How do scammers use the cryptocurrency MemeCoin to commit fraud?
A few days ago (on August 21), we briefly introduced some information about Pumpfun and SunPump, and outlined 6 precautions to avoid participating in Rug Pull projects.
Pumpfun is a MemeCoin creation and trading platform based on Solana, where anyone can easily create (without any coding background) and trade MemeCoins with just a few clicks. The platform first appeared in January 2024 and quickly gained a lot of attention.
Due to the popularity of MemeCoins, PumpFun has directly generated nearly $6.3 million in revenue in just the past 7 days, surpassing the revenue levels of established projects like Aave (which generated $4.79 million in the past week) and MakerDAO (which generated $3.28 million in the past week) during the same period. As shown in the figure below.
From the current development data, Pumpfun seems to have become a leading MemeCoin launch platform, and many people use the platform for speculation, hoping to find more opportunities for hundredfold or even thousandfold returns. The number of active users on the platform has generally remained above 40,000 daily. As shown in the figure below.
However, from the actual data on MemeCoin creation, only 1.4% of all tokens launched on PumpFun (as of the time of writing, there have been 1,876,053 MemeCoins deployed on the platform) have exceeded a market cap of about $60,000 and successfully listed on Raydium (a DEX platform on Solana). As shown in the figure below.
In previous articles, we also mentioned that in the MemeCoin space, at least 80% of traders are losing money, and on launch platforms like PumpFun, most MemeCoins typically face the issue of Rug Pull.
As the saying goes, "where there is a way, there is a devil." Some scammers have seen opportunities here, and they continuously improve their project schemes, even managing to deceive some seasoned investors and professional traders. In the previous article (August 21), we mainly outlined some precautions from the user's perspective and also mentioned Hard Pull and Soft Pull. Hard Pull is easy to understand, so in this issue, we will continue to provide an extended supplement from the scammers' perspective to see how they use MemeCoins for Soft Pull scams to deceive more people:
1. Conducting Disguised Transactions
Typically, scammers will use platforms like PumpFun to create MemeCoins, then manipulate the price to successfully list them on Raydium, and continue to drive the price up to attract more unsuspecting investors.
At this point, it is difficult for ordinary users to detect the problem because the creator's (token deployer's) wallet address will be brand new. To avoid these addresses being associated with other wallet addresses, they will directly send and receive funds through centralized exchanges (CEX) or mixers.
For example, scammers may create dozens or even hundreds of wallets for trading, and to avoid being tracked and to prevent these wallets from being associated with each other, they will use protocols like Elusiv (a privacy protocol that has launched a token exchange feature on Solana, using encryption algorithms and anonymization techniques to make it impossible to trace the true identity and amount of the transaction participants) to handle funds. As a result, ordinary users find it hard to detect the connections between these wallets, as they appear to be genuine buyer/seller wallets on PumpFun.
Moreover, after the series of operations mentioned above, it is also difficult for us to use tools like Bubblemaps (a tool specifically designed to check the direct association between wallets) to identify issues, because you cannot detect the direct associations of those wallets, but in reality, many wallet addresses may belong to the same person (for example, the project creator), allowing the creator to control a large supply of tokens and better manipulate the token's price.
2. Conducting Price Speculation
Next, scammers will continue to create new trading volumes and rapidly increase the price of the MemeCoin. When the market cap of the corresponding token reaches a certain level, they will also use social media (for example, paying some so-called influencers to promote it) or leverage some communities to hype it up, thereby expanding the token's influence and reach, creating FOMO among more investors.
However, this is not yet the time to cash out; during this period, they will continue to manipulate the trading volume of the token to control the price and place the corresponding token in prominent positions on trading platforms, such as the Trending section in DEX Screener, with the aim of rapidly expanding the coverage and attention of this MemeCoin.
3. Rug Pull
When the corresponding pool accumulates enough liquidity to withdraw far beyond the investment in promotion (such as the fees paid to influencers) and the funds from fake transactions, and when the price of the corresponding MemeCoin has reached the scammers' target, what we call a Soft Pull may occur. The scammers will concentrate all the supply in their wallets (N wallets) to sell off and choose to run away with the money.
Throughout this entire process, the only ones who might actually make money are perhaps three types of people: the creators themselves (i.e., the scammers with N wallets), those influencers who were paid to promote the project, and the early investors who managed to profit and exit just before the Soft Pull occurred.
MemeCoin is a very good speculative field; it seems that every day someone becomes a millionaire by participating in MemeCoins, but every day even more people lose everything because of MemeCoins!
So, how can we avoid such problems?
First, we recommend reviewing our previous article (August 21), which has already outlined 6 precautions to avoid participating in Rug Pull projects.
Secondly, here are a few additional small suggestions:
1. Conduct Some Necessary Research
Regarding participation strategies for MemeCoins, we have also outlined quite a bit in our published e-books "Advancing Blockchain Thinking" and "Blockchain Methodology," as shown in the figure below.
Although conducting research does not guarantee that you will easily buy hundredfold or thousandfold coins and become rich overnight, it is certainly better than blindly following what others say and buying whatever they recommend. In a trading market, only after thoroughly investigating and assessing the market/project situation can you operate with more confidence and avoid falling directly into FOMO.
This market has never lacked opportunities; what is often lacking is effective thinking and patience.
2. Improve Trading Through Practical Experience
Do not attempt to change your life completely with a single trade, nor should you casually try to copy those stories of overnight wealth. If you can establish your own methodology, then the rest is just a matter of time, as new opportunities will always arise.
If you, as a trader, genuinely want to participate in a field like MemeCoins, the best approach is certainly to learn from others' summarized methods/strategies through communities, platforms, or books while also participating in actual trading to accumulate experience.
