Web3 Investment Eyewash: How to Prevent High-End Scams?

In the Web3 space, in addition to common security incidents, high-net-worth investors also face some eyewash disguised as high-end financial services. These scams often appear in the form of hedge funds, family offices, private banks, or project investment opportunities, making them difficult to detect.

This article will introduce readers to several common types of high-end eyewash through real-life cases and provide corresponding prevention strategies to ensure asset safety.

Eyewash Cryptocurrency Fund

Crypto funds have become targets for scammers due to a lack of a sound regulatory framework. For example, the Arbix Finance incident in 2022, where the project claimed to be an audited decentralized quantitative fund, promising high returns of 5% daily. However, just a few months later, the fund's account funds were transferred to an anonymous address, the official website was shut down, and the team went offline, resulting in a loss of 10 million dollars for investors.

preventive measures:

1. Verify the registration and filing status of the fund: Legal funds are usually registered in the United States, Singapore, Hong Kong, BVI, and other places.

2. Query historical performance: For funds that claim to have successful cases, you can verify them in databases like Preqin and Crunchbase.

3. Monitor fund flows: Use tools such as Etherscan and Nansen to check fund addresses and examine the flow of funds and the status of held assets.

Cryptobank deposit eyewash

Some criminals mimic traditional private banks by launching so-called "high-end crypto deposit products." These eyewash schemes often promise interest returns far higher than market levels, and even claim to help avoid taxes. However, these "crypto banks" often lack formal financial licenses and regulatory protection.

In 2022, the SEC accused the cryptocurrency lending platform NEXO of illegally offering deposit services, involving funds as high as $120 million. NEXO had claimed to provide a "12% annual interest rate" on deposits and boasted of holding financial licenses in multiple countries. However, investigations revealed that NEXO was not effectively regulated, its products were non-compliant, ultimately leading to a large number of accounts being frozen and investors unable to withdraw their funds.

Prevention measures:

1. Verify financial licenses: Ensure that the platform holds legitimate financial licenses such as the UK FCA, Singapore MAS, and Swiss FINMA.

2. Confirm fund custody: Compliant platforms usually independently custody customer funds to prevent abuse and misappropriation.

3. Continuously monitor compliance status: Regularly confirm the platform's compliance status and stay updated on relevant regulatory changes.

Cryptocurrency Project Eyewash

Ponzi schemes in the Web3 space typically attract funds by promising high returns, but there are actually no real investment projects. All returns depend solely on the funds from new investors being paid to old investors until the funding chain breaks.

OneCoin is a typical case. The project claims to be a groundbreaking cryptocurrency, but in reality, there is no blockchain technology supporting it. Founder Ruja Ignatova attracted a large number of investors through false advertising and promises of huge returns. Ultimately, OneCoin was exposed as an eyewash, the founder went missing, and investors suffered losses totaling over $4.5 billion.

Preventive measures:

1. Verify project transparency: Ensure that the project undergoes independent third-party audits, with a clear technical architecture and practical applications.

2. Beware of promises of high returns: Annual return rates that are far above the normal market range are usually characteristic of an eyewash.

3. Investigate the background of the project team: Gain a deep understanding of the founding team's experience and historical project achievements.

4. Diversified Investment: Avoid putting all funds into a single project, and reasonably allocate traditional financial instruments and crypto assets.

Key to Protecting Cryptocurrency Investments

In the Web3 era, investors not only need to look for high-growth projects but also ensure asset security. It is recommended that investors focus on the following three points:

1. Conduct independent due diligence: Do not rely solely on the project party's promotion; there must be a third-party independent investigation.

2. Adhere to compliance principles: Avoid falling into the "eyewash" of "Web3 without regulation" and ensure that financial institutions hold valid licenses.

3. Pay attention to contract details: All contracts should be reviewed by a professional legal team to ensure asset security.

By establishing strict investment screening standards and multiple protective measures, high-net-worth investors can better cope with various risks in the Web3 field and achieve secure asset appreciation.