Pyramid schemes are investment scams in which top-level participants in a hierarchical network recruit and profit from an expanding base of defrauded newer participants. They have existed for over a century, but their historical opacity has prevented in-depth studies.

This paper presents an empirical study of Forsage, a smart-contract-based pyramid scheme with unprecedented transparency. Our study focuses on the period around 2020, when Forsage was one of the largest contracts (by gas usage) in Ethereum. In 2022, some months after initial release of this work, the U.S. SEC dubbed Forsage a “fraudulent crypto pyramid and Ponzi scheme” and filed charges against its creators and promoters.

We quantify the (multi-million-dollar) gains of top-level participants as well as the losses of the vast majority (around 88%) of users. We analyze Forsage code both manually and using a purpose-built transaction simulator that we release as open source software to uncover the complex mechanics of the scheme. Through complementary study of promotional videos and social media, we show how Forsage promoters leveraged the unique features of smart contracts to lure users with false claims of trustworthiness and profitability, and how Forsage activity is concentrated within a small number of national communities.

Our analysis is the most complete study of a pyramid scheme to date.