The former can help you quickly establish a basic understanding and knowledge system, such as learning about various practical tools, common indicators, and relevant operational ideas (like tracking Smart Money). The latter can help you gradually build your own methodology system, of course, this building process needs to combine the accumulation from the former and requires continuous summarization, recording, reflection, and review.
3. Manage Position Allocation and Risk
Based on personal research (DYOR) and methodology (trading strategies/methods), the most important thing is still that saying: opportunities and risks coexist; do not only see opportunities while ignoring risks.
For most people, the most important thing to remember in trading is just two points: one is to preserve your principal, and the other is to avoid what you do not understand.
Especially in the case of MemeCoins, it is advisable to only use a small portion of your position (no more than 10%) to participate. If you cannot mentally prepare yourself to potentially lose all your funds at any time, then you should not engage in any MemeCoin trading.
At the end of the article, let's briefly review some noteworthy information from the past few days:
On August 25, Hezbollah announced that it had begun large-scale attacks on Israel, having launched over 320 rockets at Israeli military targets. Israeli Defense Minister Gallant announced that the country had entered a state of emergency for the next 48 hours, and reports suggest that Israel has begun counterattacks, with the Israeli Defense Forces deploying over 100 fighter jets to strike Hezbollah's rocket launch sites, and directly destroying a historic mosque in Khan Younis, Gaza. There are also rumors that the U.S. has sent two aircraft carriers to the Middle East, and Russia has also deployed considerable equipment to the region.
It can only be said that the world still feels somewhat chaotic, and the situation in the Middle East brings new uncertainties to the market.
On August 25, the latest documents in the FTX bankruptcy case show that U.S. trustees and some creditors have raised objections to FTX's revised restructuring plan. A hearing is scheduled for October 7 (Beijing time), and these objections could significantly impact FTX's restructuring process.
On August 24, Pavel Durov, the founder and CEO of Telegram, was arrested by the GTA (Air Transport Gendarmerie) at Bourget Airport in the suburbs of Paris. Following this news, TON saw a drop of over 20%.
If you still have confidence in TON's development, then buying on the dip during this drop is also a good choice (control risk, buy in batches, and avoid going all in). As long as Durov can come out later (the manipulation behind this incident is likely still by the U.S., and according to U.S. operational habits, this big shot will probably need to pay a hefty bail to be released), then TON's price will naturally rebound, of course, this premise is based on the overall market still being favorable.
On August 24, AI concept coins collectively surged, and the AI sector has shown strong performance over the past week, with many coins rising over 20%. This may be related to NVIDIA's upcoming Q2 fiscal year 2025 earnings report on August 28. Goldman Sachs expects NVIDIA's Q2 revenue and earnings per share to exceed expectations.
On August 24, according to monitoring data from Lookonchain, the Ethereum Foundation (EF) address deposited 35,000 ETH into Kraken, worth $94.07 million, indicating that the Ethereum Foundation is selling ETH again!
As of now, the Ethereum Foundation holds a total of $845 million in ETH, accounting for 0.25% of the total ETH supply. However, the Ethereum Foundation's expenditures currently seem to be opaque; the most complete expenditure report available is from 2021, which showed total expenditures of $48 million, of which $21 million was for L1 development, $9.7 million for community development (including grants and education), and $5.1 million for internal operations (salaries, legal fees, etc.). However, subsequent expenditures have been difficult to track in detail; for example, the Ethereum Foundation spent $30 million in Q4 2023, but the specific allocations have not been fully disclosed.
On August 23, Tron founder Justin Sun withdrew nearly $750 million worth of Bitcoin supporting the USDD stablecoin, raising concerns about the decentralization of USDD. The circulating USDD tokens are valued at approximately $744 million, making it the seventh-largest stablecoin by market cap.
On August 23, it was reported that China extradited a suspect (Zhang) involved in a $14 billion cryptocurrency Ponzi scheme from Thailand. Zhang led a scam called the "MBI Group" since 2012, enticing investors to pay fees ranging from 700 yuan ($98) to 245,000 yuan ($34,300) for membership, ultimately deceiving over 10 million members with promises of high returns, involving funds exceeding 100 billion yuan ($14 billion).
On August 23, Zora posted an image on its official Twitter with the caption "the time is now." Is an airdrop coming?
On August 23, Federal Reserve Chairman Powell sent the strongest signal yet for a rate cut, stating that the "time has come" for the Fed to lower rates, and that the pace of monetary tightening in the coming months will depend on the balance of risks in the U.S. economy.
On August 23, according to WatcherGuru, Russia will launch two cryptocurrency exchanges and stablecoins linked to the yuan and BRICS currencies.
On August 22, Grayscale announced the launch of the AVAX Trust Fund through its official Twitter, aimed at providing investment opportunities in AVAX for qualified investors.
On August 22, it was reported that Coinbase has added the Polygon Ecosystem Token (POL) to its listing roadmap and is increasing support for POL tokens on the Polygon and Ethereum networks. The mainnet upgrade for Polygon is scheduled for September 4, and after community approval, its native token will be converted from MATIC to POL.
On August 22, according to information from the U.S. Bureau of Prisons, Binance founder Changpeng Zhao (CZ) is expected to be released on September 29. CZ seems to have been transferred this week from a minimum-security prison in Southern California to the RRM Long Beach residential project to prepare for reintegration into society, but he remains under U.S. government supervision and cannot move freely.
This concludes our current content; more articles can be viewed on the Huali Huawai homepage.
Disclaimer: The above content is merely personal opinions and analyses, intended for learning and communication purposes only, and does not constitute any investment advice. The cryptocurrency field is a highly risky market, and many projects carry the risk of going to zero at any time; please view it rationally and take responsibility for yourself.
