Peter Senge's The Fifth Discipline (1990) describes a pattern he calls limits to growth: a reinforcing loop runs until it triggers a balancing loop that slows it down. Donella Meadows' Thinking in Systems (2008) makes the same point with stocks and flows. Every customer loop in this book hit at least one brake. The ones that survived had built it in advance.

Fraud

A loop that pays people attracts people who fake the thing you pay for. PayPal's S-1 shows a $11.0 million provision for transaction losses in 2000, 0.87% of payment volume, and one July-to-October episode that cost $5.7 million. By the second quarter of 2001 the rate was 0.33%.

For a DTC brand the fraud is smaller and the same shape: self-referrals under second email addresses, codes posted to coupon forums, bot signups for sweepstakes entries. The brake is in Pay on Completed Value: pay after delivery, verify the new customer, cap each inviter, void and ban.

The law

Binance's growth outran its compliance. On November 21, 2023, the company and its founder pleaded guilty to US federal charges in a resolution totaling about $4.3 billion. The Justice Department said Binance had prioritized growth and profits over compliance with US law. Among its findings: until August 2021, accounts could be opened with only an email address, and after announcing in 2019 that it would stop serving US customers, the company kept many, including high-volume VIP traders.

A DTC loop won't face the Bank Secrecy Act. It faces smaller versions of the same edge:

• Sweepstakes law, where a prize, a chance and a required purchase meet. A free method of entry, in the rules, before entries open.
• Email and text consent, when a program messages a friend on a customer's behalf. Let customers send their own links.
• Endorsement disclosure, when rewarded customers or creators post about you. The FTC expects the reward to be disclosed.

Legal is a design input, not a sign-off at the end.

Check the mechanic

Before any reward with a chance element ships, answer eight questions. The checker names the pattern and what to fix. It doesn't replace counsel; it tells you what to ask them.

Rewards that stop working

A rich reward brings people who came for the reward, and they leave when it shrinks. PayPal cut its bonuses and then relied on the product. Binance put its BNB fee discount on a published schedule, 50% in the first year and 25% from July 2018, and years later ended the link between BNB holdings and referral rates. A reward that steps down on a schedule announced in advance doesn't feel like a broken promise.

Running out of people

A loop starts in its densest group: eBay traders, card collectors, the brand's first thousand fans. As it spreads, each new customer is further from the core, knows fewer people who'd care, and K falls. Dropbox capped referral space at 16 GB and 32 GB partly so the reward stayed a bonus as the loop spread. For cycle businesses, each giveaway or drop starts from the audience the last one left behind, which is why The Loop Between Cycles matters.

Do this

• Write the brake for each of the four before your next change to the program: fraud, law, reward decay, saturation.
• Send counsel one package, covering every mechanic at once, before launch.