Crypto platforms are the main vehicles through which you can trade, stake, lend and borrow assets. And while there are many trustworthy crypto services, there have also been instances of fake or mismanaged projects that have lost or stolen their clients’ funds. Here are the warning signs to look out for when using a crypto platform.
1. Lack of security features
When you trust a crypto service with your funds, payment information, private keys, or other sensitive data, it is crucial that they provide you with adequate security measures to protect you from cybercriminals.
Take Coinbase for example. This centralized crypto exchange offers a number of useful security features, including two-factor authentication, address whitelisting, cold storage of almost all assets, and employee background checks. These measures can better protect you from fraud.
If a particular crypto platform offers next to no security features, this should be considered a red flag. It is either poorly run or controlled by malicious actors who are trying to get their hands on your funds or data.
2. Promises that seem too good to be true
On many crypto platforms you can earn a little extra money from your assets. This can be done via yield farming, staking, crypto gaming, saving and lending your wealth. While many are drawn to the idea of making money from their crypto, it’s also important to note that cybercriminals know this. And they are willing to make big promises to lure victims.
Let’s say a platform says they can offer you a 30 percent annual return through yield farming. That might seem great, but it’s an unusually high offer that probably wouldn’t be viable for the platform. High APYs and interest rates are not uncommon, but they should be taken with a grain of salt.
The same applies to asset prices. When an exchange lists an asset at a price significantly higher or lower than its current market value, it may be a scam. It’s always best to check an asset’s market value on a legitimate website like CoinGecko before buying it on an exchange.
3. Anonymous Founders
Anonymity is pretty commonplace in the crypto space. Crypto traders often value anonymity, but when it comes to founders, things get a little more complicated.
If the founder of a crypto platform is anonymous, that shouldn’t immediately be viewed as a bad thing. Some crypto developers prefer to remain anonymous to protect their identities. But an unknown founder or group of founders should be considered among other factors.
Even anonymous crypto founders often have a social media presence for marketing, announcements, updates, and promotions. So if you’ve noticed that the founder of a crypto platform is both anonymous and has no online presence, it can be a bad sign. Finally, cybercriminals will try to minimize their digital footprint as much as possible to avoid prosecution by law enforcement agencies.
It’s also best to know a little about the founder or founders of a crypto platform before trusting it with your money. After all, a platform’s founder might have previously run a mismanaged or illegal service, or be known throughout the industry as some sort of ominous figure. Of course, it’s better to know this beforehand, so it’s important to do your research.
4. Zero fees across the board
Fees are fairly common on crypto platforms, especially exchanges. Maker fees, taker fees, staking fees, withdrawal fees, and deposit fees are commonplace on crypto exchanges, which is obviously frustrating for users who would rather trade for free.
Certain crypto exchanges do not charge trading fees, which might seem like a big plus. However, some platforms charge a slightly higher price for assets to make up for the missing trading fees. These exchanges can be perfectly legit, but it is important that you are aware of any caveats before you start trading.
But the allure of zero fees can also be a ploy used by cyber criminals to lure victims. So be sure to watch out for other warning signs and do your research on each platform before you spend a penny.
5. Unclear sources of liquidity
Crypto platforms often use liquidity providers or market makers to offer assets to users when they trade. For example, a lending platform may use multiple liquidity streams from a number of providers to keep it running. Examples of the biggest market makers in the industry are Wintermute, GSR and Kairon Labs.
When a crypto platform fails to provide information on its liquidity sources, it could be a red flag. If a platform doesn’t have legitimate liquidity providers, it probably doesn’t want customers to know. So make sure you check the market makers associated with a platform before signing up.
6. No Customer Verification
Many crypto services have some form of customer verification that a user must complete when creating an account. This allows the platform to ensure that it is a real, legitimate person.
This often refers to KYC, or Know Your Customer, a policy that financial service providers should follow to authenticate the identity of their customers. This allows institutions to better protect themselves from fraud and money laundering, two popular cybercrimes in the crypto world.
If a crypto platform you plan to use doesn’t require any type of identity verification, it might not be very well equipped to mitigate crypto-based crimes that could put your wealth at risk.
7. Sudden stops in trading and withdrawals
Sometimes a crypto company will stop withdrawals and trading services, meaning customers cannot invest their money elsewhere or buy and sell assets. Platforms often do this when they are facing severe liquidity problems and are therefore unable to meet their users’ financial desires.
This is of course a big issue. People trust these companies to keep their money safe and maintain a steady flow of liquidity. Failure to do so can result in customers losing hundreds or thousands of dollars.
We saw this with the QuadrigaCX scam. QuadrigaCX was a popular Bitcoin exchange that halted all withdrawals in 2018 amid a severe crypto market crash. It turned out that QuadrigaCX was nothing short of a Ponzi scheme where the CEO, Gerald Cotten, used one customer’s money to meet another’s withdrawal request.
When the 2018 crash hit, people started withdrawing their funds from QuadrigaCX en masse until Cotten could no longer fulfill requests and suddenly paused them before taking to the streets with the remaining funds.
We also saw FTX pause payouts in late 2022 just prior to filing for bankruptcy. It’s clear that a hiatus from rehab can often be a sign of impending doom.
Be careful when trading your cryptos
There are many cyber criminals who want to get their hands on your crypto funds. Some will go so far as to develop entire platforms designed to steal customers’ money. So, when choosing a crypto platform, be sure to look out for the warning signs above so you can be confident that you can trust them with your wealth.
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