<p>Having an IOU from one person in no way changes your ability to offer IOUs to anyone else. So the basic premise doesn't make sense. When you decide to allow a particular account to hold a balance with you, you are electing to trust only that particular source. You can never be owed money by someone you didn't agree to allow you to owe money.</p>

<p>In the gateway model, you agree to allow a company to owe you money because you have an agreement with them that they will pay you any money owed whenever you ask them to. If they renege on that agreement, then they are violating their agreement with you and you have the normal legal recourse against them. But it doesn't affect anyone else unless you default on your own obligations.</p>

CC BY-SA 3.0
2013-04-12T02:47:55.370Z
2013-04-12T02:47:55.370Z
David Schwartz
<p>What stops the Ripple users from acting like fractional reserve banks or creating a pyramid scheme of debt? If the practice of over leveraging debt is prevalent how could this effect the Ripple currency and possibly the network?</p>

CC BY-SA 3.0
2013-04-11T22:55:35.130Z
In most pyramid schemes, people are charged a "setup fee", then get rewarded every time they recruit somebody. How does this apply to Ripple?
Nick ODell
CC BY-SA 3.0
2013-04-11T23:10:27.127Z
I specifically meant people offering IOU's to one person who could then use that money to offer IOU's to others or Gateways massively over extending there IOU's.
somedude
<ripple><ripple-trust>
What stops Ripple users from creating a pyramid scheme with IOU's?
somedude
# What stops Ripple users from creating a pyramid scheme with IOU's?

(Asked by: username_0 on 2013-04-11)

What stops the Ripple users from acting like fractional reserve banks or creating a pyramid scheme of debt? If the practice of over leveraging debt is prevalent how could this effect the Ripple currency and possibly the network?

**Tags:** ripple, ripple-trust

> **Comments:**
> **username_1**: In most pyramid schemes, people are charged a "setup fee", then get rewarded every time they recruit somebody. How does this apply to Ripple?  
> **username_0**: I specifically meant people offering IOU's to one person who could then use that money to offer IOU's to others or Gateways massively over extending there IOU's.  

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## 1 answers

### Answer by username_2 on 2013-04-12. Score: 1

Having an IOU from one person in no way changes your ability to offer IOUs to anyone else. So the basic premise doesn't make sense. When you decide to allow a particular account to hold a balance with you, you are electing to trust only that particular source. You can never be owed money by someone you didn't agree to allow you to owe money.

In the gateway model, you agree to allow a company to owe you money because you have an agreement with them that they will pay you any money owed whenever you ask them to. If they renege on that agreement, then they are violating their agreement with you and you have the normal legal recourse against them. But it doesn't affect anyone else unless you default on your own obligations.


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