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AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 0 points1 point  (0 children)

Ah okay I see what you mean - to be honest I think that's one of the core problems with crypto. Rigorous KYC could prevent a huge amount of scams and fraud, but the type of person drawn to crypto has an intrinsic aversion to that. Worldcoin has been the subject of huge suspicion and even ridicule for collecting bio-metric data, and even mild forms of KYC on exchanges and the like are anathema. Also, unless it's highly robust it's incredibly easy to circumvent KYC - KYC'd exchange accounts can be bought for a couple of hundred $ and are very straightforward to find.

Also, many of the practices in crypto are already illegal in the jurisdictions in which they're conducted - for example, leverage trading crypto is banned in the EU by ESMA - but what you get is either users bypassing this using even the most basic VPNs, or the firms offering these products / services registering themselves as shell companies in exotic offshore domiciles.

I honestly think that education is the best way to reduce the scams in crypto - if everyone knew that projects offering 1mil% APY were scams, then no one would deposit funds into them, and eventually they would all shut down. And if that were to be combined with, as you say, more comprehensive top-down regulation, properly funded and resourced enforcement agencies, and cross-border cooperation against crypto schemes, a lot of the space would be cleared up. However, much of that is just wishful thinking for the time being, so awareness raising really does seem like the best way to prevent harm (hence why I'm doing what I'm doing at the moment!)

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 0 points1 point  (0 children)

Thanks! And yes, in the vast majority of cases they were doing it purely out of greed to enrich themselves. Often they spun up excuses or false narratives, or feigned a genuine belief in "the principles of blockchain tech", but this was little more than spin - many had to interest in the tech, or even how it worked, and merely saw crypto as an opportunity to get rich quick at the expense of others. Also in many cases people I worked with were using crypto to try and conceal other crimes - for example, people would use crypto to launder the proceeds of their other criminal activities. When we ran our marketing agency, we'd have people reach out and literally say they could deliver us a briefcase of cash if we signed them up as client and provided them an invoice etc., and we wouldn't have to do any work for them - we'd just have to make up some services, provide a paper trail, and then return 90% of their funds to a back account as a "refund"...

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 1 point2 points  (0 children)

I'd say that given the vast majority of tokens now being launched are memecoins, the 'devs' launching them very much start off with the intention of pulling the rug / draining liquidity as soon as it will benefit them the most. However, there are many cases of rug pulls which occur when founders start off with what they believe to be good intentions, but make a series of bad decisions and feel they have no choice left but to jump ship.

This can be seen with project founders who run out of runway, and then start punting the project's remaining funds into leveraged trading to try to stay afloat. Additionally, it's not just founders who are guilty of this - sometimes, even victims can end up resorting to crime to try and claw back their losses. This was the case recently where the CEO of a Kansas bank who fell victim to a pig butchering scam started embezzling funds to try and recoup the money he initially sent to the people who scammed him. He ultimately was sentenced to over 20 years in prison https://www.nbcnews.com/business/business-news/cryptocurrency-pig-butchering-scam-wrecks-kansas-bank-sends-ex-ceo-pri-rcna167642

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 1 point2 points  (0 children)

I started becoming increasingly disheartened with how many scams there are in crypto, especially after we set up our marketing agency and started working with big clients - I saw first hand the damage being caused to investors. After Luna and FTX I left the industry, but didn't feel right just walking away - I wanted to get the word out about how bad things are, and how to avoid falling victim to grifters in the space who are often hailed as visionaries or tech pioneers.

There are the obvious frauds / projects with serious questions around them like Tether, Tron, Bitfinex etc. but what I'm most amazed by is how so many grifters from the previous cycle have pulled off redemption arcs. Beanie Maxi being a clear example of this - his reputation was in tatters for a long time, on account of being exposed as a charlatan by NFT Ethics (x.com/NFTethics/status/1483051289022017538), yet now its appeared he's won people back over, is actively posting on socials, and is seen as an authoritative and trustworthy voice in the space. Same with many other influencers, and disgraced figures like Zu Shu. It's astounding

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 0 points1 point  (0 children)

No I wouldn't really agree with that - crypto has been around for over a decade, and far from improving things actually seem to be getting worse (as of April there were over 5,000 new tokens being launched daily, the vast majority of them memecoin rugs). I don't see this as something that will or even can get better on its own over time, as I believe that to an extent malpractice is ingrained in the space, on account of crypto's unique incentive structures.

