NFT Scam: 4 Ways To Spot A Cryptocurrency Ponzi Scam

A number of crypto schemes have already been exposed as Ponzi schemes, such as BitConnect, which the US Department of Justice has estimated its founders to have earned $ 2.4 billion. Therefore, knowing how to identify such systems is critical to avoid falling victim to them, and here are 5 key red flags to spot one.

Unreasonably high returns

In May 2022, TerraUST was listed as one of the best stablecoins in the world. The main reason for this is that it has promised to offer up to 20% stake in staking UST token on Anchoring protocol.

Of course, this attracted thousands of investors who saw the opportunity to earn significant returns from passive investing.

Unfortunately, the Terra ecosystem was supported by an algorithm integrated by the Terra Token (LUNA) and no real resources. When the sellers started downloading the LUNA tokens during the general cryptocurrency crash, the whole project crashed.

The lesson to be learned from this experience is not only to keep track of high returns, but also to consider the underlying technology. After all, when the deal is too juicy, you have to think twice.

Complex investment strategies

We all know how financial investments are supposed to work – just buy at a lower price and sell when the value goes up. However, Ponzi schemes attempt to trick potential investors with more “inventive” investment strategies.

Often these are not actually creative, but rather aimed at masking the actual activities of the project. Truly reliable projects need to put their cards on the table and explain exactly what they are doing. So, if the promoters of a particular project try to make it look too complex by asking for blind trust, think twice before making your investment.

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Centralized projects

Blockchain technology was intended to create decentralized platforms governed by individuals rather than centralized financial institutions. The best cryptocurrency projects adhere to this principle and operate on a blockchain governed by a decentralized autonomous organization (DAO).

If a project is managed by a few developers, the risk of abandonment and rug pull increases significantly.

Multilevel Crypto Marketing (MLM)

It is a marketing strategy that is primarily based on recruiting rather than selling products. Members earn rewards by referring other people, but the project never really produces value, offsetting them from new customer deposits.

You can spot an aggressively marketing Ponzi MLM scheme pursued by a project without producing an actual product.

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