Published: October 11, 2017
Recently, there have been a few accounts that sell discount dA premiums, like CORE membership, cake badges and llama attire. They do this as follows: each entrant pays, say, 20 points for a cake badge, they're put on a waiting list, as soon as 4 people have paid 20 points, the person on top of the waiting list gets a cake badge.
This seems cute, but it's actually a Ponzi scheme, a type of pyramid scheme, and as such it is illegal.
While the starters of such accounts can hardly be compared to Madoff or Shkreli, they essentially do the same thing: relying on the next batch of investors to pay off the first ones.
Thing is, cake badges cost 80 points, and at some point the bubble is going to burst. To pay for 1 investor, you need 4. To pay 4 investors, you need 16. To pay off those 16, you need 64. To pay off those 64, you need 256 investors.
Get it? Exponential growth! Like the grain on the chessboard story, except it grows twice as fast!
Let's do the math - I love math:
Let's say the imaginary account GiveThemBrioche sells cake badges for 20 points instead of 80, so at a 75% discount.
Let's say there's a steady flow of 20 cakes per day bought this way.
Let's say this goes on for 4 weeks.
Day 1: 20 investors, 400 points, 5 cakes - waiting list of 15 = 60 new investors needed to clear backlog
Day 2: 35 investors, 400 points, 5 cakes - waiting list of 30 = 120 new investors needed to clear backlog
Day 3: 50 investors, 5 cakes - waiting list of 45 = 180 new investors needed to clear backlog
Day 4: 65 investors, 5 cakes - waiting list of 60 = 240 new investors needed
Day 5: 80 investors, 5 cakes - waiting list of 75 = 300 new investors needed
Day 6: 95 investors, 5 cakes - waiting list of 90 = 360 new investors needed
Day 7: 110 investors, 5 cakes - waiting list of 105 = 420 new investors needed.
Week 2: 245 investors, 2800 points, 35 cakes, 210 people on the list = 840 new investors required.
Week 3: 350 investors, 35 cakes, 315 on the waiting list, 1260 new investors needed.
Week 4: 455 investors, 35 cakes, 420 on waiting list, 1680 new investors needed.
What does this mean for the waiting list:
The last ones on day 1 get their cakes on day 4 - waiting list 3 days.
The last five who subscribed on day 2, are paid on day 8 and the waiting list is 6 days.
The last on day 3, are paid on day 12 - waiting list 9 days.
Day 7's last ones are paid on day 28 - waiting list 3 weeks
Week 2: last ones get their cake on day 56 - waiting list of 42 days or 7 weeks
Week 4: last ones get their cake on day 126 - waiting 94 days, 14 weeks or 3 and a half months.
At this point, the people are getting fishy and stop subscribing.
Let's say the account owner of GiveThemBrioche is bonafide and realizes his mistake. He decides to pay back every single investor. For every cake that's been given out, there's now a debt of 60 points - this makes his debt 300 points per day, a grand total of 8400 points, with a total monetary value of $105.
Let's say the account owner of GiveThemBrioche is malafide, takes all the points in the kitty and runs. Of course they're points, which cannot be changed back into money, if he runs after the month is over, he'll have enough to buy him a month's worth of premium membership from what the investors gave him in the last week.
Ponzi schemes are illegal under US law and as such are banned by dA. As soon as you spot one, report them to dA and let them do their work.