Anti-dumping Policy in Crypto: A Complete Explanation. Protecting cryptocurrency investors from “pump-and-dump” schemes is the goal of anti-dumping policies. Project developers, communities, or exchanges may implement an “anti-dumping policy” to curb financial fraud, in which con artists sell their cryptocurrency at inflated prices to cash out for a tidy profit. The price then plummets, causing other investors to lose much money. This scam is meant to be defeated by anti-dumping policies.
Governments often implement anti-dumping policies to safeguard home sectors from the effects of foreign imports. However, in the crypto context, anti-dumping takes on a different meaning. To avoid economic collapse, the government would put protective tariffs on foreign goods and services to level the playing field for American manufacturers.
What is a Pump-and-Dump Scheme in Crypto?
A pump-and-dump strategy aims to make a quick profit at the expense of unsuspecting investors by artificially inflating the price of a cryptocurrency token. Fraudsters spread false information about the token to artificially inflate prices and coordinate purchases.
An uninformed investor buys the asset at a discount to generate a profit later on. Scammers then sell their holdings at exorbitant prices, causing a steep decline. Other investors who put their money into the asset because of the false hype end up losing it all, while the criminals pocket a tidy profit.
The relatively unregulated Bitcoin business is exploited by the masterminds behind pump-and-dump operations. Before taking advantage of the inflated value of a scam token, they cause other investors to lose their capital and, in many cases, their trust in the cryptocurrency ecosystem.
How Does Anti-dumping Policy Work?
Crypto’s anti-dumping mechanisms safeguard investors by instituting a vesting period, imposing sanctions for massive token dumping, or both. To prevent the “dumping” of tokens, anti-dumping policies restrict the purchase or sale of large numbers of tokens at once, cap the total supply of tokens, implement value limitations, and set daily or price caps. Fraudulent investors often dump when they purchase a considerable quantity of tokens to artificially inflate their prices, which they then sell for a significant profit. This is how anti-dumping policies function:
Buying and selling limitations
Projects often implement strategic controls to keep token stability and prevent market dumping in the dynamic cryptocurrency space. The intelligent contract includes limitations on purchasing and selling, for example. Lessening the risks caused by price fluctuation, these strategies are vital for long-term sustainability and investor trust.
To alter the fee market mechanism, Ethereum implemented EIP-1559. This change involves burning a percentage of transaction fees, which can reduce the overall supply over time. As a result, the value of Ethereum could increase, and the motivation to dump could decrease.
Node operators are less likely to dump their Chainlink (LINK) tokens since the network rewards them for participating, and they have the incentive to hold on to them, so they may keep receiving future benefits. A predefined inflation schedule sets a portion of Solana’s inflation aside for staking rewards. Consequently, holders are incentivized to stake their tokens, which reduces the amount of liquid assets on the market and discourages dumping.
Token vesting
Token vesting is releasing newly issued or acquired tokens after a set period. It is common practice for tokens awarded to a project’s founders and early backers to vest over time. With this method, the market won’t be inundated with coins, and the creators won’t be able to profit fast and leave their enterprises. Investors need to think about when a project will vest.
How can Investors Avoid Pump-and-dump Schemes?
When choosing initiatives, investors should be upfront about their processes and look for projects that generate value. Initiatives that guarantee rapid financial gain should be avoided. In most situations, getting away from danger is the best action. Cryptocurrency investors should exercise caution, do homework, and avoid dubious projects.
Keep a vigilant oversight
Investors should exercise caution and be aware of the danger of dumping before investing in any enterprise. To identify red flags, investors should look into the project’s founders and their backgrounds, analyzing any pertinent paperwork.
There were clear indications of fraud in the Squid token pump-and-dump scheme. Token value plummeted in minutes from $90 to $0.00079. The investigation revealed that the token’s authors were anonymous and nonexistent. There were numerous misspellings on the project’s website and associated documents, including the white paper and supplemental materials.
The red flags pointed to fraud, and the victims might still be alive today if the investors had exercised more caution. A pump may be on the way, according to some online communities. Participating in these communities and being aware of the red flags might assist you in avoiding falling victim to this type of fraud.
Ensure the project is audited
Thoroughly auditing intelligent contracts helps to prevent code vulnerabilities. An adequate auditing process demonstrates a project’s dedication to safety and security measures. Owners whose objectives are dishonest may knowingly allow weaknesses that can be exploited in the future.
A trustworthy auditor ensures that anti-dumping measures are implemented through smart contracts. The con artists may still have not carried on their promises. If a project’s source code is available, anyone can examine it and learn how it operates. The investor could seek the assistance of an auditor if they do not possess the necessary technical knowledge.
Refrain from diving into FOMO
The “fear of missing out,” or FOMO, is a legitimate concern in the bitcoin sector. Many investors feel compelled to cash in on the rising value of digital assets. When people act in this way, it causes prices to spike and then plummet. Consider how the price of Bitcoin surged beyond $70,000 not long ago, propelled by news of the impending Bitcoin halving and the approval of spot Bitcoin exchange-traded funds.
Some investors may succumb to fear of missing out (FOMO), purchase Bitcoin (BTC) at its high, and then lose money as the price falls. Those looking to make a significant investment should stay away from obscure coins. The amount people put into an investment shouldn’t exceed what they can comfortably lose.
Consider the Lindy effect
According to the Lindy effect, a non-perishable object, like a piece of technology, has a better chance of lasting longer as it ages. A longer-running initiative or technological advancement has a better shot of being around for the long haul and continuing to be helpful. Investors may use the Lindy effect to gauge the sustainability and prospective return on investment of blockchain and cryptocurrency initiatives. Blockchain projects with a track record of longevity are more likely to continue running and making money.
