GlossaryBeginner
Ponzi Scheme
A fraud that pays early investors using funds from newer investors, not genuine returns.
A Ponzi scheme pays apparent returns to earlier investors using funds contributed by newer investors, rather than from any genuine underlying profit-generating activity — a structure that collapses once new investment can no longer cover promised payouts.
Unrealistically high, consistent advertised returns, especially with vague explanations of how they're generated, are a common warning sign of this pattern.
Examples
- A crypto platform promising unusually high, consistent returns with a vague strategy may be a Ponzi scheme.
- A Ponzi scheme typically collapses once new investor funds can no longer cover existing payout obligations.