” paid by investors, such as on buys, sells, deposits, compounds, and withdrawals. Drip was developed by a pseudonymous developer that goes by the name “Forex Shark”
Also, for a small clarification: I will be using Drip and DRIP independently here. This is because DRIP is the token itself, whereas Drip is the project as a whole.
My Issues With Drip
I’ve got a lot of issues with Drip. I’ll list them here, and then leave individual explanations in sections below.
For added context, while Drip doesn’t technically fully meet the definition of a Ponzi scheme as it doesn’t lie about where the money comes from, it still employs almost identical money distribution tactics, and is still deceptive about its sustainability & methodology. A more apt term would be “Ponzinomics”, but I’ll be referring to it as a Ponzi scheme for the sake of simplicity in writing.
My Issues:
- It’s a Ponzi Scheme
- It’s Unsustainable
- It’s Not Deflationary
- It Has No Utility
- It’s Deceptive (This can be seen generally across all my mentioned Issues)
It’s a Ponzi Scheme
First, let’s look at the official definition of a Ponzi scheme from the U.S. Government:
“A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.”
See, Drip’s only true revenue stream relies on money from new investors being paid as taxes, and directly distributed to previous investors.
And those new investors will now need new people to come into the project, lose money, and pay for their interest as well, if they wish to ever break even, let alone turn a profit.
We can also look at 2 of the red flags listed by the government that Drip mainly meets the requirements of, which are as follows:
- High returns with little or no risk
- Overly consistent returns
Drip provides 1% every day, and claims to be low risk, when it is in fact at high risk in adverse market conditions, and/or if new investors stop coming in.
Drip provides 1% a day without ever deviating from that number. No matter how much money is coming into or going out of the project, it stays at exactly 1%.
We can also see that the developer has kindly implemented a pyramid scheme-y system of downline referral invites, so you can invite all your friends and get a piece of all the money they might manage to earn.
It’s Unsustainable
Taxes
Drip’s 1% a day relies heavily on new investors. If new investors stop coming in, the “tax vault” that fills up with the DRIP to pay investors will steadily drain over time. When new investors stop coming in, the DRIP token will begin to inflate. In fact, after being stuck at 1,000,000 tokens for a while, the tax vault actually ran out, and the supply increased by over 510,165 tokens, bringing the total supply to over 1,510,165 DRIP. Currently, the tax vault has more DRIP in it, but it is still decreasing day after day.
Compounding
Many investors compound their interest to get a higher rate. While this can be effective in the short-term, long-term it is unviable. This is because of the nature of the project. Drip needs income from new investors to pay out previous investors, so when people compound their interest to get wild returns, new investors’ money coming in needs to follow suit, otherwise most of their gains will be due to inflation.
It’s Not Deflationary
The Hard Cap
The DRIP cap on supply is touted as being 10,000,000… or maybe it’s 100,000,000. Nobody is ever very clear, since all the metrics for the token are self-reported on CoinMarketCap. But of course, nobody there is right. See, Drip has touted itself as being deflationary for a while now, and many have claimed that a hard cap on the token supply, akin to Bitcoin’s 21M hard cap, will prevent it from inflating forever if (when) it did begin to inflate.
However, the true story is a bit different from what they’ve claimed. After analyzing the smart contract, we can see that the max supply of DRIP is 2²⁵⁶-1
Or if we calculate that number:
115,792,090,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 DRIP
Interesting.
Deposit Burn
Drip proponents commonly also tout the fact that DRIP is “deflationary”, or in other words, it burns more supply than it creates. But that can’t be true, because the smart contract doesn’t even have a mention of a burn:
And the null address commonly used by crypto projects across all blockchains shows a 1-time deposit of 1,740 DRIP sent directly from a single random person’s wallet.
And even more damning, is the faucet deposit transactions themselves showing all DRIP being sent to the exact same address, the tax vault.
Many Drip investors claim that DRIP is burned on each deposit, and that makes it deflationary. No. There is no burn. There is only more lies to make the project seem sustainable. In reality, the supply can only ever go up.
