What is a Ponzi Scheme?

A Ponzi scheme pays old investors using money from new investors

Simple Flow:

1. New users invest money

2. Old users get paid

3. System depends on constant new users

👉 Eventually:

When new users stop → the system collapses

How a Ponzi Works

👉 Key insight:

Ponzi Schemes in Crypto

In crypto, Ponzis are often disguised as:

• Yield farms

• Staking platforms

• “Passive income” protocols

👉 They look like:

Legit DeFi projects

Common Crypto Ponzi Patterns

1. Unsustainable APYs

• 1,000%+ returns

• Constant rewards

👉 Question:

Where is the money coming from?

2. Rewards Paid in Tokens

• New tokens minted

• Not real revenue

👉 Result:

• Token inflation

• Price collapse

3. Growth Dependency

• Needs new users constantly

• Rewards depend on new money

4. Hype-Driven Systems

• Strong marketing

• Weak fundamentals

Why People Fall for Ponzis

Psychology:

• Greed → “Easy money”

• FOMO → “Everyone is making money”

• Early profits → false confidence

👉 Important:

Early users often DO make money

👉 But:

Late users lose everything

What Happens When It Collapses

Step-by-step:

1. Growth slows

2. Selling begins

3. Panic spreads

4. Price crashes

👉 Final result:

Most users lose money

Real-World Example

Terra (LUNA) / UST Collapse

What happened:

• High yields (~20%)

• Attracted massive capital

• System depended on demand

👉 When confidence dropped:

• Collapse happened quickly

👉 Lesson:

High yield without real backing is dangerous

Red Flags (Memorize These)

❌ “Guaranteed returns”

❌ Extremely high APY

❌ No real revenue source

❌ Complex system with unclear logic

❌ Heavy reliance on referrals

👉 If you see multiple red flags:

Ponzi vs Real Yield

Ponzi:

• Paid from new users

• Unsustainable

• Eventually collapses

Real Yield:

• Comes from fees

• Based on real usage

• Sustainable (if demand exists)

👉 Key insight:

Ask: “Who is actually paying for this yield?”

How to Protect Yourself

✅ Always ask:

• Where does the yield come from?

• Is there real product usage?

• Is demand organic or forced?

✅ Be skeptical:

• High returns = high risk

✅ Avoid hype traps:

• Don’t chase “easy money”

The Golden Rule

If you don’t understand how the system makes money…you are the product

How This Connects to Your Journey

• Research Analysts → detect unsustainable models

• Market Analysts → avoid hype cycles

• DeFi Operators → avoid risky protocols

Next Step

👉 Continue to:

“KYC & AML”

Optional Mission

👉 Try this:

• Find a DeFi project

• Ask: “Where does the yield come from?”

Final Thought