Exit scam is one of the biggest risks of investing in a cryptocurrency project. While some crypto projects are legitimate and have the potential for significant returns, others are scams. The challenge is to distinguish between the two.
Exit scams – don’t always come out of the blue. None of these four red flags are a guarantee that a crypto project is a potential future exit scam, but they can be a warning and cause for due caution.
- Anonymity has been part of the blockchain from the beginning. A good example of this is the true identity of Satoshi Nakamoto, the creator of Bitcoins, which is still currently unknown. Many DeFi-Projects have followed this tradition with partially or fully anonymous teams. The fact that the team of a DeFi project is completely anonymous does not mean that it is a scam, but it is a warning sign. It’s much easier for a project team to steal the project’s funds and disappear if no one knows who they really are.
- Exit scams are designed as get-rich-quick schemes. The goal is to quickly create a project that users will invest heavily in and then steal those funds. Often, this means that the teams behind exit scams put less effort into the crypto project’s website, whitepaper, and other materials than legitimate projects do. If the project website is incomplete, unprofessional or largely copied from another DeFi project, then this may indicate that it is very likely a scam.
- Most DeFi projects have big dreams. They promise to revolutionize finance by solving one of the biggest underlying problems or pain points facing users or offering significant rewards to investors. Serious projects also usually have very stingy goals, but these are within the realm of possibility or plausibility. If a DeFi project promises something that feels too good to be true, it probably is. In this case, the team of the project probably does not plan to keep these promises and may be a scam.
- Delivering on their promises and goals, regardless of scale, requires a plan. A successful DeFi project has a strategy and defined milestones that carry it from its inception to the achievement of its goals. It is not uncommon for crypto projects to have gaps in their strategies or roadmap. But having no strategy at all or one with large gaps can be a warning sign. Such a project is in most cases a fraud or at least a bad investment, because a project without a plan will not reach its goal either.
If you are planning to invest in such a project, we can review the project for you in advance, can verify the people behind it to provide you with a better basis for decision making.