Ponzi Scheme Definition Operation And Prevention

The basic concept of Ponzi Scheme

The Ponzi Scheme originated in the United States by Charles Ponzi, where funds from later investors are used to pay profits to early investors, lacking a real source of profit. As the number of participants increases, the system becomes unsustainable and ultimately collapses.

Operational Model Analysis

Eyewash promises high short-term returns, initially relying on new funds to maintain payments, but once the funding chain breaks, investors generally suffer significant losses.

Review of Typical Cases

Like the Madoff case in the United States, which defrauded hundreds of billions of dollars; there are also numerous fraud cases in China and Southeast Asia disguised under names such as “wealth management” and “blockchain mining,” causing widespread financial harm.

The difference between Ponzi Scheme and pyramid scheme

A Ponzi Scheme is usually centrally controlled and relies on new funds to pay out; a pyramid scheme emphasizes the gradual development of downlines. Both are unsustainable and end in collapse.

Identification and Prevention Suggestions

Identify characteristics such as promises of high returns with no risk, opaque fund flows, and rapid recruitment of new investors. New investors should learn basic financial management knowledge, choose compliant platforms, and invest rationally to avoid risks.

Summary

Ponzi Scheme is a long-standing risk trap in the financial market, and being aware of it and taking cautious preventive measures is key to protecting investment safety.