In 2004, a group of students at Harvard set out to create what was at the time a relatively new concept: a social network. The story of Facebook has been told time and time again, and will probably be told for decades to come. But Facebook’s road to IPO is a great example of the power that engagement and user growth can have on a company’s success. When Peter Thiel, Facebook’s first investor and president, put $250,000 into the fast growing social network, the company was seeing nearly vertical user growth at little to no cost of customer (or user in this case) acquisition.

With every month that went by in 2005 and 2006 more and more investors became interested in this explosive company, and what would become one of the fastest growing industries of the decade. The rules of angel investing and venture capital were rewritten in those early years of the social network industry. For the first time, the buzz words that mattered were “growth” and “engagement,” and not “revenue” or “profit.” These companies weren’t profiting a dollar, and yet the money poured in. By the time Jack Dorsey, Ev Williams, Biz Stone and Noah Glass launched Twitter in 2006, it was clear that social media was here to stay.

Just around the time that early social networking companies began to monetize by running advertisements, some of the companies that had piggybacked on their growth, like FarmVille, were beginning to question their own monetization strategy. All the while Apple had just released a phone and marketplace that would soon create an entirely new industry: mobile apps.

With the two industries charting near hockey stick growth, a new door to monetization was opened, and with it, I argue, the beginning of tech bubble 2.0 began.

When I was in high school I heard about an interesting way to make money.

Some of my friends at a local high school were making thousands of dollars by selling energy drinks. The plan was fairly straightforward: buy a case of energy drinks and sell them to your friends. In addition to selling individual energy drinks, sell cases to your friends to sell to their friends and receive a commission on each of those drinks. After a few months, the commissions would allow you to play video games while your friends make money for you. (The economics behind this were actually an early lesson in Software-as-a-Service business models. Recurring revenue is king.)

Fortunately, I was late to the party that would end up being busted by police months after its inception. This near run in with the law was my first experience with what I would later understand to be a Ponzi scheme.

Ponzi schemes are fairly simple to understand. Generally, you can determine whether a business model is a Ponzi scheme if “the perpetuation of high returns requires an ever-increasing flow of capital from new investors to sustain the scheme.” In the example of energy drinks this is new friends buying cases of energy drinks rather than individual drinks.

Let’s look at the economics behind (some) mobile app companies in comparison:

Company A starts up in a garage and builds an app that goes viral.

Investor A foots the server bill and receives equity in Company A.

Investor A asks that Company A start to monetize.

Meanwhile Company B receives investment from Investor B to build a different mobile app.

In order to gain initial traction, Company B pays Company A $1 per user they can get to download this new app. And walah! a monetization strategy for Company A is born.

Investor B sees that Company A is on the road to IPO because of this new revenue stream and encourages Company B to monetize in a similar way after seeing that Companies C, D and E are all looking for initial traction.

Do you see where I’m going with this?

In principal, this is the way the mobile app industry has been running for the last 5 years. And the trend towards paid discovery monetization, as it’s called, is increasing.

In 2013, 90% of apps were downloaded for free. But at the current $100k market rate salary for a mobile developer, how is this possible?

While an increasing amount of app companies are finding ways to monetize their users by offering in-app purchases and monthly subscriptions, my hunch is that a larger amount are sustained by in-app downloads. If this were true, that would mean the majority of those $100k salaries are footed by Ponzi Scheme economics and the $25 billion dollar industry we all know and love is as stable as my friends’ energy drink business.

My hypothesis is that the burst of Tech Bubble 2.0 will come as soon as companies like Snapchat and Pinterest go public, which it looks like will be within the next 2-3 years.

For about a year after Facebook’s epic IPO flop, the public markets didn’t see much in the way of new tech companies as no sane investor or CEO of a growing tech company wanted to be the Guinea pig of what could amount to billions in lost market cap. But recently, tech companies with more traditional business models like Veeva, have tested the public’s demand for tech IPOs and it looks like this demand is heating up.

Some may think a Snapchat IPO would be crazy, and they may be right, but when founder and CEO Evan Spiegel passed a reported $1 billion Facebook acquisition, the decision to aim for IPO was made. Likewise, Pinterest’s recent $200 million raising all but closed the door to an acquisition; the reason being, no company has the budget to acquire a company for north of $4 billion, especially one with little to no revenue.

Until this point, any inflections or corrections as they’d be called in public markets, hit VCs and angel investors who by law have to be prepared to take large losses (SEC Rule 501)*. But as SEC laws change in upcoming months and the door to investing opens to just about everyone with a credit card, the economy will become less and less stable. Tack on the increase in tech companies with flimsy monetization strategies going public and the economy will begin to wobble.

It’s true that the economics behind mobile apps are not all the same, and don’t directly resemble a Ponzi Scheme. It’s also true that demand for mobile apps is there, yet “Uber for X” can only go so far before I have “Uber for Dog Booties” downloaded on my iPhone 5. But the truth is that the amount of truly innovative ideas is diminishing with every day and at some point smartphone users will realize this and stop downloading pointless apps that add no real value to their lives. And just like a Ponzi Scheme typically ends when the viral co-efficient of growth dips below 1** we should see a correction in the $25 billion mobile app and related social industries within the next couple years.