- Your platform can go from hero to zero overnight if you cut corners on basic stuff like keeping customer money separate or properly vetting the projects you list.
- The old fraud playbook doesn’t work in crypto because transactions can’t be reversed, regulators are still figuring things out, and one smart contract bug can drain millions instantly.
- Scammers shop around for the loosest regulations, then claim they’re totally legal while serving customers everywhere, leaving users screwed when authorities finally catch up with them.
Alright, so your users are getting rekt by scammers, and now you’re fielding angry support tickets all day. Been there.
These nine scams are basically the greatest hits of crypto fraud right now – the ones that’ll flood your platform if you’re not careful. I’m talking about the stuff that makes users blame YOU when they lose money, even though Karen from accounting clicked on an obvious phishing link.
Some of these you can block with basic filters. Others are way more subtle and will slip through unless you know what to look for. The rug pulls, especially those, are nasty because they look legit until suddenly they’re not.
Quick heads up: I’m not gonna tell you exactly how to code around these (that’s what your dev team gets paid for), but I’ll show you the red flags so you can brief your team properly.
State of Cryptocurrency Scams 2025
The crypto scam landscape has gotten way more organized and sophisticated. The numbers keep climbing, but what’s really changed is how professional these operations have become. With over $2.17 billion stolen from cryptocurrency services so far in 2025, we’re seeing both scale and innovation.
- Deepfake impersonations are mainstream – Crypto emerged as the main target sector for deepfake fraud, accounting for 88% of all deepfake cases, with realistic celebrity and executive impersonations becoming standard.
- Romance scams evolving – Revenue from “pig butchering,” a type of romance and investment scam, grew nearly 40% year over year, focusing on longer relationship-building phases.
- AI tooling commercialized – AI service providers, who saw revenue grow by 1,900% year over year on criminal marketplaces, are democratizing advanced scam techniques.
- Social platforms are the primary vector – 39% of investment scam victims in the first quarter of 2025 were contacted via social media, especially messaging apps
What we’re seeing is basically scam-as-a-service going mainstream.
With that said, let’s now discuss the specific types of cryptocurrency fraud and how they work. We will explain each type with mainstream examples.
Types of Cryptocurrency Scams
Understanding these nine documented crypto frauds can help investors and platform owners recognize similar patterns and protect their assets. Each entry includes specific details, key warning signs that preceded the collapse, and more.
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Exchange Fraud and Customer Fund Misappropriation
Exchange fraud happens when platforms use customer deposits for unauthorized trading, lending, or personal expenses instead of keeping them safely segregated. The scam works because customers assume their funds are sitting in cold storage when they’re actually being gambled on high-risk trades or used to cover operational losses. Exchanges present themselves as secure custodians while secretly treating customer money as their personal piggy bank.
The FTX collapse perfectly demonstrates this fraud type. Sam Bankman-Fried positioned himself as crypto’s golden boy, testifying to Congress about responsible regulation, while secretly funneling $8 billion in customer deposits to his trading firm Alameda Research.
The exchange maintained segregated accounts on paper, but in reality, customer funds were being used to cover Alameda’s trading losses and SBF’s personal investments. When Alameda’s risky bets went south, customer money disappeared with them.
| 💡 What operators can actually do
Keep customer funds completely separate from company money, no exceptions. Use proper custody solutions, not your own clever wallet setup. Publish monthly proof of reserves with third-party verification. Traditional brokerages figured this out decades ago – there’s no reason crypto should be different. |
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Algorithmic Stablecoin Collapse
Algorithmic stablecoins are basically digital Ponzi schemes disguised as innovation. Instead of backing a dollar-pegged token with actual dollars, they use a burning and minting mechanism between two tokens. When the stablecoin goes above $1, you mint more stablecoins and burn the backing token. Below $1, you do the reverse. Sounds clever until you realize it creates a death spiral when confidence breaks.
