An exit scam is a trick where projects disappear (or shut down) after accumulating investors’ money.
An exit scam refers to an event where a cryptocurrency project disappears with investors' money during or after the ICO period.
In other words, whales
try to pump the price alongside advertising and promotional activities, only to dump
their coins later. It is quite difficult to spot such events until they happen, much like a black swan event
, however, these occur more often than the latter one.
The exit scam strategy is simple: a project launches a cryptocurrency platform using a promising concept, raises funds from investors, runs for a brief period of time, and then disappears, leaving investors in a predicament.
In recent times, a number of projects moved towards the rug pull
strategy (another form of exit scam). Even some of the most popular ones trusted by famous public figures have fallen under this category. One example is the recent TITAN project from Iron Finance, which gained popularity mainly due to the investment made by Mark Cuban.
Another popular example is the recent sale of Logan Paul's NFTs, where three holders of 3,000 NFT which were to be sold had a chance to win a Pokemon First Edition bundle valued at $40,000. The NFTs initially received a lot of attention which shot their worth above $20,000. However, at this point, most of these are left on OpenSea at a price of around $1,000
On January 16, 2018, Bitconnect
announced that it was shutting down its currency exchange and loan operations after regulators from Texas and North Carolina issued a cease-and-forth order.
After the closing of operations, the platform that was running a Ponzi scheme refunded users in the form of BCC (native token)
that went from its all-time high of around $465 to below $1 within a week.
Before you get excited and buy tokens promoted by your favorite YouTuber (usually at a price that has already gone up), be sure to check out the basics of the project. Often, a project is simply a cheap "copy" of an existing solution without solid foundations for its future growth. Do research when it comes to projects that offer high returns. Also, be sure to use price tracking platforms like CoinMarketCap
regularly to get the latest information and building materials when it comes to crypto tokens.