What Is An Exit Scam?
The exit scam is one of the most scams in the crypto sector. Since the crypto sector was set in motion with Bitcoin in 2009, it has continued to solve problems and draw controversy. Due to the nascence of the sphere, some have taken this as an opportunity to scam others.
About Exit Scams
An exit scam in the crypto sector is said to have happened when scammers profit from early investors in a cryptocurrency project by pulling out of a project. In short, people take outsized control of a new project and begin to pump up prices via various activities artificially. These activities could include making carefully-timed investments to drive prices, engaging in dishonest promotional activity, and generally shilling a project online.
One way they can hype a project is by claiming an association with a celebrity. In some cases, they might dupe them into promoting the project online without explaining that it is a scam. The goal is usually to drive as many people to invest large and small amounts in the project. Exit scams encourage people to invest as much as possible by offering huge discounts to new investors who make large investments.
Types of Exit Scams
Exit scams have evolved to take many forms. One of the most common exit scams is in the decentralized finance (DeFi) sector. These exit scams are relatively easy to pull off since funds are processed via a decentralized exchange (DEX) without using a third party.
Another common exit scam is the non-fungible tokens (NFT) exit scam. In this scam, anyone can visit an online NFT marketplace and create an NFT. They can then get a celebrity to endorse the NFTs with promises of future utility. However, upon sale completion, the founders will disappear, and the project will collapse.
One form of NFT exit scam is the sale of tweets from famous people. Unknowing buyers can purchase a tweet with the promise that it belongs to them. However, the account owner might be unaware that their tweet was sold.
Real Examples of Exit scam projects
Let’s look at some fraudulent practices by unethical cryptocurrency promoters who vanish with investors’ money during or after an ICO.
Squid Game Token (November 2021)
The developers of the Squid Game project had “rug pulled” SQUID holders. Rug pulls in crypto occurs when the creators of a project take off with investor’ funds. The project itself was themed after the hit Netflix show Squid Game, but without any official approval or connection — despite a claim on its website that it was partnered with Netflix. The price of Squid Game token crashed to near-zero today as the developers behind the project sold their tokens on the market for 22,328 BNB ($11.9 million).
Luna Yield (August 2021)
Fast growing blockchain, Solana had its first rug pull on Luna Yield, a recently launched high APY yield farming. The anonymous team at Luna Yield has since deleted their website, as well as their social media handles and about $8 million worth of crypto assets have been taken out of the Luna Yield pools by the team.
Anubis DAO (October2021)
The project was called AnubisDAO and it was promoted as a fork of OlympusDAO — a cryptocurrency backed by the assets in its treasury. Around 20 hours into the sale — the liquidity in the pool (which enables investors to buy and sell the tokens) was removed. The $60 million in Ethereum (ETH) that had been put into the token sale so far was then sent to a different address.
How to Avoid Exit Scams
The only way to avoid exit scams is to remain vigilant. Before investing in a crypto project because your favorite celebrity has endorsed it, ensure you check out its fundamentals. In most cases, you will find that the project is a cheap copy of an existing solution.
In some cases, you do not need to dig deep. You could scam the whitepaper, where you will find numerous grammatical errors. That is usually a good sign that those who made it were in a rush to create something cheap to trick investors.
As a rule, if you find a new project that you think looks too good, hold back for a week. You can invest a negligible amount if the urge is too strong. However, take at least a week or more to study a project before investing in it. If the price shoots from zero to 100 in just a few hours, you are probably staring at an exit scam.