Crypto Scam Prevention — Part 1

6 min readJul 15, 2021

In spite of the positive ethos and forward-thinking innovation of the blockchain and cryptocurrency, scams and frauds are all too common. Of course, any new industry requires a grace period to work out the kinks, but with hundreds of IDO’s every year, even the purists are beginning to understand the necessity of a few common-sense regulations.

Liti Capital is dedicated to taking down scammers while upholding the principles of diffusion of power and transparency of corporate entities by which the blockchain was built. We have committed 5–10% of our investment capital every year to pursuing cases of fraud brought to us by our community members. As we have come to familiarize ourselves with the community we have come to the conclusion that if we don’t do this, who will?

Ultimately, the goal is to prevent scams from ever happening. Catching the bad guys in the act has a certain thrill, but it would have been better had they not had the chance to cause harm in the first place. We believe community-wide education will be the most effective tool in preventing scams on a broader scale. We can’t stop everyone and we can’t catch everyone. In order for the system to work, we all have to pull our weight. That means doing your part to make sure you are knowledgeable about the risks and red flags of investing in cryptocurrency. We want you to be educated so that you can be prepared, not just protected.

So before you make your decision to start investing, or you simply want to brush up on some tips and help spread the word, here are a few ways that the community can help prevent scams for good.

What to Look Out For

The most prevalent scheme is an exit scam. Exit scams involve a token launch that quickly gains financial backing from investors, and then, once the coin has raised a significant amount of funding, the “founders” remove the coin from the marketplace and run off with the liquidity. In the early days, it was very, very easy for grifters to pull this off because anyone could list a coin on the most popular DEX’s and hide behind the anonymity provided by the blockchain.

Exit scams are carried out through a variety of manipulative means, including rug pulls, digital MLM schemes, and even more sophisticated tactics that target the code and contracts meant to provide a sense of security for users.

Some common red flags to look for:

Team Credibility: Check how active they have been on social media in the past. Look for their work history and make sure it’s relevant. They should be easy to find with a verifiable history.
Whitepaper: It should also be easy to find, readable, and well written. The use case and business model should be explained clearly with actionable steps. If there isn’t even a whitepaper, then reconsider investing. Take a look at our whitepaper for reference.
Unrealistic Promises: ROI is important, but it shouldn’t be the only metric referenced. Promises of moons and millionaires are not what makes a great company.
Advance Fees: If you invest in a coin, and the lister/operator/website requires you to pay a hefty fee in order to access dividends, or to “enter the next investment window”, or to get your coins out of a liquidity pool that you didn’t authorize them to be in in the first place, it’s definitely a scam. At best, you should sell those coins and never look back. At worst, your coins are gone.
Huge Whales: If very few wallets hold a large majority of the coins, there is a good chance that those wallets could sell the entire sum and nearly empty the liquidity pool.

Criminals can be very manipulative, and they can sense when the crowd has caught on to the bit. If they’re worth their weight, they know when it’s time to get creative and change tactics. They may tone down the “get rich quick” language if it isn’t catching on, or they may introduce a sloppy whitepaper. Stay focused and make sure every aspect of the project is airtight and that it makes sense in the real world.

Protect and Assure the Community

There is a tension brewing amongst the decentralized community that recognizes the crossroads we have reached in the evolution of blockchain technology. Concentration of power leads to exploitation. We don’t want that. But diffusion of power leads to a lack of coordination. We don’t want that either. So how do we continue to lay the framework of decentralized systems in a way that addresses the need for regulation without becoming centralized?

Many platforms have already incorporated incentives to motivate their users to educate themselves before investing in crypto, offering small amounts of Bitcoin or Ethereum for every course taken or certificate received. Coinbase offers many such programs.

Other legitimacy protocols include auditing, platform-specific ratings and authenticity scores, liquidity lockers, and vesting schedules.

For our own part, we have made use of those practices that make sense for our purposes. Since our launch on June 29th, 2021, wLITI has already been listed on CoinGecko and CoinMarketCap, trended #1 on DEXtools on opening day, and has trended in the top 10 since then. We have a DEXtools score of 99 out of 100 and a community trust rating of almost 80% at the time of writing.

Part of the reason we have such a high score and trust rating is that we do not hold any team tokens. This significantly lowers the possibility of an exit scam or rug pull.

So far, our team has made good on its promise to be engaged and accessible within the community. Co-Founders Jonas Rey, Andy Christen, and Jaime Delgado, along with CIO David Kay, have all been active in the Liti Capital Telegram chat, organizing daily AMA’s, and consistently maintaining their Twitter presence. All of this is done with the intention of connecting with the community and demonstrating our commitment.

Building trust is incredibly important when dealing with the anonymity of the blockchain.

Embolden the Disenfranchised

When preparation and prevention aren’t enough, there has to be a system in place which is able to provide accountability.

Liti Capital is meeting the demand for justice in the market because. We have already received well over 200 requests from our community about fraud cases and the emails are only multiplying.

In our first test of actionability, we were contacted by crypto-influencer, Coach K, about a scammer who had taken off with nearly $250,000 worth of Coach’s assets. We mentioned before that scammers can be very elaborate in their tactics. We wrote here about how Coach K, someone with extensive experience in the industry, was able to be conned out of such a large sum.

In less than 48 hours, we found the culprit. We were able to gather information about his whereabouts, place of employment, travel patterns, and even a new gaming cafe business he’d started (with Coach K’s money, of course). Check out the full conversation here.

As with the cases in our portfolio that are not crypto fraud-related, we will only pursue those cases brought to us by our community that have a likelihood of success. In Coach K’s case, he already had a good amount of information about the identity of the scammer to provide a launching pad for further investigation.

Reach Out to Liti Capital

In a recent AMA with Jonas Rey and David Kay, the two explained that crypto has been criticized for being merely a digital replacement for fiat currency. Rey stated, “Right now the Defi is at a crossroads in terms of value — how do we generate long-term value? It needs real-life transference.”

We want our community to feel like they are getting the most out of their investment, and we also want to provide multiple layers of long-term, tangible value. Our investors should view scam busting as a form of insurance. Holding a LITI or wLITI token helps to protect your other investments and the community as a whole.

If you have been a victim of crypto fraud or would like to learn more, please visit https://liticapital.com/fighting-crypto-fraud/ for more information.

Crypto Scam Prevention — Part 1

Written by Liti Capital SA

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