system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: What's the difference between a matrix scheme, pyramid scheme and ponzi scheme?
gpt
**Ponzi:** This key idea is the company is lying to investors about the value of its assets and paying out new investors' principal while pretending it's the old investors' profits. 

You raise $100 from 10 people and promise them 100% per year return. You start with $1000. After a year you tell people you have $2000 but you don't, you still only have $1000. 

Two investors want out so you give them $200 each because if you refuse, you're busted. So you have 8 investors and $600, but you're telling them you have $1600. You have to keep recruiting new investors or you'll run out of money.

Sometimes investments start out with good intentions but turn into Ponzis when they try to cover up losses.

**Pyramid:** You tell people up front that you're going to take their money, and they get paid by recruiting new people to join. These lower recruits pass money to the person who recruited them and to you, say up to 3 levels. Your sales pitch is that in return for one fee, the recruit gets a fee from the 10 people he recruits, the 10\*10 people they recruit, and the 10\*10\*10 people *they* recruit.

These inevitably collapse because you can't keep finding exponentially more suckers. MLMs are basically a pyramid scheme with the addition of a real product being sold instead of just "memberships".

**Matrix:** You buy some overpriced thing and get put on a list for a prize. For every 10 people who buy in, the person at the top of the list gets the prize end everyone else moves up one spot. So no matter how many people buy in, 90% don't get the prize.

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Ponzi schemes involve lying to investors. The other two are open about how they work but the vast majority of participants are guaranteed to lose money.