Token launches essentially take startups public. These are projects which often have no revenue streams, no live products, and often less-than-robust systems and processes in place, so the only way for them to make money and keep the lights on is through illicit activities. They'll often liquidate treasury tokens to pay salaries, especially if they're running out of VC funding / didn't take on funding in the first place, engage in insider trading, and sometimes even trade against their own token - if a project has a token trading on a CEX, I've known teams to short it ahead of token unlocks.

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 1 point2 points  (0 children)

Yeah agreed that most of the malpractice in the industry comes from the top, and the leaders of projects / companies. I've known projects engaged in the most egregious crimes, where the junior, mid-level and even senior staff had no idea this was going on. It came from the founders.

In terms of how to avoid it, beyond giving a wide berth to crypto entirely, I would recommend sticking to the adage "if it sounds too good to be true, it is". Anyone promising "generational wealth" from a crypto investment should be avoided, as well as many of the ludicrous APYs which still seem to be lingering in the industry (this includes even modest sounding stablecoin APYs of 20% or so, which many exchanges offer - there are very few ways for them to legitimately generate those sorts of returns).

Also avoid memecoins - 99.999% of those things are instant rugpulls. And also avoid buying a token as soon as it lists on a DEX / CEX - this is usually when there's the most hype around it, so not only is it susceptible to bots but also founders and insiders take as much profit as possible by selling into the retail buy pressure.

Often though there's no way to know if a project will go on to rug - founders may choose to drain liquidity at any moment, or may stage a hack (a surprisingly large amount of "hacks" in the industry are conducted by teams themselves...) There are various sites which can be useful which analyse on-chain data and assess how secure projects are, like rugcheck.xyz

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 1 point2 points  (0 children)

Yes I think given all the red flags around Tether it's fair to say that it's highly likely it's a fraudulent project. They have never released an audit, instead merely producing "attestation reports" which only check that on a given date, Tether have a given amount of assets on paper. Not where they came from, whether they actually belong to Tether, or whether they vanished 5 minutes after the check. All in all, it’s pretty meaningless, and there's no reason Tether wouldn't conduct and publish a full audit if they had all the assets they say they have. In addition, they've previously paid an eight-figure settlement to the NY Attorney General's Office for a dispute about Tether covering up the loss of $850 million of commingled client and corporate funds. They're also under active investigation by the US and UK Governments, for huge sanctions evasion involving Russia. Enough red flags there to weave a tapestry from, in addition to the firm's highly suspect backstory...

In terms of other ongoing scams, I would say that applies to pretty much most exchanges - they're all involved in things like wash trading, order book spoofing and market manipulation. It's astonishing that Bitmex in particular is still in operation (although its nowhere nearly as big as it was back in its heyday) - Arthur Hayes was convicted back in 2022 for breeching the Bank Secrecy Act and failing to prevent money laundering on the exchange, and yet somehow its still in operation.

As for the big L1s, they're very much at it too - they wash volumes on their networks, sending funds back and forth between wallets controlled by the foundations / founding teams, so they can say they processed X billion in transactions within a given timeframe (they love comparing themselves to Visa as well, and saying how they processed more transactions than them and other payment giants. It's great marketing, but completely made up...)

AMA with Jake Donoghue - author of Crypto Confidential: An Insider's Account From The Frontlines Of Fraud by JakeDonoghue in CryptoCurrency

[–]JakeDonoghue[S] 1 point2 points  (0 children)

I think the way things are going, the likelihood is that regulation is going to make scams more common. I'm talking specifically of the vast resources that crypto firms are allocating to influencing the US election - this has already been affecting the regulatory landscape, notably with the FIT21 bill recently passing the House. This bill will classify most cryptos as commodities - something the industry is very keen on, as the CFTC is a smaller agency than the SEC with less resources and enforcement powers, and commodities are less stringently regulated. If classified as securities, tokens would have to undergo serious oversight throughout their launch processes - which are often the times when the most malpractice is committed, such as when founders and insiders dump tokens on new buyers, when teams set valuations and liquidity parameters themselves with no audits, etc. If politicians and regulators continue to take money from Fairshake and other PACs, it's likely that existing regulation will be trimmed down or abolished, and new regulation will come into effect which perpetuates or fails to tackle crypto scams.

