Have you encountered any Rug Pull projects in the past year? Have you experienced the “buying at the peak” situation due to the hype from Key Opinion Leaders (KOLs)? Or have you suffered losses from increasing phishing attacks? Perhaps you have bought a newly listed token on a top platform only to see it continuously plummet?
It’s estimated that many users have experienced at least one of these scenarios, which can be seen as a reflection of the investment experiences and real emotions of most ordinary investors in the recent period. Whether it’s the security issues on the blockchain or the loss of assets, users are defenseless. Even the common pitfalls that were once familiar have now become industrialized. To put it bluntly, it’s like pulling up the roots of “leeks” (a term used to describe inexperienced retail investors).
This article will 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.
01
Creative Ways for Ordinary Users to Lose Money
1) Industrialization of Rug Pulls
Firstly, the setups for Rug Pull scams are becoming more sophisticated, with ZKasino being a particularly outrageous example. On April 20th, community users compared the historical pages on Wayback Machine and discovered that ZKasino had deleted the statement “Ethereum will be returned and can be bridged back at this point” from their Bridge funds interface on their official website. At the same time, users were unable to withdraw funds, the official Telegram was muted by administrators, and social media updates ceased. The total amount scammed exceeded $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, although the specific amount was not disclosed. Multiple trading platforms and venture capitalists had participated in the investment…
In addition, there is zkSync, jokingly referred to as “Rug Chain,” which not only frequently experiences security incidents with its ecosystem projects but also exhibits a clear trend of capitalizing on hot topics and quickly reaping profits. For example, the zkSync ecosystem DEX Merlin, which shares the same name, experienced a Rug Pull recently, affecting millions of dollars in funds.
It must be emphasized again that the projects in the zkSync ecosystem vary in quality, so users should remain vigilant and guard against risks at all levels while participating in the zkSync ecosystem.
2) Rampant Hacking/Phishing Attacks
One of the most eye-catching recent cases in the field of blockchain security is the “same prefix and suffix phishing attack,” which seems to have become commonplace. A whale address fell victim to this attack, resulting in a loss of 1,155 WBTC, equivalent to over 400 million yuan. Although the hacker eventually chose to return the funds due to various factors, this phishing behavior exposed the extremely high risk-reward ratio of such attacks, where attackers wait for opportunities to strike.
These phishing attacks have also become industrialized in the past six months. Hackers often generate a massive number of addresses with different prefixes and suffixes as a seed library. Once a transaction is made to any of these addresses, the hackers immediately find an address with the same prefix and suffix in the seed library and initiate a related transaction, waiting for their catch.
Since some users directly copy the target address from the transaction record and only verify the first and last few digits, they become vulnerable to these attacks. As SlowMist founder Cosmos puts it, in the case of phishing attacks using the same prefix and suffix, “hackers are playing the probability game, casting a wide net and waiting for volunteers to take the bait.”
This is just a glimpse of the increasingly rampant hacker attacks. For ordinary users, the tangible and intangible risks in the colorful world of blockchain increase exponentially, while their awareness of risk prevention lags behind.
Overall, there is currently a plethora of attack forms in the blockchain, wallet, and DeFi sectors. Even social engineering attacks are rampant, making DeFi security risks akin to an asymmetric one-way hunt: a never-ending ATM for technical geniuses, but a sword of Damocles for most ordinary users. While remaining cautious and not easily participating in authorization, luck plays a significant role.
So far, phishing and social engineering attacks pose the most common risks for ordinary users losing funds in Web3. Additionally, the additional risks associated with smart contracts are becoming increasingly serious.
Every successful scam leads to users abandoning Web3, and without any new users, the Web3 ecosystem will have nowhere to go. This is one of the greatest harms to the crypto industry.
3) Creative Pumping by KOLs
For most ordinary users, following various crypto Key Opinion Leaders (KOLs) on social media for investment advice is an important source of obtaining alpha secrets.
This has given rise to the so-called “KOL Round,” where KOLs, who have a greater influence on secondary market investors, are granted shorter lock-up periods and lower valuation discounts than institutional venture capitalists. For example, recently, Monad Labs completed a new round of financing with a valuation of $3 billion, and insiders claim that certain industry KOLs were allowed to invest at a maximum valuation of one-fifth that of Paradigm.
But can blindly following KOLs’ recommendations guarantee profits? According to research by Harvard University and other researchers on approximately 36,000 tweets mentioning the performance of crypto assets from 180 of the most famous crypto social media influencers (KOLs), covering over 1,600 tokens, the results were less than satisfactory. On average, the daily (two-day) return rate of tokens promoted by KOLs was 1.83% (1.57%), while the return rate for non-top 100 crypto projects was 3.86% on the day after the promotion. Furthermore, the returns started to decline significantly from the second to fifth day after the tweet, with an average return rate of -1.02%. This indicates that more than half of the initial gains are wiped out within five trading days.
4) VC Tokens Struggling After Listing
Between a high Fully Diluted Valuation (FDV) and low circulation supply VC token and a completely speculative and self-financed Memecoin, which one would you choose?
The market sentiment has recently started to shift, with the Meme craze gaining momentum and driving extreme prosperity in trading on Solana and Base chains. PEPE, which has become the leader of the new generation of Memecoins, has reached historic highs. In the current 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, after a series of recent listings on top platforms, VC tokens with high FDVs have been struggling in their performance. Typical examples include AEVO, REZ, and even the first project of BN Megadrop, BounceBit’s token BB, all of which have seen daily declines since their listing, trapping the users who entered the market.
In comparison, discussions and doubts about Memecoins and VC tokens have once again become mainstream in the community. Memecoins, at least, bring continuous incremental funds and attention through user flows, while new projects with valuations in the billions of dollars are often seen as skin-deep narratives or outdated concept products, which are likely to be rejected by the community. This has sounded the alarm for VCs and project teams accustomed to the path of least resistance.
02
Where do ordinary players go from here?
“We don’t love ‘Blooming Flowers,’ but the era of abundant opportunities.”
It is believed that many friends in the crypto industry have imagined what it would be like to go back ten years and participate in this wave of technological advancement. Should one hoard BTC, become a miner, establish another Bitmain, or become an early employee of BN? The best choices seem to be countless, but they all revolve around the fact that the past ten years in the crypto world have truly been a golden age that has exceeded our imagination, giving birth to countless legends and giants in the industry.
Regardless, the question of whether to make money or not is an eternal topic in the Web3 world and the lifeline of Web3’s development.
When exchanges, market makers, VCs, projects, and KOLs are all making money while the majority of ordinary users continue to lose money, it indicates that the deep structural problems in the market have become so distorted that they are bound to be unsustainable.
Once again, behind each “creative way to lose money” could be a group of users who stop using Web3 products, distance themselves from VC tokens, and choose to embrace Memecoins, which represent fairness and grassroots characteristics. This itself is a form of rebellion where funds vote with their feet.
Until certain Web3 applications truly establish a value cycle, ordinary users will have “nowhere to go.” Of course, this may be the necessary “twist and turns” in the development of Web3. The crypto industry is still progressing as it explores its path.
