Have you encountered any Rug Pull projects in the past year? Have you experienced the “buy-in at the peak” due to the promotion of KOL influencers? Or have you suffered losses due to rampant phishing attacks? Or perhaps you have bought a newly launched token on a top platform only to see its value plummet?
It is estimated that many users have experienced at least one of these scenarios. This is a true reflection of the investment experiences and real emotions of most ordinary investors in the past period of time. Whether it’s blockchain security issues or asset shrinkage, it seems that users are defenseless. Even the familiar pitfalls have become industrialized. To put it bluntly, even the “leeks” have been completely uprooted.
This article will take stock of the various pitfalls that have emerged in the cryptocurrency world recently, and whether there are still opportunities for ordinary users to make money in the cryptocurrency industry.
01
Creative Ways for Ordinary Users to Lose Money
1) Industrialization of Rug Pulls
Firstly, the setup for Rug Pulls has become more sophisticated. One outrageous example is the case of ZKasino:
On April 20th, a community user discovered that ZKasino had deleted the statement “Ethereum will be returned and can be bridged back at this point” from its official website’s Bridge funds interface, according to a comparison with the Wayback Machine historical page.
At the same time, community users were unable to withdraw funds, the ZKasino official Telegram was muted by administrators, and social media updates came to a halt. The total amount of funds pulled was over $20 million.
Interestingly, just a month ago in March, ZKasino announced that it had completed a Series A financing round with a valuation of $350 million. The specific amount was not disclosed, but many trading platforms and VCs participated…
In addition, there is zkSync, jokingly referred to as “Rug Chain,” which not only frequently experiences security incidents in its ecosystem projects but also shows a growing trend of riding on trends and quickly harvesting funds. For example, the zkSync ecosystem DEX Merlin recently experienced a Rug Pull, affecting millions of dollars in funds.
It is worth emphasizing that there are indeed various projects in the zkSync ecosystem, and users should remain vigilant and guard against risks at all levels when participating in the zkSync ecosystem.
2) Escalating Phishing/Hacking Attacks
Recently, one of the most eye-catching incidents in the field of blockchain security is the seemingly common “phishing attacks with identical first and last characters in addresses”:
A whale address fell victim to a phishing attack with an address that had identical first and last characters, resulting in a loss of 1,155 WBTC, equivalent to over 400 million yuan. Although the hacker later chose to return the funds due to various factors, it still revealed the extremely high risk-reward ratio of this type of phishing behavior, which can be summarized as “three years of inactivity, one activity to reap a lifetime of benefits.”
Similar phishing attacks have become industrialized in the past six months. Hackers often generate a large number of addresses with different first and last characters as a seed library. Once a transaction occurs between an address and the outside world, they immediately find an address with identical first and last characters from the seed library and initiate a related transaction by calling a smart contract, casting a wide net and waiting for a catch.
Since some users sometimes directly copy the target address from transaction records and only check the first and last few digits, they become victims of this phishing attack. As Yu Xian, the founder of SlowMist, put it, “Hackers play a probability game with net casting attacks targeting identical first and last characters.”
This is just a microcosm of the increasingly rampant hacker attacks. For ordinary users, the tangible and intangible risks in the colorful blockchain world have increased exponentially, while individual risk awareness is struggling to keep up.
Overall, various forms of attacks, such as on-chain, wallet, and DeFi attacks, and even social engineering attacks, have made DeFi security risks resemble an asymmetric one-way hunt. For technical geniuses, it is undoubtedly an inexhaustible free cash machine, but for the majority of ordinary users, it is more like the sword of Damocles that may fall at any time. It is important to remain vigilant, not easily participate in authorizations, and rely more on luck.
So far, phishing attacks, social engineering attacks, and other risks on the consumer end are the most common ways for ordinary users to lose funds in Web3. Additionally, due to the additional risks associated with smart contracts, the problem has become increasingly serious.
Behind every successful scam, there is a user who stops using Web3. Without any new users, the Web3 ecosystem will have nowhere to go. This is also one of the biggest damages to the cryptocurrency industry.
3) Creative Promotion by KOLs
For most ordinary users, following various cryptocurrency Key Opinion Leaders (KOLs) on social media for investment advice is an important source of obtaining alpha secrets.
This has given rise to the so-called “KOL Round” – as influencers with greater influence over secondary market investors, KOLs are even granted shorter lock-up periods and lower valuation discounts compared to institutional VCs. For example, recently, Monad Labs completed a new round of financing with a valuation of $3 billion, and insiders claim that some industry KOLs were allowed to invest at a valuation one-fifth that of Paradigm.
But can blindly following KOLs’ advice guarantee a profit? According to a study by researchers from Harvard University and others, who analyzed about 36,000 tweets from 180 of the most famous cryptocurrency influencers (KOLs), mentioning the performance of various crypto assets, covering over 1,600 tokens, the results were not as expected:
When KOLs promote a particular token, the average daily (two-day) return rate is 1.83% (1.57%), and for crypto projects outside the top 100 by market capitalization, the return rate after one day of promotion is 3.86%. However, the profits start to decline significantly as early as five days after the tweet is posted, with an average return rate of -1.02% from the second to the fifth day, indicating that more than half of the initial gains are erased within five trading days.
4) VC Tokens’ Continuous Decline After Listing
A high Fully Diluted Valuation (FDV) and low circulating supply VC token or a completely “meme” coin that is self-sustaining in terms of profit and loss – which one would you choose?
Recently, the market has started to change, with the Meme trend gaining momentum, driving the extreme prosperity of transactions on Solana and Base chains. For example, PEPE, which has firmly established itself as the leader of the new generation of Memecoins, has reached a new all-time high. In today’s market environment, apart from short-term speculation, the demand for fairness represented by Memecoins has become a trend, and funds are voting with their feet.
In contrast, after a series of recent listings on top platforms, VC tokens with high FDVs have experienced a continuous decline in their trends. Typical examples include AEVO, REZ, and even the first project of the BN Megadrop, BounceBit’s token BB, which almost ends each day with a decline. Users who entered these projects have all fallen into deep traps.
In comparison, discussions and doubts about Memecoins and VC tokens have once again become mainstream in the community. Memecoins at least bring continuous incremental funds and attention through user flow, while recent projects with valuations in the tens of billions of dollars are seen as outdated concepts of grand narratives or old tricks, and are likely to be rejected by the community. This has sounded the alarm for VCs and project teams accustomed to path dependence.
02
Where Should Ordinary Players Go?
“We don’t love the ‘Flowers,’ but the era of abundant opportunities.”
Many friends in the cryptocurrency industry have probably imagined what it would be like to go back 10 years and participate in this wave of technological advancement.
Should we hoard BTC? Become a miner? Establish another Bitmain? Or become an early employee of BN? The best choice seems endless, but it all boils down to the eternal question of whether to make money or not. This question is the lifeline of Web3’s development.
When trading platforms, market makers, VCs, project teams, and KOLs are all making money, but the majority of ordinary users are continuously losing money, it indicates that the deep-seated structural problems in the entire market have become distorted to a certain extent and are bound to be unsustainable.
As the saying goes, behind every “creative way to lose money,” there may be a group of users who stop using Web3 products, stay away from VC tokens, and choose to embrace Memecoins, which have a more fair and grassroots nature. This itself is a form of rebellion, where funds vote with their feet.
Until certain Web3 ecosystem applications establish a complete value loop, ordinary users will have “nowhere to go.” Of course, this may be the “twists and turns” that Web3 development must go through. The cryptocurrency industry is still moving forward while exploring.
