A more thorough explanation:

A pyramid scheme is a type of fraudulent business model that operates under the guise of multi-level marketing (MLM). The scheme is designed to make money for the promoter by recruiting new investors rather than selling a product. The Federal Trade Commission (FTC) defines pyramid schemes as a type of MLM where investors pay an initial sum to a promoter and are then instructed to recruit a set number of additional investors. The investors are promised compensation for their recruits and the recruits of their recruits, resulting in a profit from the initial investment.

However, the scheme eventually collapses when later investors cannot find additional investors, resulting in market saturation. At this point, the promoter retains a majority of the money from the investors' initial sums and often does not need to pay out any recruitment compensation to later investors. The FTC estimates that around 89% of investors either cannot make a profit or cannot recoup their investment by the time a pyramid scheme collapses.

Pyramid schemes are often illegal and differ from legitimate MLMs in that profit gained in an MLM is based mostly on product sales and not on recruitments. Pyramid schemes are related to Ponzi schemes, though there are some differences.

An example of a pyramid scheme is a company that claims to sell a product, but in reality, the majority of its profits come from recruiting new investors. The company may require new investors to pay an initial fee to join and then encourage them to recruit others to join as well. The investors are promised compensation for their recruits and the recruits of their recruits, but in reality, the scheme will eventually collapse when there are no more new investors to recruit.

Another example is a social media post or email that promises quick and easy money by joining a "gifting circle" or "blessing loom." Participants are asked to pay a fee to join and then recruit others to join as well. The participants are promised a large payout once they reach the center of the circle, but in reality, only the first few participants will receive any money, and the majority of participants will lose their initial investment.

These examples illustrate how pyramid schemes rely on the recruitment of new investors rather than the sale of a product to make a profit. They also show how the scheme eventually collapses when there are no more new investors to recruit, resulting in the majority of participants losing their initial investment.