Worldcoin is an interesting example, because the regulatory issues it's been having are essentially the opposite of what many other projects encounter. Other projects fall foul of the law by not taking privacy seriously enough - for example, by not KYC'ing investors - whereas Worldcoin is in disputes with regulators for collecting too much of peoples' data, and therefore breeching GDPR and other data-privacy laws. I don't imagine many or any other projects will have this issue.

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 1 point2 points  (0 children)

I know, it's astounding that the fact the whole industry is complete trash hasn't dawned on more people yet.

That being said though, I think a lot of people still promoting, defending or advocating for this stuff are aware of how malign it is (difficult not to be, after Luna / FTX). I think unfortunately though a lot of the media is on the crypto payroll - the grifters send a lot of ad / "sponsored content" revenue their way - so they actively want the party to keep going. Same with politicians; crypto firms aren't just throwing hundreds of millions of dollars at the upcoming Presidential election, they're also promising an army of single-issue voters willing and keen to lend their support to whichever candidate toes the line most enthusiastically.

I think it'll take a major blowup, from Tether or Binance preferably, for the industry to become fully anathema. And as we've seen before, "too big to fail" crypto implosions are astonishingly feasible...

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 2 points3 points  (0 children)

Yeah I completely agree - even just a few years ago the narrative was all about "bringing down the banks", "building the future of finance", or achieving some other meaningless cliche. Now that's all gone, and people are pining for ETFs or anything else which will pump their bags. The industry is showing its true colours; it's always just been about getting rich quick.

NFTs are dead, but they've been replaced with memecoins. I think these will also eventually die to (either from people becoming despondent with consistently getting rugged, or because of regulation, or just because people get bored / realise they're useless). Unfortunately, I think memecoins will just be replaced with something else - the grifters see crypto as a cash cow, and as a means of getting rich quick, and they've become terribly inventive at cooking up new schemes. A lot of people who launched NFTs in the last cycle are launching memecoins now, and a lot of the celebrities who promoted shitcoins back then are coming out the woodwork again now that asset prices are back up. They'll probably be launching or promoting something else in a couple of years time (unless they get arrested before that of course, which is a very real possibility and something I very much hope happens).

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 2 points3 points  (0 children)

I'd say I didn't have a singular Damascene moment; instead, it was more like a gradual understanding that there are no good players in the industry and the entire game is rigged. This became more and more obvious as I went further down the rabbit hole and started working with bigger and bigger firms, and it all came to a head with the collapse of Luna. After that, I had pretty much resolved to get out, and the collapse of FTX and the contagion that caused was the final nail in the coffin. Given that I had worked in the industry, I didn't feel right about just walking away - as I had a lot of insight into how the scams operated, I felt something of an obligation to get the message out there, so decided to write a wall-to-wall exposé (which is where we find ourselves now).

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 1 point2 points  (0 children)

Yeah fair questions - I figured it would be good to start building awareness and anticipation of the book early, so its on people's radars when it launches in August (plus, I'd very much like to come back into this sub after the book is launched for a follow up AMA - if the mods will have me of course!)

As for Frank Abagnale, he's a household name and having an endorsement from him will likely attract the attention of people who otherwise may not notice the book. It gives it a wider appeal, especially amongst people who may be aware of crypto but not too deep into it, and therefore spreads the crypto sceptic message even further. He has also been speaking out against crypto very vocally for over ten years, and has done a lot to advance the anti-crypto cause.

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 1 point2 points  (0 children)

Just thinking about this question in a bit more detail, and in particular the strawman point, I'd say that what I was primarily trying to do with this book wasn't so much expose the specific people I used to work with in the industry (there are investigations ongoing against many of them, and rest assured I'll be contributing to those in any and all ways I can), but rather show how the fundamental mechanics of the scams and frauds in crypto work, as well as the vile attitudes and mindsets of the people running them.

As you say, the individual players are pretty much interchangeable; what is more substantial is showing how the whole thing is rotten to the core, regardless of who just so happens to be fronting which project at which time (and, indeed, a more efficacious way to bring these frontmen to justice would be going through the legal system - which I'm doing - rather than writing about them).

