What is a ponzi scheme in crypto?

A ponzi scheme is one of the oldest and most common forms of investment fraud. The principle is deceptively simple: early investors are paid out with the money of new investors, instead of with profit actually generated from legitimate business activities or investments. As long as there is a constant stream of new participants, everything seems to add up on the surface. However, as soon as the inflow stalls or too many people want to cash in their profit at the same time, the house of cards inevitably collapses.

In the crypto market, ponzi schemes are unfortunately a recurring phenomenon. The combination of promises of astronomical returns, complex technical jargon and relatively young regulation makes crypto an attractive terrain for sophisticated fraudsters. In this article you will learn how to recognise a ponzi scheme, which notorious examples have marked the market and how you can effectively protect yourself against these practices.

In short

• A ponzi scheme is a fraud in which early investors are paid out with the deposits of newcomers.

• A crucial warning sign are promises of guaranteed, unrealistically high returns.

• The system is fundamentally unstable and is doomed to implode sooner or later.

• Well-known examples within the crypto world are BitConnect, OneCoin and more recent DeFi scams.

• Unlike a pyramid scheme, the focus of a ponzi scheme is on the 'investment' rather than on active recruitment by members.

• In the Netherlands, always check whether a platform is officially registered with the Dutch Central Bank (DNB) or the AFM.

What is a ponzi scheme?

A ponzi scheme is a fraudulent investment model in which the organiser lures investors with the promise of high profits at low risk. In reality, little or no real economic activity takes place. The apparent profits paid out to existing participants come directly from the pockets of the last group of people to join.

The name originates from Charles Ponzi, an Italian immigrant in the United States who committed an unprecedented fraud with international postage stamp coupons in the 1920s. He promised investors a return of 50% within 90 days. By actually paying out the first groups of investors, he created enormous buzz and blind trust. Ultimately, the system turned out to be a gigantic bubble; thousands of people lost their entire savings when the flow of new money dried up.

How does a ponzi scheme work step by step?

The process usually follows a fixed pattern:

• The lure: The organiser presents a "unique opportunity" with stable, high returns that beat the market.

• The illusion of success: Early investors receive their first 'profit distributions'. This creates enthusiastic word-of-mouth advertising.

• Exponential growth: More and more people join, often with larger amounts, convinced by the earlier payouts.

• Saturation: It becomes increasingly difficult to find enough new investors to pay out the growing group of existing members.

• The crash: As soon as the organiser disappears with the remaining money (an exit scam) or when the payouts simply stop, the harsh truth comes to light.

Why crypto is susceptible to ponzi practices

In 2026, the technology behind crypto is more mature than ever, but so are the methods of scammers. Fraudsters often use terms such as "AI trading bots", "yield farming" or "liquidity mining" to mask their ponzi structure. The complexity of these terms causes many investors to stop asking questions as soon as the profits become visible on their dashboard. It is essential to remember that blockchain technology is a tool, but does not guarantee the honesty of the party that manages the tool.

How do you recognise a ponzi scheme in crypto?

There are clear red flags that you as an investor should always be alert to.

Promises of guaranteed high returns

This is the most important indicator. The crypto market is inherently volatile. No legitimate platform can guarantee a fixed return of, for example, 1% per day or 20% per month. If a return sounds too good to be true, then in 99.9% of cases it is.

Lack of transparency and vague strategies

Reliable platforms are transparent about how they generate value. Are there vague claims about "secret algorithms" or "exclusive deals" that cannot be verified? Then there is a good chance that the profit simply comes from the next investor.

Barriers to withdrawing funds

When a platform suddenly charges extra fees for payouts, adds complicated verification procedures that take weeks, or gives active bonuses to keep you from withdrawing profits, you should immediately become suspicious. These are often the first signs that the scheme's liquidity has run out.

Not registered with AFM or DNB

In the Netherlands, supervision is strict. Crypto service providers must be registered with the Dutch Central Bank (DNB). Platforms that specifically target the Dutch market without this registration are acting illegally. Check the official DNB register before every deposit.

Well-known examples of ponzi schemes in crypto

Unfortunately, billions of euros have been lost to large-scale fraud over the years.

BitConnect (2016-2018)

BitConnect promised daily returns of up to 1% via a "volatility software bot". The project grew into a top 10 cryptocurrency before it suddenly closed its doors in 2018 after warnings from regulators. The price of the token crashed 92% in one day, causing investors worldwide to lose billions.

OneCoin (2014-2017)

OneCoin was promoted as the "Bitcoin killer". In reality, there was no blockchain and no public trading. It was purely a network marketing scheme in which tokens were sold for educational packages. Founder Ruja Ignatova, the 'Cryptoqueen', is still on the FBI Most Wanted list.

What is the difference between a ponzi scheme and a pyramid scheme?

Although the terms are often used interchangeably, there is a technical difference in the setup:

• Ponzi scheme: The organiser is central. You deposit money and expect the organiser to do the work (investing). The scammer pays you out with money from others without you having to bring in new members yourself.

• Pyramid scheme: The focus is on recruitment. You have to bring in new people yourself to earn money. Without new 'lower layers' in the pyramid, no one at the top earns anything.

How do you protect yourself against ponzi fraud?

Common sense is your best defence. Always follow these steps:

• Do your own research (DYOR): Who is behind the project? Are the founders known and do they have a good reputation?

• Check the registration: Only trade with platforms that have a licence or registration with national regulators.

• Understand the source of profit: If you cannot explain how the platform makes money, do not invest.

• Start small: Always test payouts first with a small amount before depositing larger sums.

At Coinmerce you trade on a platform that is fully compliant with the European MiCAR regulation and registered with the relevant authorities. Transparency about costs, safe storage of assets and the ability to withdraw your funds at any time are the standard with us.

Frequently asked questions

What is the biggest danger of a ponzi scheme?

The biggest danger is that the system can look very healthy and professional on the outside. Because early investors are actually paid out, they are often the biggest promoters of the project, whereby their friends and family are also drawn into the fraud.

Can you get your money back after a ponzi scam?

This is unfortunately very difficult. Because the organisers often work anonymously or reside in countries without an extradition treaty, the money is usually already laundered via various blockchains before the authorities can intervene. In this case, prevention is many times better than cure.

Trade safely and transparently at Coinmerce?

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