Definition ∞ A Ponzi scheme is a fraudulent investment operation that pays returns to earlier investors with money taken from later investors. This scheme relies on a constant flow of new capital to sustain the illusion of profitability. It does not generate actual profits through legitimate business activities. The entire structure inevitably collapses when new investor funds cease or when too many investors attempt to withdraw their capital simultaneously.
Context ∞ In the digital asset world, Ponzi schemes often masquerade as high-yield cryptocurrency investment platforms or new token offerings promising unrealistic returns. News reports frequently warn about such schemes, which exploit the public’s limited understanding of blockchain technology and the speculative nature of crypto markets. Regulatory bodies actively work to identify and shut down these fraudulent operations, which cause significant financial harm to unsuspecting participants.
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