In the first half of 2021, the Central Bank identified 146 financial pyramids, and the number of victims from Finico alone exceeded a million people. At the same time, we do not know about all the victims of fraudsters, writes RBC Crypto.
There is an opinion that the fascination with pyramids is characteristic only of residents of the post-Soviet space, and Americans who study finance from school are more resistant to the tricks of fraudsters. However, things are no better in the United States – losses amount to $ 3.25 billion only for the calm pre-crisis 2019.
Now financial pyramids are increasingly disguised as cryptocurrency projects, but there are key differences that allow you to identify a fraudulent scheme.
The pyramid does not have a free market for trading its «candy wrappers». Study on which exchanges the token that you are offered is traded on. It is desirable that there are many exchanges and among them there are well-known large platforms. If the entire infrastructure of the project is concentrated on one site that carries out the exchange of «candy wrappers» – this is a very bad sign. What will happen when this site is closed?
Pyramids always have liquidity problems. Even if the token is listed on several exchanges, check what is happening in the order book and view the history of transactions for the pair with the token of interest. There should be a lot of deals, and the order book should have offers to both sell and buy an asset. If the token you bought is traded on dozens of exchanges with large volumes, as well as many AMM (Automated Market Making) services and swaps, this is a good sign. Even if some resource from the list is closed for some reason, you will have access to liquidity on all other resources.
A real crypto project will have not only its own desktop wallets and browser extensions, but also support from developers of many third-party wallets and mobile applications. At the same time, pyramids do not have their own software.
The pyramid has no active community. All messages on the forums and telegram channels of the project are of an extremely attractive nature. There is a lack of diversity of opinions and dialogue between participants. Messages with specific questions or doubts are deleted or receive generic responses.
The central condition for participation in the pyramid is the drive of referrals and acquaintances. Cryptocurrency projects or exchanges may also offer various bonuses for registering using your referral links, but they will be quite modest, and their use is optional.
The pyramid offers huge annualized profit margins. Real cryptocurrency projects never offer fixed fabulous return percentages. The success of your investment will depend on the market situation for the asset you bought. An exception to this rule will be tokens for providing liquidity (LP tokens) on decentralized financial platforms (DeFi). Indeed, the profit of the owners of a share in the liquidity pool in pairs with medium-sized tokens can be hundreds of percent per annum, which is directly related to commissions from trading within a pair of other market participants. However, not everything is so cloudless in DeFi. Features of use and security on such services represent a separate large topic for a full-fledged article.
Pyramid wrappers have no functionality. Real project tokens can have many functions – from allowing holders to vote on project development to being used as an internal currency in a computer game or video hosting service.
Last but not least, you should pay attention to where the information about the potential investment came from. This is a subjective criterion, however, unlike the other points, where it will take time to study the asset, this point will help you quickly mark information as potentially dangerous for yourself. On which site did you read the information about the project? If this resource has a long history and a good reputation, the likelihood of getting into the pyramid is less. Every well-known source tries to take care of its reputation and the fact of mentioning the pyramid can seriously damage the image. It’s another matter if the advertisement came in the form of spam from a newly created Telegram channel, which may cease to exist in a week.
The above applies to humans as well. Does your friend recommend you to invest somewhere? It’s time to ask questions: why does he need this, what is the history of his own investments in the past, with what emotion does he submit his message? A real expert with extensive experience in investing in securities or cryptocurrencies will definitely mention the risks of any investment and recommend using only a small amount of your total portfolio for a new project. On the contrary, a fraudster, or a person led by fraudsters, will be overly optimistic, he will rush you and recommend you to invest as much as possible, which goes against the generally accepted rules for investing and managing funds.
Using this checklist will help you reduce the risks of being involved in pyramids or other fraudulent schemes in the cryptocurrency world. Keep in mind, however, that pyramid creators never stand still, constantly masking their schemes more carefully. The final decision on the purchase of a particular instrument is always yours, make a decision only when you have studied the instrument yourself, using all the methods available to you.