Pyramid scheme
A business model that rewards participants primarily for recruiting new members rather than selling genuine products or services, making it mathematically unsustainable.
Also known as: chain letter scheme, matrix scheme
Last reviewed: 1 June 2026
In a pyramid scheme, participants pay an entry fee and are rewarded mainly or solely for recruiting others who also pay. Each new recruit must recruit further members to recoup their investment, creating an exponentially growing base that the structure cannot sustain.
Pyramid schemes are illegal in most countries. They are sometimes disguised as legitimate multi-level marketing (MLM) businesses by selling low-value products; the distinguishing feature is whether income is generated primarily by sales to end consumers or primarily by recruitment fees.
No matter how many levels exist, a pure pyramid eventually runs out of recruits. The mathematics are unforgiving: if each person recruits 6, after just 12 levels you need more recruits than there are people on Earth. Those at the bottom — the majority — inevitably lose their money.