Investors

Transparent execution

Most investors are losing money by allocating entire investments into early-stage projects due to the high risk of crypto projects not being completed.

The main reason for this is the unorganized fundraising process workflow or dishonest founders. For example, a recent study found that out of 1,450 ICO projects, only 4% were successfully completed, and 42% failed. This means that there is a high chance that your investment will not pan out if you invest in an early-stage project.

Even if the project is completed, there is no guarantee of success. The founder may not have the necessary experience or expertise to make the project a success. The project may also be understaffed or underfunded, leading to delays or problems down the road.

According to Reuters, as more money pours into the space from retail and institutional players, bad actors will seek to take advantage of the hype to draw people into scams. A recent report by FTC (Federal Trade Commission) stated that around 7,000 U.S. consumers reported losing more than $80 million to various cryptocurrency scams between October 2020 and March 2021, with an average of $1,900 per transaction.

Even sophisticated investors with a keen eye and understanding of financial details can fall prey to such scams.

Tracking progress

One of the most important aspects of a successful business venture is ensuring that there are adequate checks and balances in place to track progress and identify any potential problems.

Without these safeguards, it is all too easy for a project to lose momentum and ultimately fail. This is often the case when investors do not have a way to re-evaluate or check the project's progress on an ongoing basis. Without this oversight, founders may be tempted to cut corners or take shortcuts, which can jeopardize the entire venture.

In addition, if a project does run into trouble, investors may be reluctant to provide additional funding if they feel they do not have sufficient control over how their money is being spent. As such, it is essential that businesses have mechanisms in place to ensure that progress is being made and that any potential issues are identified early on. Only by doing so can businesses hope to achieve long-term success.

Uncontrollable investment

As an investor, it can be challenging to know when to cut your losses and move on. After all, when you put your money into a new venture, you're putting your faith in the team behind it. However, there are certain tell-tale signs that a project is doomed to fail, no matter how much money you pour into it. If the founders show a lack of commitment or fail to meet deadlines, it is likely the project will soon fizzle out. Similarly, if momentum starts to flag and excitement starts to dissipate, it's time to start considering other options. In short, investors need to be able to read the signs and know when it's time to walk away. Otherwise, they risk throwing away good money into a dead-end project.

Don't fall for an exit scam

In the cryptocurrency world, there are two main types of fraud: exit scams and DeFi rug pulls. Exit scams occur when a crypto promoter disappears with investors' money during or after an ICO. DeFi rug pulls, on the other hand, happen when a crypto developer abandons a project and takes away buy support or a DEX liquidity pool from the market, leaving investors high and dry. Both types of fraud can be devastating for victims, but knowing how to spot the signs can help you avoid becoming a victim yourself.

Exit scams are usually characterized by a few critical warnings, for example:

🚩 A project has no working product

🚩 The team is anonymous

🚩 The project promises unrealistic returns

If you see any of these red flags, it's important to do your own research before investing any hard-earned money.

DeFi rug pulls are relatively new, but they are already becoming a major problem in the cryptocurrency world. Unlike exit scams, which tend to happen all at once, DeFi rug pulls often happen gradually. For example, a crypto developer might slowly start withdrawing funds from a project's buy support or a DEX liquidity pool. Over time, this can result in significant losses for the investor.

Rug pulls typically occur in the DeFi ecosystem, especially on decentralized exchanges (DEXs) such as Uniswap or Sushiswap, as fraudulent token creators can create and list tokens for free without any audit.