Do retail investors still have opportunities in the cryptocurrency market?
Table of Contents:
The “Fancy Ways of Losing Money” for ordinary users
1) The Industrialization Trend of Rug Pulls
2) Rampant Hacking/Phishing Attacks
3) Fancy Promotions by KOLs
4) VC Tokens Going Online with Continuous Declines
Where do ordinary players go from here?
In the past year, have you encountered any Rug Pull projects? Have you experienced “buying at the peak” due to the promotion by KOLs? Or have you suffered losses due to the increasingly rampant phishing attacks? Or perhaps you’ve bought new tokens on top platforms only to see them continue to decline?
It is estimated that many users have had at least one of these scenarios, which can be said to be a true portrayal of the investment experiences and real feelings of the majority of ordinary investors in the past period: whether it’s the security issues on the blockchain or the depreciation of assets, users are defenseless. Many common pitfalls that used to be commonplace have even become industrialized. To put it bluntly, even the “leeks” have been uprooted.
This article aims to take stock of the increasingly diverse pitfalls in the crypto world recently and whether there are still profit opportunities for ordinary users in the crypto industry.
First, the setting for Rug Pulls has become increasingly sophisticated, with the most outrageous being the ZKasino incident:
On April 20th, users in the community compared the historical pages of ZKasino on the Wayback Machine and found that ZKasino had deleted the phrase “Ethereum will be returned and can be bridged back at this point” in the Bridge funds interface on its official website.
At the same time, users in the community were unable to make withdrawals, the official Telegram of ZKasino was muted by the administrators, and social media updates stopped. The total amount of funds pulled was over 20 million US dollars.
But interestingly, just a month ago in March, ZKasino had just announced that it had completed Series A financing with a valuation of 350 million US dollars. The specific amount was not disclosed, but multiple trading platforms and VCs participated…
In addition, projects like zkSync, which are jokingly called “Rug Chain,” not only frequently experience security incidents in their ecological projects but also have a growing trend of quickly reaping benefits by riding on hot topics. For example, recently, the zkSync ecological DEX Merlin, which shares the same name, experienced a Rug Pull, affecting millions of dollars in funds.
It must be emphasized again that many projects in the zkSync ecosystem are indeed of varying quality, so everyone should remain vigilant while participating in the zkSync ecosystem and guard against risks at various levels.
One of the most eye-catching cases in network security recently is undoubtedly the “phishing attack with identical first and last digits”:
A certain whale’s address was targeted by a phishing attack with identical first and last digits, resulting in a loss of 1155 WBTC, amounting 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 without opening, opening to feast for a lifetime.”
Similar phishing attacks have also become industrialized in the past six months. Hackers often generate a large number of addresses with different first and last digits on the blockchain as a prepared seed bank. Once a certain address has a fund transfer with the outside world, they will immediately find an address with identical first and last digits from the seed bank and call the contract to perform a related transfer, casting a wide net and waiting for the harvest.
Since some users sometimes directly copy the target address from transaction records and only verify the first and last few digits, they fall victim to this attack. According to Yu Xian, the founder of SlowMist, for phishing attacks with identical first and last digits, “hackers play the game of casting a net, and those who wish to be caught become part of the probability game.”
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 their risk prevention awareness lags behind.
Overall, various forms of attacks in the blockchain, wallets, DeFi, etc., are emerging endlessly, and even social engineering attacks are becoming prevalent, making DeFi security risks like an asymmetrical one-way hunt: for technical geniuses, it is undoubtedly an inexhaustible ATM for free withdrawals, but for the vast majority of ordinary users, it is more like a Damocles’ sword that may fall at any time. It is important to remain vigilant and not participate rashly, and luck plays a significant role.
So far, internet fishing, social engineering attacks, and other risks on the C-end are the most common ways for ordinary users to lose funds in Web3, and the additional risk points of smart contracts have made the problem increasingly serious.
Behind every successful scam, there is a user who stops using Web3, and without any new users, the Web3 ecosystem will have nowhere to go. This is also one of the biggest harms to the crypto industry.
For the majority of ordinary users, following various crypto KOLs on social media for investment recommendations is an important source of obtaining alpha. This has led to the so-called “KOL Round” phenomenon, where KOLs, as influencers with greater impact on secondary market investors, can even get shorter unlocking periods and lower valuation discounts than institutional VCs. For example, recently, Monad Labs completed a new round of financing with a valuation of 3 billion US dollars, and insiders said that some industry KOLs were allowed to invest at a valuation limit of one-fifth of Paradigm’s valuation.
But can following KOLs’ recommendations really guarantee stable profits? According to research by Harvard University and other researchers on approximately 36,000 tweets released by 180 of the most famous crypto social media influencers (KOLs) mentioning cryptocurrency assets, covering over 1,600 tokens, the conclusion is not as satisfactory as one might hope:
When KOLs promote a certain token in their tweets, the average return rate per day (two days) is 1.83% (1.57%). For cryptocurrencies outside the top 100 by market capitalization, the return rate one day after the promotion is 3.86%. However, the returns start to decline significantly as early as five days after the tweet, with an average return rate of -1.02% from the second day to the fifth day. This indicates that more than half of the initial gains are erased within five trading days.
A high FDV (fully diluted valuation), low circulation VC token, or a completely “dog-like” self-sustaining memecoin, which one would you choose?
Recently, the market trends have begun to change, with the Meme frenzy gaining momentum, driving extreme prosperity in 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 new historical highs. 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 listings on top platforms, VCs with extremely high FDVs and a downward trend have emerged, including typical representatives such as AEVO, REZ, and even BN Megadrop’s first project, BounceBit’s token BB, all of which have almost closed in the red since going public, trapping all the users who entered.
In comparison, discussions and doubts about Memecoins and VCs have once again become mainstream in the community. Memecoins still bring continuous incremental funds and attention, while the recent projects with valuations in the billions seem to be tired macro-narratives or outdated conceptual products, which are inevitably rejected by the community. This has sounded the alarm for VCs and project parties who are accustomed to a path-dependent approach.
As mentioned in the article “Web3 Never Sleeps, Will the ‘Flower Era’ of the Crypto World Never End?”, “What we love is not ‘The Flowers’ itself, but the era of abundant opportunities.” Many friends in the crypto industry have imagined what it would be like if we had the opportunity to go back 10 years and how to participate in this wave of the era.
Hoard BTC? Become a miner? Establish another Bitmain? Or become an early employee of Binance? The best choices seem to be countless, but they all revolve around the fact that the past ten years of the crypto world were truly a golden age that broke the limits of imagination and gave birth to one legend and myth after another in the industry.
Regardless, the question of whether one can make money or not is an eternal topic in the Web3 world and the lifeline of Web3 development.
When trading platforms, market makers, VCs, project parties, and KOLs all start making money while the majority of ordinary users continue to lose money, it indicates that the deep structural problems in the entire market have become distorted to a certain extent, and it is destined not to last.
As the saying goes, behind every “fancy way of losing money,” there may be a group of users who stop using Web3 products, distance themselves from VC tokens, and choose to embrace memecoins that are more fair and grassroots-oriented. This is a form of resistance where funds vote with their feet.
Until certain Web3 applications truly complete the value loop, ordinary users will have “nowhere to go.” Of course, this may be the “twists and turns” that Web3 development must go through, and the crypto industry is still moving forward while exploring.