Terra Luna was the poster child for this stupidity. UST was supposed to stay at $1 through its relationship with LUNA tokens, but when people started panic selling, the system had to mint insane amounts of LUNA to defend the peg. LUNA crashed from $80 to basically zero in days while Do Kwon kept tweeting about how critics were “poor.”
| 💡 What operators can actually do
Don’t list algorithmic stablecoins, period. If something promises 20% yields on a “stable” asset, it’s not stable. Stick to boring stablecoins backed by actual assets with real audits. |
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Crypto Lending Platform Fraud
These platforms promise bank-level safety with crypto returns, which is like promising to be pregnant and not pregnant at the same time. They take customer money, promise 8-12% returns, then gamble it on risky DeFi protocols or outright speculation. When their bets go wrong, customer funds disappear.
Celsius was the king of this scam. Alex Mashinsky literally went on stage telling people exchanges were risky while secretly using customer funds for increasingly desperate trades. He dumped millions of his own CEL tokens while telling customers to buy more. The platform used fancy banking language to sound legitimate while operating like a casino.
| 💡 What operators can actually do
Demand to see exactly how lending platforms generate yields. If they can’t explain it simply, they’re probably lying. Check if executives are selling their own tokens while pumping to customers. Don’t partner with platforms that won’t show audited financials. |
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DeFi Protocol Rug Pulls
Rug pulls work by building fake protocols that look legitimate, offering crazy yields, then vanishing with everyone’s money. The teams are always anonymous, the tokenomics never make sense, but people invest anyway because “this time it’s different.”
If you remember Iron Finance, apparently, they had every red flag possible – anonymous team, ridiculous yields, circular token mechanics – but people bought in because it had smart contracts and used DeFi buzzwords. When TITAN went from $60 to worthless overnight, the team just disappeared. Even Mark Cuban got wrecked and started crying for regulation.
| 💡 What operators can actually do
Require real names and addresses for project teams. No anonymous teams, ever. If they won’t show their faces, they’re planning an exit. Set yield limits – anything over 15% should trigger a full investigation. |
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Cross-Chain Bridge Exploits
Bridges are supposed to let you move crypto between different blockchains, but they’re basically giant honeypots waiting to be drained. They work by locking tokens on one chain and minting copies on another, using complex smart contracts that always seem to have bugs in exactly the wrong places.
Wormhole got hit for $325 million when someone figured out how to mint free Ethereum tokens by exploiting the verification system. The crazy part is that technically they were just following the smart contract code – if the code says you can mint unlimited tokens, that’s what you can do.
| 💡 What operators can actually do
Only use bridges that have been running for years without major hacks. Require insurance for any bridge integration. Set up monitoring for weird cross-chain activity. When in doubt, don’t integrate the bridge. |
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Market Manipulation and Wash Trading
Wash trading is buying and selling to yourself to fake volume and manipulate prices. In crypto, this is basically standard practice. Exchanges do it to climb rankings, projects do it to look popular, market makers do it before dumping on retail. Most of the volume you see on CoinMarketCap is completely fake.
Binance got fined $4.3 billion for facilitating money laundering and manipulation on an industrial scale. They were processing trades for terrorists and drug cartels while creating fake volume to pump their own rankings. And that’s just what they got caught doing.
| 💡 What operators can actually do
Build real surveillance systems that catch wash trading patterns. Don’t just rely on volume metrics – they’re mostly fake. Monitor for coordinated trading across multiple accounts. Actually investigate suspicious activity instead of ignoring it. |
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Insider Trading and Information Asymmetry
Crypto insider trading is everywhere because there are basically no rules. Exchange employees know about listings weeks early, project teams know about partnerships before announcements, VCs get early access then pump their bags through media connections. It’s a constant flow of information that advantages insiders over everyone else.
