A Ponzi scheme is a fraud that pays investors "returns" with money from new investors. No real business generates a profit. The scheme only works while new money keeps flowing in, and it collapses when that stops. It is one type of investment scamInvestment scamA scam that promises big, safe returns on an investment, often in crypto, while the scammers simply take the money paid in..
How does a Ponzi scheme work?
The name comes from Charles Ponzi, who duped investors in the United States in the 1920s with promises of profits from postage stamp trading.
The method is always much the same. The first investors get paid as promised and tell friends and family. More people join, and their money pays the returns of those who came before. The organisers take their cut. When too few new investors join, or too many want to withdraw at once, everything collapses and most people lose.
In crypto, Ponzi schemes often appear as lending apps, fake StakingStakingLocking up crypto on a proof-of-stake network to help confirm transactions, in return for rewards paid in the same crypto. services or trading bots that promise fixed daily profits. A pyramid scheme is a close relative, where people are paid mainly for recruiting others.
Warning signs
The US Securities and Exchange Commission (SEC) lists signs including:
- high returns with little or no risk
- overly consistent returns, whatever the markets are doing
- unlicensed sellers and firms
- secretive or complex strategies nobody can explain
- difficulty withdrawing, or offers of even higher returns if you stay in
Every investment carries risk. Crypto prices are known for their VolatilityVolatilityHow much and how quickly the price of an asset moves up and down., so promises of fixed returns are especially hard to believe.
If you think you are caught up in a Ponzi scheme, contact your bank and report it to the police through Ísland.is.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.