Web3 security company Blockfence’s security researchers have analyzed a complex and systematic scam operation that has created over 1,300 fraudulent crypto tokens since April 2023, defrauding more than 42,000 victims of up to $32 million.
These scams are largely automated. Scammers typically impersonate companies or projects that have not yet announced their tokens to create fraudulent tokens. They then introduce fake trading volume to deceive traders. Once enough legitimate funds are attracted, these scammers start cashing out the tokens and repeat the process.
The contracts of these scam coins appear to have passed multiple security measures, but the operators behind the scams still retain certain abilities. These include arbitrarily destroying the coins held by token holders, minting unlimited tokens for the scammers (even though the tokens appear to be locked), and forging the maximum supply of the tokens.
One of the authors of this Blockfence investigation report, Pablo Sabbatella, stated:
Sabbatella began investigating these types of scams after a fraud group launched tokens named after his company, Blockfence. According to him, the scammers seem to intentionally limit the profit of each scam coin between 5 and 20 ETH (ether), which helps them avoid attracting too much attention.
How to avoid being scammed?
How can cryptocurrency traders protect themselves in similar scams? Sabbatella suggests that not trading suspicious tokens is the first step, stating, “I would never buy or invest in assets that I don’t understand.”
However, for traders willing to take risks, Sabbatella recommends using various fraud detectors, saying:
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