The OpenSea case was small-time – an employee buying NFTs before homepage features. The real action is exchange employees trading on listing info, influencers dumping before their promotion posts, and VCs coordinating pump campaigns across multiple projects.
| 💡 What operators can actually do
Ban employees from trading entirely during blackout periods. Monitor all employee wallets for suspicious activity. Create actual policies with real enforcement. Use time delays between internal decisions and public announcements. |
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Smart Contract Exploits and Flash Loan Attacks
Flash loans let you borrow millions instantly as long as you pay it back in the same transaction. Attackers use this to manipulate markets, drain protocols, and extract millions with zero risk. If the attack fails, the whole transaction reverts, so there’s no downside.
Mango Markets got drained for $117 million when someone used flash loans to manipulate price oracles, making their tokens look super valuable, then borrowing against the fake collateral. The whole thing happened in one transaction and was technically “legal” according to the smart contract code.
| 💡 What operators can actually do
Add time delays to large transactions so flash loan attacks can’t happen instantly. Use multiple price oracles so one can’t be easily manipulated. Set conservative borrowing limits that account for price manipulation. Test everything extensively before going live. |
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Regulatory Arbitrage and Jurisdiction Shopping
Platforms incorporate in crypto-friendly countries while serving customers everywhere, especially in places with strict regulations. They claim they can’t control who uses their platform while actively marketing to restricted areas. Works great until regulators decide to make an example of them.
BitMEX thought they were smart operating from Seychelles while processing billions from US customers. They claimed they couldn’t control who signed up while literally advertising to Americans. Arthur Hayes ended up surrendering to US authorities anyway, proving that hiding offshore doesn’t work forever.
| 💡 What operators can actually do
Get proper licenses in major markets from day one. Don’t try to be clever with jurisdiction shopping – it always backfires eventually. If you’re serving customers somewhere, follow their rules. Offshore incorporation won’t save you when the feds come knocking. |
What’s in Your Control?
Most crypto fraud happens because platforms take shortcuts on basic security that banks have been doing forever.
The irony is that preventing these scams is just boring operational work that nobody wants to do because it’s not as exciting as building the next DeFi protocol.
- Don’t Touch Customer Money – Keep customer crypto assets completely separate from everything else. Not mostly separate, or we have controls – completely separate. Use proper custody solutions, not your own wallet infrastructure, which you think is clever.
- Get Real KYC/AML – Deploy actual KYC that works against crypto fraud (like Signzy). Screen against real sanctions lists. File SARs when required. The regulators are coming whether you like it or not.
- Audit Everything – Smart contracts, financials, security – audit it all. Publish the results so users can actually verify your claims.
- Stop the Insider Trading – Your team can’t trade your token. Period. Set up monitoring, create policies, and actually enforce them. The feds are already tracking wallet addresses and connecting them to real identities.
- Be Boring with Operations – Multi-sig wallets with time delays. Proof of reserves every month. Clear terms of service that actually explain the risks of holding crypto assets on your platform.
While what I just said can sound a bit of a hassle, the reality is that compliance tech has gotten way better recently. You can automate most KYC or KYB verification and manage document verification without building everything from scratch.
Book a demo here to know more about how exactly APIs can help your crypto business.
FAQs
How can I tell if a crypto exchange is legitimate before depositing funds?
Check for proper licensing, published proof of reserves, third-party audits, and clear fund segregation policies. Avoid exchanges that refuse to disclose their regulatory status or custody arrangements.
What's the difference between a rug pull and a legitimate project failure?
Rug pulls involve deliberate fraud with anonymous teams and locked liquidity extraction. Legitimate failures have identified teams, transparent communication, and attempts to return remaining funds to investors.
Are algorithmic stablecoins always scams or just risky investments?
They’re not necessarily scams, but extremely risky due to death spiral mechanics. Most lack real asset backing and rely on complex token economics that can collapse rapidly.
How do flash loan attacks work, and can retail investors perform them?
Flash loans allow borrowing millions instantly within one transaction to manipulate prices and extract profits. They require advanced technical knowledge and significant gas fees, making them impractical for most retail investors.
