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VCs and investors are giving billions to crypto founders, sometimes without any idea of who they actually are

March 2, 2022, 6:32 PM UTC

From its inception, the crypto industry has been built on the double-edged sword of anonymity. 

While that has advantages, like opening up the world of finance to people who would not otherwise be involved, a world filled with anonymous actors working under pseudonyms also has major drawbacks: Investors in this $2.02 trillion industry may not really know whom they’re giving money to. And that can leave them vulnerable to crime. 

For months, cryptocurrency investors poured hundreds of millions of dollars into a project called Wonderland, allegedly a decentralized finance system of exchange, and handed over their funds to Wonderland’s treasury manager, an anonymous crypto developer known as 0xSifu, the New York Times reported. But in late January, 0xSifu was revealed to be an alias for Michael Patryn, a cofounder of the failed Canadian crypto exchange QuadrigaCX, who had served 18 months in federal prison for fraud

Following the controversial reveal, the price of the Wonderland token, $TIME, fell at least 90% in January, landing at under $300 in February of this year. The current price of Wonderland is $282.59, which is over 96% lower than the all-time high of $9,789.33, according to CoinMarketCap.

Incidents in which investors are scammed by fraudulent coins and crypto developers are on the rise, only made easier with anonymous users. 

For example, crypto investors lost over $2.8 billion to “rug pulls,” a relatively new type of crypto scam, in 2021, according to a report by Chainalysis. Rug pulls are long-term exit scams in which developers of a seemingly legitimate cryptocurrency project—usually a new token—abandon it abruptly and take the majority of the token’s liquidity pool with them. In other words, investors purchase the scam projects’ tokens and create large liquidity pools that can amount to tens of millions or even hundreds of millions of dollars, and then the fraudulent crypto developer runs away with investors’ funds

And if an entrepreneur takes steps to keep their identities private, there’s no one to hold accountable. It is up to consumers to do their due diligence and thoroughly investigate new crypto projects before they invest, to prevent themselves from being “rugged” or having the wool pulled over their eyes. 

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