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BY Risen Jayaseelan - September 29, 2018

Miscellaneous 0

China’s 1000 funds and ICO scams

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There are up to 1,000 so called ‘crypto funds’ in China and most of these were funded by early  investors in Ethereum and Bitcoin.

These investors used their gains to create these funds, which in turn, are then poured into the private and pre-sales of multiple projects.

These projects were then listed on friendly exchanges.  

Since these funds got into the projects early at heavily discounted prices, they were able to dump just about all their tokens into the market, post listing.

This is an often-cited theory that explains the pump and dump phenomena that had hit the crypto market.

Parts of this theory were endorsed by Silicon Valley-based venture capitalist Dovey Wan at a panel discussion at last week’s Consensus Singapore.

Dovey Wan: Every aspect of a project can be fabricated

The panel was titled “Are they all scams? Unpacking the resistance towards Asian crypto projects.”

Wan, the former managing director of Danhua Capital, says that the number of crypto funds in China is anywhere between 500 to 1,000.

“These investors poured the money back into shitcoins and that explains all the hype last year.”

Wan went on to disclose what can be described as the anatomy of the current day ICO scam.

“The whole value chain of scam projects is insanely interesting and it’s also being done on a massive scale. Every aspect of a project can be fabricated,” she said.

“You can hire a Caucasian guy to lend his name and face to be CEO. All the IT can be outsourced,” she explained.

According to Wan, there are specialist service providers who provide these services.

These specialists in turn hire computer science undergrads from countries like India, who write up weekly updates. These updates, in turn, can be done in advance for up to three years and so the project owners are able to release them over time.

“So weekly updates can be published without writing any code at all,” Wan said.

During the panel, moderator Pete Rizzo, the editor-in-chief of CoinDesk said that they had done a survey in which the majority of respondents said that there were more likely to be sceptical of projects that emanated from China and Asia than say from the Silicon Valley.

Wan’s response though was that “scammers are all over and this is an issue common to the entire crypto world.”

“For example, there is a bias against Russian projects. Founders are either seen as math geniuses or working for the mafia,” she enthused.

Wan went on to explain that the reason why China and Asian projects are perceived as scammy is due to their easy links with exchanges.

“Most of the altcoin exchanges are in Asia. And relationships really work in Asia. So a project owner here with the right connections can get their coins listed quickly. This in turn enables irresponsible project owners to participate in pump and dump schemes and other dubious capital market type activity.”

Here are some statistics on ICO scams:

  • 80% of all ICOs in 2017 were scams, according to the Satis Group
  • 10 of the biggest ICO scams swindled a total of USD 687.4mil, according to FortuneJack
  • 70% of ICOs are trading below their initial offer price, according to Diar

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