Ponzi Schemes: Don't Fall For Them!
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Bonnzai's avatar
By Bonnzai   |   Watch
20 35 1K (1 Today)
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.
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Comments35
anonymous's avatar
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TaintedTruffle's avatar
TaintedTruffleHobbyist General Artist
honestly to me it seemed pretty obvious everyone wouldn't get cake and I took it as a gamble would I or wouldn't I be one to get cake :shrug: I've gambled with much larger steaks 
Bonnzai's avatar
BonnzaiProfessional Artist
True. But seeing how Bitcoins and other digital currency is now luring people in hoping to get huge investments with 1000+ percent interest, it's again painful to watch how easily people fall for such a trap with their eyes wide open. Some people have paid the full 400 points - five dollars but it's a lot if you gained them all using LlamaTrade, one by one. 
AgnosticDragon's avatar
AgnosticDragonHobbyist Writer
The amazing thing is this was done openly. Anyone could have done the math. Ponzi schemes are typically shrouded in mystery. Almost nobody knew what Bernie Madoff was up to.
Bonnzai's avatar
BonnzaiProfessional Artist
Yeah that's why I wrote a note to literally everybody who received cake  (although I should've noted everybody who BOUGHT cake instead) since they fell with their eyes open for a scam, they all should've been able to calculate a few steps ahead but not many did. By the time there's a waiting list of 99 people and you are number 100, there need to be 400 cakes bought before you get your slice. 
AgnosticDragon's avatar
AgnosticDragonHobbyist Writer
I guess I figured I would just gamble the 20 points.
GeorgeXVII's avatar
GeorgeXVIIProfessional Traditional Artist
very good explanation, I do not like this kind of thing ... but many are attracted, and yes it’s illegal...
awesome43's avatar
awesome43Hobbyist General Artist
Very informative journal. I never fall for those schemes, but it is always good to be reminded of some we might not have been aware of. Thank you for this information it is very much appreciated.  
AngelLilly's avatar
AngelLillyStudent General Artist
Thanks for the information! 
Mirage-Moonlight's avatar
Oh snap I didn't know what a ponzi scheme even was or its illegitimate-ness ;; v ;;
Such a cute concept they originally had but I wonder if they didn't even realize how illegal it really is...
ovma's avatar
oohh yikes, i had no idea about this. thank you so much for making this journal and explaining it.
i didn't even know this was a thing that was going on.
CassieCros13's avatar
CassieCros13Student Writer
Wow, unbelievable. Thank you so much for this informative journal and this will hopefully prevent something like this on such a large scale from happening again on dA. 
LPS100's avatar
LPS100Student General Artist
As someone that hever heard of this scheme, this explained it quite well!
snivyfanno1's avatar
snivyfanno1Hobbyist Digital Artist
I only got one cake badge from them. Good thing I prefer commissions instead of badges!
And good luck to all the people who need their points back!
CyberneticCupcake's avatar
CyberneticCupcakeHobbyist General Artist
I got one cake from them, but I can't remember if I went to donate for more. If I did, I'd join the relay, but if I didn't, I don't know what to say to all this.

Bummer.
Bonnzai's avatar
BonnzaiProfessional Artist
You have a donation history: click Shop on top of your page, then Points, and scroll down the page.
CyberneticCupcake's avatar
CyberneticCupcakeHobbyist General Artist
I did, and I didn't see anything of GiveThemCake. I think there's a cutoff point.
Bonnzai's avatar
BonnzaiProfessional Artist
Hey guess what I just found:
You can view more than 2 pages of your point history by changing the number at the end of this url 
deviantart.com/account/points/?offset=30
Add 30 for each page you want to view from newest to oldest.
AgnosticDragon's avatar
AgnosticDragonHobbyist Writer
Thank you for the tip. I thought those old pages were lost. Though I imagine for some users it would be a Herculean task. There are people on this site who have bought thousands of llamas on llamatrade Their transaction histories would be a mess.
official-maria-art's avatar
official-maria-artHobbyist General Artist
wow, I never knew this...I always thought I can only see 2 pages of donation history

thanks :D
CyberneticCupcake's avatar
CyberneticCupcakeHobbyist General Artist
Thanks for letting me know.
Bonnzai's avatar
BonnzaiProfessional Artist
On mine, I've been able to go back as far as May. If you can't see anything from August or September donated to GTC, I think you're in the clear...
CyberneticCupcake's avatar
CyberneticCupcakeHobbyist General Artist
Looks like I am. Thanks for the advice on my points list.
Bonnzai's avatar
BonnzaiProfessional Artist
At present I'm sending a note to all the people who received a slice of cake, since they might just have paid for more cakes and slipped through the net.
Also because they, or whoever liked them enough to buy a cake for them, fell for a Ponzi scheme and the more people we can prevent from doing that, the better.
CoolKaius's avatar
CoolKaiusHobbyist General ArtistFeatured
I help run DressMyLlama and YouAreStarred. I want to let you guys know that I am not a scammer.

Here's what happened before this journal was posted:

My fellow account admin and I realized our mistake with the mathematics over the long term.
I posted an apology explaining everything:  The future of this account and our deepest apologyWhen KiranDrawss opened this account we had no idea that it would cause problems that people call "ponzi schemes" and "pyramid schemes." We thought, "It works for GiveThemCake, it'll work for us too." Unfortunately, the once great GiveThemCake has vanished from dA without a word.
Neither Kiran nor I are good with math in the slightest. We had no idea that this discount system would compile more debt than core memberships given. We humbly admit to our failure and our mistake.
The future of this account:
All points this account currently has will be used to refund everyone we can starting from the first person on the waiting list since they donated the earliest. After those points run out both KiranDrawss and I (wintercool612) will be raising points to refund everyone else. We will not stop until our goal is complete.
We're offering llama badges and commissions for points.

We've already refunded a lot of deviants.
As I have stated in status update posts, I recently got a job. I haven't gotten paid yet, but I do promise to help cover the refunds for the two accounts.
We will never be running this kind of system ever again. If I do start another point account, it would only be because I am certain that it will work long term.

I personally have never seen any other point accounts issue refunds. I was directed to this journal by Voiii in their attempt to refund people scammed by GiveThemCake.

To me the difference between a scammer and an honest business person is whether or not they chose to fix their mistake.

Let me know if you'd like screenshots of the point history from YouAreStarred
anonymous's avatar
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