Ponzi scheme

The scheme is named after Charles Ponzi, who ran one in Boston around 1920. It promises high, steady returns from a vague or secret strategy, but there is no real source of profit. Payouts to existing investors depend entirely on fresh deposits, so the operation must keep growing, and it collapses when new money slows or too many people try to withdraw at once.

Crypto has seen many variants, from lending platforms such as BitConnect, which collapsed in early 2018, to OneCoin, which sold a coin without a working blockchain. Modern versions often present themselves as trading bots, arbitrage programs or yield products paying fixed daily returns, and many add referral bonuses that make them resemble pyramid schemes.

Typical red flags are guaranteed returns, pressure to recruit others, no verifiable explanation of where profits come from and difficulty withdrawing. Late participants usually lose most of their money.