3 red flags that signal a crypto project may be misleading investors


Satoshi Nakamoto left a large pair of shoes to fill after launching the Bitcoin (BTC) code into the world, helping to establish the network, and then disappeared without a trace.

Over the years, the cryptographic ecosystem has seen many protocol developers and creators grow in stature to become cryptocurrencies for loyal holders who finally have their best plans ended in a catastrophe when the protocol is hacked, robust, or abandoned by whimsical developers.

2022 is almost halfway there and the year has already seen a stretch of particularly bad good intentions, which have contributed collectively to plunge the market into bearish market territory. Here’s a closer look at each of these instances to help provide information on how similar results can be avoided in the future.

Some developers are anonymous for some reason

Satoshi may have successfully maintained anonymity by launching Bitcoin, but in most cases since then, having anonymous developers has turned out to be a red flag.

Many anonymous developers cite personal security reasons for taking this route. While this is a valid reason in some cases, sometimes anonymous developers hide from previous faults or plan to cover their tracks in case of future violations.

A glaring example of this was Squid Game (SQUID), a Netflix-inspired memecoin that rebounded 45,000% within days of launch, only to make traders realize that they could not sell tokens in any exchange.

Investors eventually found out that all developers were anonymous and that all social media channels were blocked from commenting.

The crypto community has become quite suspicious of anonymous developers and this can be seen in the negative reaction to the revelation that the founder of the Azuki non-fungible token (NFT) project was involved with three other NFT projects that were eventually abandoned. little to show except worthless jpegs.

Another case of an anonymous developer becoming a criminal occurred in 2022 when it was revealed that the anonymous Wonderland Treasury Manager (TIME) @ 0xSifu turned out to be an alleged financial criminal, along with QuadrigaCX co-founder Michael Patryn.

The revelation of this connection led to the collapse of several popular projects, including Wonderland and Popsicle Finance, while a significant amount of criticism was directed at the creator of Abracadabra.Money, Daniele Sestagalli.

Prior to @ 0xSifu’s revelation, all three protocols were undergoing further adoption, but each protocol is a mere shadow of its previous success.

Having anonymous developers removes responsibility from the equation and is increasingly becoming a red flag when it comes to multimillion-dollar cryptocurrency protocols.

Beware of cult personalities

Finance is no stranger to cult personalities and crypto is not immune to this phenomenon.

Cryptography experts have long remembered that Roger Ver was called “Bitcoin Jesus” and that he was in charge of forking Bitcoin Core and creating Bitcoin Cash (BCH). Billionaire Dan Larimer also comes to mind, and investors will remember his help that EOS (EOS) helped raise $ 4 billion during the initial currency supply boom (ICO) from 2017 to 2018. In each case, it was a fervent flock of followers which propelled each project. forward.

Neither BCH nor EOS managed to regain their all-time highs during the 2021 bullish market despite all the hype about their future when they first launched. This is possibly because part of the hype is focused on the personalities behind the projects.

A more recent example includes the collapse of phantom token prices in the Fantom ecosystem after decentralized finance (DeFi) developer Andre Cronje deactivated his Twitter account and informed the community that he was leaving the cryptographic space altogether.

Cronje became so popular that many people would buy a token just because he was involved, and when he left, many of these investors left their stakes, which negatively affected token prices.

While Cronje was doing what he thought was right and had no ill intentions towards the community, his actions seem to have negatively affected the crypto market due to his popularity within the community and the dedication of his followers.

The main conclusion is to be careful when you consider that a programmer is incapable of doing wrong and remember that cult followers can have results that go beyond their community.

Related: Court documents reveal Do Kwon dissolved Terraform Labs Korea days before LUNA crash

Decentralization requires community involvement

Another red flag for looking for decentralized autonomous organizations (DAOs) and DeFi protocols that work in a way that seems to be more centralized than its name suggests.

It’s common for many protocols to claim to be decentralized, but they rely on centralized service providers like Amazon Web Service to make sure they work properly.

Another pertinent example is when a project that claims to offer government rights token holders makes an important protocol decision without consulting the community for comment and approval.

The move by Terra (LUNA) to add BTC to its treasury as collateral for the stablecoin TerraUSD (UST) was news and was praised by many, but the move was never put to a vote in the Terra community to see what token holders thought .

While there is a good chance the plan was approved and Earth’s collapse still occurred, the blame could fall more on the community and less on Do Kwon, the project leader. It is also worth mentioning that Do Kown had developed quite a few cult followers and frequently insulted a variety of people on Twitter.

One of the main principles of the cryptocurrency industry is adherence to decentralization and failure to do so often leads to a compromised network and unsatisfied investments.

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