A Ponzi scheme can only function as long as fresh capital is made available. Such a system automatically collapses when this is no longer the case. A very simple Ponzi scheme is when I promise you a 20% return without any risk. You give me 10.000€ and hope to make 12.000€ after one year. Because you are one of the first investors, I pay you the 12,000€. What you don’t know is that your profit will only be financed by another investor who has also cashed in. So as long as there are always new investors, I can keep the system going. When they stop coming and I can’t pay you your 20% anymore, you’ll probably start to wonder. Then you ask me if it is not possible to withdraw the whole capital. Other investors feel the same way. If I’m smart now I’ll run away, if not I’ll pay off all investors until there’s no money left. So those who stay in the longest lose out.
This is how a Ponzi scheme works and the question is whether Sorare is such a scheme.
Sorare does not promise a return on investment. To win prize money you have to do something. You pay no entry fee to Sorare, but you must own the player cards. However, these are NFTs and freely tradable. This means that they do not belong to Sorare, but only to you. You can sell them at any time and also outside Sorare.
Now you could assume the following, for example:
Sorare issues these player cards and earns a decent amount of money from them. When Sorare auctions off a new player card, it can cost several thousand euros. This money does not go to a manager but to Sorare, because Sorare is the owner of the card when it is first dropped on the market.
Sorare could now take this money and make the prize money so attractive that more and more managers participate and expect high returns. However, if Sorare no longer earns enough from the sale of new cards, the prize money drops, the managers are dissatisfied and want to sell their player cards. But demand is low and the managers do not get anywhere near the value they paid at the time. Now you could say, of course, this is a Ponzi scheme. However, there is a big BUT here.
The reason why Sorare is not a Ponzi scheme is this: Sorare can control both the prize money and the distribution of cards. This gives Sorare two important tools to intervene in the market. On the one hand, it can prevent the demand for cards from becoming too high through “low prize money”. And secondly, it can adjust the number of cards that come onto the market to the demand.
So it is the case that Sorare can now set up a healthy balance relatively easily. It can also prevent cards from becoming objects of extreme speculation by controlling the supply and capping the prize money. If you have to pay €10,000 for a team but can only win €200 in prize money each year, you won’t be willing to spend much more on a team. And if there will soon be not only 30 but 40 Super Rare cards of Robert Lewandowski, you will hardly expect a big price jump as an investor.
These are the reasons that, in our opinion, speak for Sorare not being a ponzi scheme. But of course the principle applies: when it comes to investing, always be careful. Don’t invest more than you can actually lose. Don’t trust that player cards will increase in value. Because despite all the hype around Sorare, that is probably no longer the case – at least overall. The reason is that there are new cards every season, so they are an “inflationary good” – similar to the euro notes in your wallet. They don’t become worth more, but less. Of course, this doesn’t mean that you can’t get good price increases for cards, e.g. by scouting promising players or the like. That is definitely possible. However, you should not expect to blindly buy cards and sell them for twice as much in one year.