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The Ponzi scheme, an old-fashioned fraud, is now popular on the Ethereum blockchain, causing considerable financial losses to many crypto investors. A few Ponzi detection methods have been proposed in the literature, most of which detect a Ponzi scheme based on its smart contract source code. This contract-code-based approach, while achieving very high accuracy, is not robust because a Ponzi developer can fool a dete…
With the development of Web 3.0 which emphasizes decentralization, blockchain technology ushers in its revolution and also brings numerous challenges, particularly in the field of cryptocurrency. Recently, a large number of criminal behaviors continuously emerge on blockchain, such as Ponzi schemes and phishing scams, which severely endanger decentralized finance. Existing graph-based abnormal behavior detection meth…
This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available…
This paper investigates the investment behaviour of a large unregulated financial institution (FI) with CARA risk preferences. It shows how the FI optimizes its trading to account for market illiquidity using an extension of the Almgren-Chriss market impact model of multiple risky assets. This expected utility optimization problem over the set of adapted strategies turns out to have the same solutions as a mean-varia…
We develop a stochastic macro-financial model in continuous time by integrating two specifications of the Keen economic framework with a financial market driven by a jump-diffusion process. The economic block of the model combines monetary debt-deflation mechanisms with Ponzi-type financial destabilization and is influenced by the financial market through a stochastic interest rate that depends on asset price returns…
This paper contextualises the common queries of "why is crypto crashing?" and "why is crypto down?", the research transcends beyond the frequent market fluctuations to unravel how cryptocurrencies fundamentally work and the step-by-step process on how to create a cryptocurrency. The study examines blockchain technologies and their pivotal role in the evolving Metaverse, shedding light on topics such as how to invest …
Ponzi schemes that offer absurdly high rates of return by relying on more and more people paying into the scheme have been documented since at least the mid-1800s. Ponzi schemes have shifted online in the Internet age, and some are re-branded as HYIPs or High Yield Investment Programs. This paper focuses on understanding HYIPs' continuous presence and presents various possible reasons behind their existence in today'…
Solomon and Golo [1] have recently proposed an autocatalytic (self-reinforcing) feedback model which couples a macroscopic system parameter (the interest rate), a microscopic parameter that measures the distribution of the states of the individual agents (the number of firms in financial difficulty) and a peer-to-peer network effect (contagion across supply chain financing). In this model, each financial agent is cha…
We study analytically and numerically Minsky instability as a combination of top-down, bottom-up and peer-to-peer positive feedback loops. The peer-to-peer interactions are represented by the links of a network formed by the connections between firms, contagion leading to avalanches and percolation phase transitions propagating across these links. The global parameter in the top-bottom, bottom-up feedback loop is the…
In Maslov (2003), a two level model of the occurrence of financial pyramid (bubbles) has been considered. We also considered the mathematical analogy of this model to Bose condensation. In the present paper, we explain why Ponzi schemes and bubbles result in a crisis in real economics. In Maslov (2005), the law of increase of entropy in financial systems, and consequently increase of Kolmogorov complexity, is formula…
We study the relaxation dynamics of the bid-ask spread and of the midprice after a sudden, large variation of the spread, corresponding to a temporary crisis of liquidity in a double auction financial market. We find that the spread decays very slowly to its normal value as a consequence of the strategic limit order placement of liquidity providers. We consider several quantities, such as order placement rates and di…