It Has No Utility
DRIP has no real utility. Currently, there are a few “use cases” for DRIP. Depositing into the Faucet to earn interest from new investor’s losses, Depositing it into the Animal Farm “game” to add liquidity and earn more interest, and in the future, money coming back through scratch tickets, AKA gambling.
Other than that, there’s no use outside the small, Ponzi-based ecosystem. Drip is basing its future off of a Ponzi, a “game” made of more ponzinomics and some liquidity incentives, and a cut of gambling losses. Yikes.
Frequent Arguments
“Everything is a Ponzi”
While many things in life revolve around a system of money exchanging hands, and people losing money for other’s gain, DRIP’s system (and any Ponzi project for that matter) rely on new investors to pay old ones, but those newer investors will never make a return on their money if they don’t bring more people in to lose money.
A common comparison used is business. People spend (lose) money, and that goes to the employees, and the CEO. People often conflate this with DRIP’s mechanics, and thus assume that DRIP will work similarly, and continue to provide for them. However, there is a key difference here. When people spend money, they get a product/service. Sure, that money goes to other people, but they still get something in return. Ponzi schemes, on the other hand, give new investors nothing if they don’t bring more people in under them.
This would be akin to you ordering a burger from a restaurant, but instead of getting a burger, your money pays for everyone who’s ever bought a burger before you to get more burgers, and you now need to convince people after you to buy burgers, to pay for your food. There will always be many people at the end of that chain that will never get a burger, after already paying for previous buyer’s burgers instead. And the longer this goes on, the more people are at the bottom who get screwed.
“Current Investors Pay Taxes Too”
People often use this to try and make the argument that as current investors pay taxes too, the system isn’t a Ponzi because it doesn’t rely solely on new investors. The issue with this argument is the fact that it still is not sustainable. If you pay a 10% tax on your 1% interest, that’s the equivalent of you just being paid 0.9%.
Even the whale tax doesn’t matter either. Even if the tax is as high as 50%, the whale will still be making the equivalent of 0.5% interest daily. And thus, the project still needs to rely on new investors constantly.
“There’s Utility Coming”
The “utility” will not save DRIP. Currently, the “utility” is just “games” that are actually just rebranded liquidity mining and more Ponzinomics.
The scratch ticket system? It’s gambling… and it has ponzinomics where after you buy in, you get to take part of the money new people put into it instead of it going to prizes, y’know, the thing everyone is trying to win in the first place.
There’s apparently a planned lending platform too. But remember, being able to lend an asset doesn’t mean that asset inherently has utility. Especially if nobody wants to use that asset as collateral due to its ponzinomics.
“Just Compound Back Your Losses”
Right away this argument begins to show its cracks. See, for you to compound your losses back, you need to actually have money to pay for that interest. While the protocol can just print new tokens, that decreases the value proportionally. (net-zero gain)
If someone deposits $100 into the faucet, ($90 after the 10% tax hit) they can earn up to 365% back. So, after being paid back $90 They will also need to be paid an additional $238.50 on top. And all that money needs to come from new tax income. So at a tax rate of 10%, the project will have needed $2,385 to come in. And now that $2,146.50 (after 10% tax) needs to generate 265% on top, or an additional $5,688.
This cycle repeats. As old investors are paid their interest, new investors saddle the protocol with even more “debt” to pay back via taxes. And the protocol can only pay that “debt’ by bringing in more investors, and increasing its total debt even more. The protocol can never fully eliminate its debt.
Update: DRIP is now down over 75% since writing this article. (as of 12/23/2022) It’s dropping by 2–5%+ a day now, and supply has multiplied to 5X what it was at the start.
Conclusion
After looking at all of this, I’d say it’s pretty evident that DRIP has no utility, that Drip is a flawed project basing its success on Ponzinomics, and that it likely won’t end well for anyone who invests in DRIP in the future.
Overall, I believe I did a good job explaining my points, but if you have something you think I should clear up/modify, feel free to leave a comment with it.
Well, that’s all. If you’d like to, you can read this other article I wrote that I think you’ll like:
Of course, since I’m writing an article on crypto & money in general, I need to state that I’m not a financial advisor, nothing I state here is financial advice, and you should always do some decent amount of research before making any assumptions or investing decisions. Just generally be responsible with your money, please!
