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How to spot a Ponzi scheme?




Ponzi schemes are a common occurrence in the traditional financial space, with most of them claiming to offer legitimate services. Unfortunately, this type of activity has found its way to the crypto space, with many claiming to provide a ridiculously high return on investment. 

Ponzi scheme derives its name from an Italian scam artist, Charles Ponzi, who relocated to the US to make illegal money from defrauding his unsuspecting victims. A Ponzi scam works by paying off the existing investors with the money collected from new investors. Usually, the new and old investors who decided to reinvest in the Ponzi scheme lose their funds. 

4 ways to spot a Ponzi scheme masquerading to be a crypto platform

Cryptocurrencies are innovative, as they offer numerous use cases. Some con artists try to cloak their Ponzi as a crypto startup. We will look at how to protect yourself from them. 

  • Are they promising outrageous returns?

Different DeFi features offering returns like yield farming, lending, staking, and more are usually reasonable. However, if a project claims to provide ridiculous returns, it may be a Ponzi. 

  • Forced referral system

Some legitimate crypto startups try to incentivize their existing users to invite others by giving them bonuses. However, if a project makes it compulsory to invite new users, then it has the signs of a Ponzi scheme.

  • Do your research 

Any platform that claims to cover quick or high returns with little or no effort from the user is most likely a Ponzi scam. Therefore, it is crucial to read about investment opportunities and consume everything you can find about it.

  • Be skeptical about unsolicited investment opportunities

When an investment company reaches out, it is essential to be wary and find out more about them. Are they registered? How are their reviews? Who is running the company? And more. Find out.


Rose Nnamdi is a crypto content writer that loves drafting content on cryptocurrencies and innovative platforms building on blockchain technology.

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