How to Identify Deceptive Crypto Projects?
Identify Deceptive Crypto, the cryptocurrency industry is exploding with excitement and innovation, and there are now dozens of potentially groundbreaking platforms and projects that leverage the properties of blockchain technology world wild.
But for every genuine gamechanger, there are dozens of duds, failures and false-starters.
Unfortunately, newer participants and investors often get the short side of the stick and some can fall victim to deceptive and overhyped projects.
But by developing a more robust understanding of the crypto landscape and its nuances can one reliably avoid the mistakes and navigate the traps that newbies often fall victim to.
Here, we take a look at some of the most common ways weak or deceptive crypto projects often dupe noobs.
Massive Supply Inflation
Most cryptocurrencies have some degree of inflation, with new tokens being either newly minted or unlocked and distributed to network participants and stakeholders over time.
Inflation helps to keep Proof-of-Work and Proof-of-Stake networks secure by rewarding miners and node operators and can be used as a perpetual source of funding to ensure long-term development, among other legitimate uses.
While most established projects inflate at a reasonable rate with the top 10 POS networks inflating at an average of 7.7% per year, some inflate at an enormous rate, causing a massive disbalance between supply and demand that can crush the token’s value.
This phenomenon can be seen with most newly launched projects. In most cases, just a tiny fraction of the total token supply will be unlocked at the token generation event (TGE). These projects typically have an extraordinarily low market capitalization (often under $100,000) but will inflate at a staggering rate immediately after launch.
This often leads to a characteristic chart pattern, with an immediate pump followed by a near-perpetual crash as inflation crushes demand.
Unfortunately, many new projects use a combination of marketing tactics to fuel an initial wave of hype around the token. This is almost invariably short-lived, with the hype eventually giving way to massive selling pressure as early-stage and in-profit investors look to exit their positions.
Since few understand the difference between initial market capitalization and fully diluted value, a large number of investors get caught up in overvalued projects most of which have limited experience with early-stage projects.
Market Maker Manipulation
Many crypto companies leverage market makers to help ensure a market has sufficient liquidity. While this can promote the overall health of a project, it can also be used to dupe newer traders.
In many cases, market makers are instructed to help maintain the price within a specific range, buying up tokens when the price goes too low, and selling them when it goes too high.
This can be used to ensure the sustainable growth of the token but can also be used to print signs of strength on the charts such as a bull flag or other bullish continuation patterns potentially duping investors into entering the market.
But this is often short-lived since many projects only have the funds to hire market makers for a short time, following which the token continues its natural trajectory which is often negative.
This is a particular problem for newly launched tokens since market maker activity can obscure the natural price action, making it unclear whether the token is a genuinely attractive investment.
With this in mind, newbies should pay more attention to the fundamentals of a project, rather than its short-term price action when it appears that it’s working with a market maker.
The Airdrop Scam
If you’ve ever used a smart contract blockchain like Ethereum, BNB Chain or Solana, then odds are you’ve been targeted by one or more airdrop scams.
The way it works is simple, a typically bogus project will automatically distribute a large number of tokens to a randomly selected list of recipients usually based on their most recent activity, cryptocurrency holdings, or whether they’ve been targeted before or not.
When the recipient checks their wallet on a block explorer, like etherscan or bscscan, they’ll find the airdropped token under their balance, and many will go on to research how to sell it. Some more advanced users may even check its trading price by plugging the token contract into liquidity pool trackers.
The scammer will usually have set up a liquidity pool and some simulated trades to make it appear that the token is highly liquid and that the airdrop is worth a princely sum.
However, after attempting to liquidate these tokens via a DEX, the user will usually find that they’re unable to. This is because only addresses whitelisted in the token contract are able to send (and hence trade) tokens an intentional trick.
In most cases, the token name will contain a reference to a website, where users will usually find that they need to connect their wallets to unlock their tokens for trading. This might lead to any number of potential scams or hacks, where the user might hand over their identity details or approve token transfers leading to their wallets being emptied. don’t let Darth Vader showing up on your finance, always do your research before fomo in,
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