How to Identify Deceptive Crypto Projects

How to identify deceptive crypto projects. The crypto industry is exploding
with excitement and innovation, But for every genuine game changer,
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, one could reliably Avoid the mistakes and navigate the traps
that newbies often fall victim to. So here we take a look
at some of the most common ways Weak or deceptive crypto
projects often dupe newbies. Massive supply inflation. This 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 network secure By rewarding miners and new 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 ten proof of stake networks
inflating at an average rate of 7.7% Per year, some inflate at an enormous
rate, causing a massive dis balance 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 Supply will be unlocked
at the token generation event or TGE. These projects typically
have an extraordinarily low market Capitalization, often under $100,000, But one fleet at a staggering rate
immediately after launch. This often leads to a characteristic chart
pattern within 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 a new initial
wave of hype around a token, And this is almost invariably short
lived with the hype, eventually giving way

To massive selling pressure
as early stage end 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. Earlybird pricing. The vast majority of projects
are either entirely or almost entirely Funded by early stage investors,
which can include VCs, angel investors, Exchange partners, incubators
and other types of funds. In most cases, A large proportion of the token
supply is sold to early stage investors At a huge discount to the public price
prior to launch, projects often sell A small fraction of the supply to public
sale participants, who are often expected To help market the project by promoting it
to their friends and family. And it isn't uncommon for early stage
investors to receive a more Than 70% discount
compared to public buyers. When the project inevitably lists
on an exchange, the hope is that retail Buyers will jump in to prop up the price, Allowing early stage investors
to exit the positions at a profit And in some cases, early stage
investors are able to recoup their entire Initial investment on day one,
despite typically being subject To a vesting schedule and only receiving
10 to 20% of their tokens at TGE. Though some projects are forthcoming about
the discount early investors receive. Others obfuscate The prices that seed in private
sale investors paid for their tokens, Making it difficult to see the market
the public participants face. And that said, it should be noted
that many higher quality projects Are often selective about who can
participate in their earliest raises, Generally favoring value,
adding investors, i.e. Those that can assist with growth,
marketing, user acquisition, Development, etc.. In this case,
the discount may be justified. The Airdrop Scam. If you've ever used a smart contract
blockchain like Ethereum, BNB Chain

Or Solana, then odds are that 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 Ether Scan or BSC scan, they'll find the airdrop
token under their balance, And many will go on to research
how to sell it. And some more advanced users
may even check its trading price By plugging the token contract
into liquidity pool trackers. The scammer will usually have to 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 large sum. However, after attempting to liquidate
these tokens via a DEX, The user will usually find
that they are unable to. And this is because only addresses
whitelisted in the token contract are able To send and hence trade the tokens,
which is 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. And this might lead
to a number of potential scams or hacks Where the user might hand over
their identity details or proof token Transfers
leading to their wallets being empty. In general, This type of scam can be easily avoided
by simply ignoring random airdrop. They are almost invariably
some sort of phishing or hacking attempt. Market Maker Manipulation. Many crypto companies Leverage market makers to help ensure
the 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 to
low and selling them when it goes to 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,
a newbie 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.