Financial fraud with Liquidity Mining – Sophos describes the current scam in the crypto hype, Sophos Technology GmbH, press release

“The mechanics of liquidity mining, in its legitimate form, provide the perfect cover for what is fundamentally old-fashioned fraud, rethought for the cryptocurrency age.” Sean Gallagher, senior threat researcher, Sophos

Sophos launches today’s article, “Liquidity Mining Scams Add Another Layer to Cryptocurrency Crime,” in a series highlighting how fraudsters exploit the hype surrounding cryptocurrency trading to lure and deceive potential investors.

In the article, Sophos explains how the complexity of cryptocurrencies and decentralized finance (DeFi) – the fundamentals of liquidity mining – create the ideal environment for criminals to hide and carry out their sinister intentions. Potential victims are smartly targeted. Recipients proactively receive direct spam messages on Twitter, What’s App, Telegram and other social networking platforms, and initially chat harmlessly about liquidity extraction. Step by step, the criminals then escalate their perfidious scams.

A single direct message led to several scam groups

By investigating interactions within a single direct message on Twitter, Sophos revealed several floating mining scam groups. “Liquidity mining is a form of investment in cryptocurrency in DeFi that, even when ‘legitimate’, is both questionable and complicated,” explains Sean Gallagher, Senior Threat Researcher at Sophos. “The strategies behind the investment itself are complex and there is no regulation. In addition to the ‘smart contract’ code embedded in the DeFi network’s blockchain – a code that many people cannot easily interpret, even if it is published and missing reliable codes for new investors Information on how these networks work.Despite these risks, Liquidity Mining is the latest cryptocurrency investment craze, but because of these factors, it is also the perfect platform for scammers.Unfortunately, we expect Liquidity Mining “CryptoCrime continues; it has not yet reached the top. Hundreds of millions of dollars are at stake.”

How Liquidity Mining works

Legitimate liquidity mining allows DeFi networks to automatically settle trades in digital currencies such as Ethereum, the preferred cryptocurrency for liquidity mining. Smart contracts integrated in the DeFi network must quickly determine the relative value of the exchanged currencies and execute the trade. Since there is no central pool of cryptocurrencies that these decentralized exchanges (DEX) can deduct to close trades, they rely on crowdsourcing to provide the pool of cryptocurrency capital needed to close a trade – one liquidity pool.

To create the liquidity pool that handles transactions between cryptocurrencies, such as Ethereum and Tether, investors put the same value of both cryptocurrencies into the pool. In return for committing this cryptocurrency to the pool, investors receive compensation based on a percentage of the trading fees associated with the DeFi Protocol.

Investors will also receive liquidity pool tokens (LP tokens) representing their share of the pool. These tokens can be “hedged” or linked to the stock exchange, further tying up the initial contribution and giving the investor dividends in the form of another cryptocurrency associated with the DeFi project. The value of these reward tokens can vary widely.

The scam is old

“The mechanics of liquidity mining, in their legitimate form, provide the perfect cover for what is fundamentally old-fashioned fraud, rethought for the cryptocurrency age,” says Sean Gallagher[1] the illusion that they can withdraw their money at any time and even allow them to make early withdrawals. However, the fraudulent gangs are constantly pushing the targets to keep investing and ‘investing big’ by hiding the real operations with fake applications, fake earnings reports and promises of lucrative payouts. In fact, the scammers have taken control of their target cryptocurrency wallets and withdraw the currency whenever they want. “Gradually, scammers are emptying their wallets, while continuing to reassure targets that everything is in order before finally interrupting communication.”

Sophos does not expect that despite the recent cryptocurrency crash (as of May 13) and current volatility, overall liquidity recovery will be hampered as Tether returns to near par and other cryptocurrencies recover. “The criminal economy is still driven by cryptocurrency, and there is enough interest in cryptocurrency to keep liquidity mining and similar scams afloat,” Sean Gallagher said.

For more information, see Liquidity Mining Scams Add Another Layer to Cryptocurrency Crime.

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