Have you encountered any Rug Pull projects in the past year? Have you been a victim of “buying at the peak” due to the promotion of KOLs? Or have you suffered losses from increasingly rampant phishing attacks? Or perhaps you’ve bought a new Token on a top platform only to see it plummet? It’s likely that many users have experienced at least one of these scenarios, reflecting the investment experiences and real emotions of most ordinary investors in recent times.
Whether it’s the security issues on the blockchain or the loss of assets, users are finding it difficult to protect themselves. Even the common pitfalls that were once well-known have now become industrialized. To put it bluntly, even the “leeks” have been uprooted.
This article aims to take stock of the various pitfalls that have emerged in the crypto world recently, and whether there are still opportunities for ordinary users to make money in the crypto industry. Here are some “creative ways to lose money” for ordinary users:
1) Industrialization of Rug Pulls
Rug Pull schemes are becoming increasingly sophisticated, with ZKasino being a particularly outrageous example. On April 20th, community users discovered that ZKasino had deleted the statement “Ethereum will be returned and can be bridged back at this point” from its official website’s Bridge funds interface, according to a comparison with the historical pages on Wayback Machine. At the same time, users were unable to withdraw funds, the official ZKasino Telegram group was muted by administrators, and social media updates ceased. The total amount of funds rug pulled was over $20 million.
Interestingly, just a month before in March, ZKasino had announced that it had completed a Series A financing round with a valuation of $350 million. The specific amount was not disclosed, but multiple trading platforms and VCs participated in the funding…
In addition, projects in the zkSync ecosystem, jokingly referred to as “Rug Chain,” not only frequently experience security incidents but also exhibit a clear trend of capitalizing on hot trends and quickly harvesting funds. For example, the zkSync ecosystem DEX Merlin recently experienced a Rug Pull, affecting millions of dollars in funds.
It is important to note that there is indeed a wide range of projects in the zkSync ecosystem, so users should remain vigilant and be aware of risks at various levels when participating in the ecosystem.
2) Pervasive Hacking/Phishing Attacks
One of the most eye-catching cases in the field of blockchain security recently is the “same prefix and suffix phishing attack”, which many have become accustomed to. In this type of attack, a large amount of funds was lost due to a phishing attack on a whale address with the same prefix and suffix as the original address. The loss amounted to over 1155 WBTC, or more than 400 million yuan. Although the hacker eventually chose to return the funds due to various factors, this incident revealed the extremely high risk-reward ratio of this phishing behavior.
Similar phishing attacks have become industrialized in recent months. Hackers often generate a large number of addresses with different prefixes and suffixes as a seed library. Once a transfer is made to one of these addresses, the hacker immediately finds an address with the same prefix and suffix from the seed library and calls the contract to execute a related transfer. They cast a wide net and wait for unsuspecting victims.
Since some users sometimes directly copy the target address from transaction records and only verify the first and last few digits, they become vulnerable to this attack. As Xian, the founder of SlowMist, said, “Hackers are playing a probability game with net casting attacks targeting the same prefix and suffix phishing attacks.”
This is just a glimpse of the increasingly rampant hacking attacks. For ordinary users, the tangible and intangible risks in the colorful world of blockchain have increased exponentially, while their risk awareness is difficult to keep up with.
Overall, various forms of attacks, such as on-chain, wallet, and DeFi attacks, and even social engineering attacks, have made DeFi security risks an asymmetric one-way hunting game. For technical geniuses, it is undoubtedly an endless source of free money. But for the vast majority of ordinary users, it is more like the sword of Damocles that could fall at any moment. It is important to remain vigilant, not to participate recklessly, and rely on luck.
So far, phishing attacks, social engineering attacks, and other risks on the consumer side are the most common ways for ordinary users to lose funds in Web3. Moreover, due to additional risks associated with smart contracts, the problem is becoming increasingly serious.
Every successful scam leads to a user abandoning Web3, and without any new users, the Web3 ecosystem will have nowhere to go. This is one of the biggest threats to the crypto industry.
3) Creative Promotion by KOLs
For most ordinary users, following various crypto KOLs on social media for investment tips is an important source of alpha information.
This has led to the phenomenon of the so-called “KOL Round” – as influential figures in the secondary market, KOLs can even get shorter lock-up periods and lower valuation discounts than institutional VCs. For example, recently, Monad Labs raised a large amount of funding with a valuation of $3 billion, and insiders revealed that some industry KOLs were allowed to invest at a maximum valuation of one-fifth that of Paradigm.
But does following KOLs’ investment advice really guarantee profits? According to a study by researchers from Harvard University and others, analyzing about 36,000 tweets from 180 of the most famous crypto social media influencers (KOLs) mentioning crypto assets, covering more than 1,600 tokens, the results were not as expected:
On average, when a KOL promoted a token, the average daily return rate was 1.83% (1.57%) over one (two) days. For crypto projects outside the top 100 by market capitalization, the average return rate one day after promotion was 3.86%. However, the earliest significant decline in returns occurred five days after the tweet was posted, with an average return rate of -1.02% from the second day to the fifth day. This means that more than half of the initial gains were wiped out within five trading days.
4) VC Tokens’ Continuous Decline after Listing
If you had to choose between a high FDV (fully diluted valuation) and low liquidity VC Token or a completely speculative Memecoin, which one would you choose?
The market’s sentiment has recently started to shift, with the rise of the Meme trend, which has fueled extreme prosperity in Solana and Base chain transactions. For example, PEPE, the leader of the new generation of Memecoins, has reached historic highs. In today’s market environment, apart from short-term speculation, the demand for fairness represented by Memecoins has become a trend, and funds are voting with their feet.
In contrast, recent VC Tokens listed on top platforms with high FDV and a declining trend, such as AEVO, REZ, and even BB, the first project of the BN Megadrop, have ended almost every day with a decline. Users who entered the market have all fallen into deep traps.
In comparison, discussions and doubts about Memecoins and VC Tokens have inevitably become mainstream in the community. Memecoins, at least, bring continuous incremental funds and attention, while recent projects with valuations in the billions are either based on outdated concepts or grand narratives, and are likely to be rejected by the community. This has sounded the alarm for VCs and project teams who are used to relying on the status quo.
What should ordinary players do?
In a previous article, “Web3 Never Sleeps, Will the ‘Flower Era’ of the Crypto World Ever End?” it was mentioned that “What we love is not the ‘Flower Era’ itself, but the era of abundant opportunities.”
Many people in the crypto industry have probably wondered how they would participate in this wave of the era if they had the chance to go back 10 years. Should they hoard BTC? Become a miner? Establish another Bitmain? Or become an early employee of BN? There seem to be countless best choices, but they all revolve around the fact that the past decade of the crypto world has surpassed imagination, giving birth to one industry legend and mogul after another.
Regardless, the question of whether to make money or not is an eternal topic in the Web3 world and the lifeline of its development. When trading platforms, market makers, VCs, project teams, and KOLs are all making money, while the majority of ordinary users are continuously losing money, it indicates that there are deep structural problems in the overall market that have reached an abnormal level and are destined not to last.
To reiterate, with every “creative way to lose money,” there may be a group of users who stop using Web3 products and turn away from VC Tokens to embrace Memecoins that embody fairness and grassroots characteristics. This itself is a form of rebellion where funds vote with their feet.
Until some Web3 applications truly realize the value cycle, ordinary users will have “nowhere to go.” This may be the inevitable “twists and turns” that Web3 development needs to go through, and the crypto industry is still moving forward while exploring.