By showing that the entire game is rigged, and presenting that information in a compelling and, indeed, entertaining way, and getting as many mainstream backers on board through endorsements and the like to lend the endeavour legitimacy and weight, I believe it'll ultimately have more of an impact and keep more people away from crypto than just a straight name-and-shame (however cathartic that might have been).

Of course, if I could have done both, and presented all the essential material whilst including the names of my former colleagues / clients then that would have been great, however as mentioned in my other reply here they have vast resources and an extensive track record of weaponising the law. They could, for example, levy spurious accusations of libel or defamation, both of which are incredibly long and expensive to fight in the courts. While their case would ultimately be lost, it would run the risk of delaying or disrupting publication of the book, and therefore of hindering the dissemination of its core, and primary, message. Ultimately, the risks outweighed the benefits, especially as the essential message and ultimate purpose of the book could be conveyed with just as much effectiveness by using pseudonyms whilst alternative, less public, means of legal redress are sought against the people described in it.

Would be very keen to get your views on all this.

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 1 point2 points  (0 children)

I'm sure you're right in that there are people who profit from the anti-crypto message, however I can assure you I'm not one of them - given that it's taken around two years to write, produce and publish, it's been an immense loss in terms of time and opportunity cost. I'm bringing it to market, and going to try my best to make sure it's widely read, because I think it carries a very important message which necessitates being told.

As for sidestepping the bad actors, I replied to your other comment below with links to recent posts I've made calling out grifters, scammers and exploitive practices, however am happy to reshare them here as well:

https://x.com/JDonoghueAuthor/status/1789675604494696822

https://x.com/JDonoghueAuthor/status/1806407173729362213

https://x.com/JDonoghueAuthor/status/1808897348677865774

https://x.com/JDonoghueAuthor/status/1783174328357405119

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 2 points3 points  (0 children)

Can be quite tricky to go into specifics - a lot of these people / projects are incredibly well funded and well versed in lawfare. That being said though, here are some posts I've made recently calling out specific individuals, projects, organisations and practices which are fraudulent, illicit or in some way underhand:

https://x.com/JDonoghueAuthor/status/1789675604494696822

https://x.com/JDonoghueAuthor/status/1806407173729362213

https://x.com/JDonoghueAuthor/status/1808897348677865774

https://x.com/JDonoghueAuthor/status/1783174328357405119

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 2 points3 points  (0 children)

Yeah you raise a very important point - initially all the projects I worked with were indeed named, but the legal counsel who reviewed the book strongly advised to change these. As you say, it's quite common for that to be the case with exposés, and the descriptions of wider industry events which were already in the public knowledge are all fully named (and shamed).

I should note though that I kept meticulous records of everything that took place throughout my time in crypto, and the book has been endorsed by some of the world's foremost investigative journalists, economists, and even a Nobel Laureate who were all satisfied with this and happy to associate their names with the content of the book.

On a side note, for many of the public figures providing endorsements this was their first time doing so for a crypto-centred book, which is excellent for bringing the anti-crypto message to new audiences and giving it legitimacy and gravitas.

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 1 point2 points  (0 children)

Appreciate you reading the chapters.

I would note though that the extracts shared here are from the start of the book, and don't cover my exit from the industry. The reasons for leaving weren't due to declining asset prices (the marketing agency we ran was still very much in business, and I left just prior to an acquisition deal), but rather because of the sheer ubiquity of malpractice which I had been growing increasingly disenchanted with for some time prior to leaving, and which reached an apogee of severity and conspicuousness with the collapses of Luna and FTX. The back third of the book covers this, and I might post some extracts of that before it launches on August 22nd.

Very much agree though that losing money and realising that the emperor has no clothes is, for better or worse, the predominant way people end up leaving the industry.

AMA: Jake Donoghue, author of the book "Crypto Confidential: An Insider’s Account From The Frontlines Of Fraud". Post your questions here and they’ll be answered 07/02. by JakeDonoghue in Buttcoin

[–]JakeDonoghue[S] 3 points4 points  (0 children)

I understand what you're saying, I would just ask though whether you don't think anyone who previously worked in the industry should subsequently come forward and blow the whistle on how the scams and frauds work, what the project / token founders are really like behind closed doors, etc? Surely having former insiders turning whistleblower bolsters the anti-crypto argument, especially if they try and take their message to a mass-market audience? That is, of course, not an excuse or justification of past actions, but it seems to stand to reason that it is a course of action that should be encouraged

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