A Ponzi scheme is a fraudulent financial arrangement in which clients’ investments are paid for primarily by funds provided by new entrants. If the scam is not discovered, it becomes apparent when it collapses. when the sums provided by the new entrants are no longer sufficient to cover the clients remuneration. It is named after Charles Ponzi, who became famous after setting up a scheme based on this principle in Boston in the 1920s.
Let’s imagine that someone offers an investment with 100% interest: you give him 10 euros, he gives you 20 back using the money deposited by the following clients (it is enough for him to offer a return double that of the known market returns in order to attract clients and to last). The system is viable as long as clients flock to it, attracted en masse by the financial promises (and all the more tempting because the first investors are satisfied and give the investment tremendous publicity). The first clients, too happy with this wonderful investment, put their money back in, adding to all those they have managed to convince.
The phenomenon then snowballs, maintained as long as the money is paid out and allows the new investors to be paid at 100%. The organizer takes a commission, which is understandable when you see the promises he makes and keeps. The system can last as long as the demand follows the exponential growth imposed by this system, with clients arriving in 2, 4, 8, 16, 32, etc. When the new arrivals become scarce, the dynamics of the chain breaks down, the bubble bursts: the last and numerous investors are robbed. The rare winners are those who left the ship in time (and the organizer…).
Must therefore be very careful ⚠️