Diar Research: ICO Scams Siphoned Off $100M

ICO exit scams have made off with nearly $100 million from investors, finds the latest research from Diar, a provider of coverage and analysis of the cryptocurrency and blockchain industry.

According to a study published this Monday, this is roughly the sum stolen since July 2016, or at least that known from already exposed major scams.

In just the first two weeks of this August alone, Diar reports data regarding two very significant ICO scams, costing investors $68 million.

Source: Diar

Reportedly, the largest ICO scam so far in history was pulled by the Chinese company Shenzhen Puyin Blockchain Group. It ran three ICOs -  ACChain, Puyin Coin and BioLifeChain and raised up to $60 million before attracting the attention of China’s State Market Regulatory Administration (SMRA), which launched an investigation. As Cryptovest reported in May, six individuals related to the Puyin Coin, which was allegedly backed by a rare and highly-valuable Pu’er tea, a variety of fermented tea that can only be found in Yunnan province, were arrested in China for fraud.

In the first two weeks of August, another considerable scam called the NVO project was uncovered. It raised BTC 3000 (roughly $8 million at the prices back then), with the promise to build a decentralized exchange and wallet. According to the project’s website, the exchange was supposed to have launched in the first quarter of this year. Our check of the official NVO twitter account revealed that it has been silent since the end of last year, after being very active before that.

Another significant ICO exit scam is that of CryptoKami – a project that was promising to build a decentralized reserve system. It was not realized, despite the very enthusiastic investor comments on the project’s Facebook page. Instead, the people behind it made off with $12 million in June.

Ironically, the Block Broker project raised $3 million for a platform to “completely eliminate ICO fraud by creating a 100% safe investment environment”. It had star ratings on reputable ICO websites and everything looked great. However, in June, it transpired that the photo of the alleged Block Broker CEO was actually a stock photo. And again, no platform was built.

These are just the most recent examples of large exit scams, but, Diar notes, those are just the most blatant ones and those stolen $100 million are just a small portion of all funds raised for various projects. But they are a problem, especially against the background of token prices that continue to fall.

“Unsurprisingly, blatant exit scams continue to plague the largely unregulated ICO sector where the founders have no contractual obligation to deliver a product,” Diar wrote. “After raising millions of dollars with no string attached, the founders’ incentives to actually build a valuable company are very limited.”

Even if the founders had the best ideas and the best of intentions to deliver, it is not clear when this would happen and if the value of the token would reflect the success of the company.

At least the most blatant scams are not very hard to pick out with some research and due diligence. They use the same tactics as other scams, employing the fear of missing out (e.g., running for a very short period of time), promising unrealistic returns, plagiarizing content on their websites and in their white papers and quite often using stock photos for the profile pictures of their teams.

“What’s much harder to recognize are projects that are slowly burning through the raised capital with no product to show for it,” Diar notes. “Less than a handful of projects have gone live and the ones that have gone live have seen very limited use.”

But even though most invested capital is in the largest projects, some of which have already delivered their products, the token prices have fallen by an average of 93% from their all-time highs, per Diar’s calculations.

Source: Diar