How Not to Invest in Fraudulent Tokens

A Fictional Story Based on Real Life

Marek, a young and ambitious investor, was excited about the opportunity to make money in the crypto-asset markets. He followed news updates and explored new projects in hopes of finding “the next Bitcoin” or the next big investment opportunity.

When an acquaintance recommended an investment in a revolutionary token with the potential to change the crypto industry, Marek’s eyes lit up. Promises of massive profits and the chance to change the world lured him in, and he decided to invest his savings in the token.

He expected his investment to bring him extraordinary returns—and possibly even financial independence. But his hopes quickly turned into disappointment when he realized the token he had invested in had significantly lost value. As the value of his investment dropped, his uncertainty grew, prompting him to try to withdraw at least part of his funds. However, despite his efforts, he was never able to recover his investment, as the project seemingly vanished overnight.

Fraudulent Tokens in 5 Steps

1. A company, individual, or platform issues its own token. In most cases, the issuer is also the largest holder of the token, giving them the power to influence its price and manipulate the market.
2. This is followed by aggressive marketing, often highlighting high potential returns—either through price increases or dividend payouts. Sales are frequently conducted via MLM (multi-level marketing) schemes with high rewards for referrals.
3. The token is usually sold in packages through dealers, on decentralized crypto exchanges (known as DEXs), or on centralized crypto exchanges with questionable reputation.
4. The issuer then attempts to sell as many of their tokens as possible while artificially inflating the price through demand and supply manipulation.
5. Fraudulent tokens can end in several “negative outcomes.” The most common include:
   • Rug pull – the issuer disappears with investors’ funds.
   • Token dump – the issuer and related parties sell off their holdings, causing a drastic drop in token value, and the project is subsequently abandoned.

Explanation of the Scam

The growth in the number of crypto-assets is truly explosive. That’s not surprising—creating a token can take less than 10 minutes. While this opens up positive opportunities, there are also serious downsides. The most significant is how easy it is to create fraudulent tokens.

There are many reasons someone might launch a fraudulent token, but the main one is the issuer’s desire to illegally profit at the expense of others. The issuer can be anyone—from an individual, to a new platform, or even a globally recognized company.

The issuer can also define almost all the parameters and rules of the token at will. This includes the total token supply, how many tokens the issuer holds, and whether or not the source code is made public.

And that’s the core problem with many new tokens: the issuer can set things up in such a way that they can later scam investors and disappear with the funds they raised.

To sell such tokens, aggressive marketing and misleading or deceptive advertising are often used. Promises of guaranteed returns, enormous profits, MLM schemes, or endless potential uses of the token are just a few examples of how issuers try to lure money from investors and sell them tokens that have no real value or utility.

NBS Advice

Fraudulent tokens often display a number of warning signs that, if recognized, can help investors avoid losing their money. These warning signs include, but are not limited to:

• No public source code.
• Developers hide their identities, lack a verifiable track record, or have no relevant experience.
• The project cannot clearly define the purpose of the token, or its use is very vague.
• The project lacks a whitepaper, a clear roadmap, or has a weak online community.
• Limited or no ability to trade the token on reputable crypto-asset exchanges.
• Promises of high or guaranteed profits.
• Aggressive marketing tied to rewards for bringing in new investors (e.g., MLM).

If you suspect fraud, contact the Slovak Police (Polícia SR).

Last updated on 25 Mar 2025