Fraud is one of the most difficult problems to solve in human history. WEEX Exchange often receives reports from users saying that they have been defrauded by trading platforms impersonating WEEX. Even the editor has heard from friends that there is a special team that is mass-building fraudulent websites impersonating well-known exchanges, specifically targeting novice users who lack experience in digital currency investment.
WEEX Exchange has issued anti-fraud risk warnings many times and created a special page (Cryptocurrency Customer Loss Trading Platform and Counterfeit Fraud Website Tracker), which has collected more than 40 fraudulent websites and customer loss platforms that imitate WEEX Exchange to remind netizens to avoid pitfalls and prevent being deceived. However, new counterfeit fraud platforms are still emerging, and many netizens have been deceived.
Scams are just like cockroaches and mosquitoes, and it is impossible to completely eliminate them. All we can do is keep learning, improve our safety awareness, and accumulate anti-scam knowledge. The following are the four steps introduced by Youtuber "Niang Nan Cat Business School" in his teaching video to distinguish whether a crypto exchange is safe or not, and whether it is a scam platform. WEEX Blog shares the text version (with deleted and modified content) for newcomers in the cryptocurrency circle to learn.
1. Check the rankings on CMC and Coingecko
Whether an exchange is reliable can be confirmed from third-party information websites commonly used by cryptocurrency investors, such as Coinmarketpcap (CMC), Coingecko, and Feixiaohao. These information websites usually have exchange trading volume rankings. Although a high trading volume ranking cannot be said to be 100% safe, it at least means that more people are using it.
Let’s take Coingecko as an example. It and CMC are the most commonly used price and data tracking websites by cryptocurrency investors. They also rank exchanges for spot and derivatives trading volumes. We can confirm whether an exchange is included and its ranking by searching the corresponding rankings.
For example, to query WEEX Exchange, we go to the Coingecko homepage, click "Trading Platform" - "Derivative Industry", and you can see that it is currently ranked fifth among global derivatives exchanges.
WEEX Exchange is mainly engaged in contract trading and currently ranks among the top five derivatives exchanges in the world. However, it also ranks high among spot exchanges, currently ranking 44th.
The query results of different information platforms may vary, but normally the difference will not be too big. We searched through CMC and found that WEEX is currently ranked 20th in derivatives exchanges and 29th in spot exchanges.
After checking the rankings, more importantly, you also need to click in and check the official website and social account addresses such as X, Telegram, etc. registered in the exchange introduction. If someone posts a WEEX exchange website to you, you can tell whether the platform he recommends is a fake platform by checking the domain name.
For another example, if we search for JPEX, a fraud platform that has been smashed by the Hong Kong police, we can find that this exchange is not included in Coingecko. Although it is included in CMC, there is no data when clicking on it.
It is recommended that you at least choose an exchange that ranks in the top 100 on Coingecko or CMC. The higher the ranking, the better. Of course, even if it ranks in the top 100, it does not completely mean that the platform is safe. It also needs to be checked in conjunction with other standards.
2. Verify whether the regulatory license claimed by the platform actually exists
From a regulatory perspective, check whether a virtual currency exchange has been certified by a third party. We can find third-party certification information such as regulatory licenses in the information provided on the exchange's official website, and then go to the website of the regulatory license to check whether the license they claim exists and whether the license is reliable.
Taking OKX as an example, we can find its regulatory information from the official website. For example, we check the US MSB license, click in to see the supporting documents, and confirm that this is an MSB license. There is also a registration code below.
We then searched for the registration code on the official website of the US MSB license to see if the certification document actually exists. We can see that it can be searched on the official website of the Financial Crimes Enforcement Network (FinCEN), proving that the document here is authentic.
Of course, each regulatory license has different levels of difficulty in obtaining and different regulatory scopes. For example, MSB is for anti-money laundering, and MTL is for regulating virtual currency trading businesses. But the point is that no matter what license it is, if it claims to have it but actually does not have it, then the trust score of this exchange will be discounted.
3. Be wary of the temptation of higher returns than normal
When we see a cryptocurrency exchange or a group telling you that they can give you a fixed high return of a certain percentage every year or every month, and there is no deposit limit, you should first think about one question: where does this return come from? Who will pay for it?
At present, most financial products on exchanges can only offer an annualized interest rate of 5%, and traditional finance only offers an annualized rate of around 4% or 5%. However, an exchange recommended to you can offer a fixed annualized rate of 20%, and there is no upper limit on the deposit amount. This is very strange. Why can't other exchanges offer such a high rate, but only this one can? Where does such a high return come from?
If it explains to you that it has some big data quantitative arbitrage model but cannot provide the details of it, then you must not believe it. Looking back at the exchanges that have gone bankrupt or absconded with funds in the past, such as AAX, T-SET, or traditional financial funds, many of them relied on high interest rates as a means to attract users to deposit funds and defraud investors.
For example, the JPEX exchange mentioned above was also promoting the slogan of 20% annualized interest on USDT with no deposit limit. You know, even OKX, one of the top three exchanges in the world, only has an annualized rate of 10%, and it is limited to 1,000 USDT (the part exceeding 1,000 USDT will not reach the 10% return, which is a promotional method to attract new users). Is JPEX doing charity? As for the source of their interest, ordinary people can't find any clues. Then half a year later, JPEX restricted withdrawals, and the blockchain building that was rented in a high-profile manner was also deserted.
Therefore, everyone must be careful of platforms that advertise high returns. You are interested in its interest, but it is eyeing your principal. Of course, it does not mean that exchanges with normal interest rates are necessarily safe, but past experience has proven that platforms that give you fixed high interest + no deposit limit + cannot explain the source of income are very likely to be scams set up by fraud gangs.
4. Monitor the exchange’s capital reserves
Since cryptocurrency is still an emerging industry with unclear regulation, it is not ruled out that there will be frauds like FTX, which has a star halo but misappropriates customer funds behind the scenes. Therefore, we also need to monitor the exchange's fund reserves for any abnormalities.
The funds of users of centralized exchanges are kept by the exchanges. The exchange reserves will increase accordingly based on how much money users deposit. The exchange should not misappropriate customers' money for other purposes. The exchange reserves will be placed in virtual currency wallets. We can use the open and transparent characteristics of blockchain and the information released by the exchange to query the data in these wallets and understand the exchange reserves.
Ever since the world's second largest exchange FTX went bankrupt in 2022 due to revelations of misappropriation of customer funds, the virtual currency industry has begun to attach importance to open and transparent operations, with industry leader Binance taking the lead in announcing its reserves so that users can check its cash reserves from time to time.
Although there is currently no impartial third-party organization to verify whether the total user assets counted by the exchange are consistent with the asset reserves announced by the exchange, users can still confirm whether their current status is abnormal through the reserve data announced by the exchange. For example, before FTX went bankrupt, someone on the team noticed that FTX's stablecoin asset reserves had dropped by 93% in two weeks, which was a very abnormal phenomenon. Later, FTX really began to restrict withdrawals and went bankrupt.
It can be seen that it is a feasible method to check whether an exchange has abnormalities based on fund reserves. Here we recommend a third-party query tool, Deflama, and use Binance as an example to teach you how to query it yourself.
First enter Defillama, select CEX Transparency, find Binance, click in to see its reserve status.
If we find that the stable curve suddenly goes down one day, we may need to pay attention. Is the exchange FUDed and a large number of users withdraw their funds? At this time, if the exchange properly preserves user assets, there is no need to worry about problems even if a run occurs. However, since we cannot fully understand the operation behind the exchange, once a large amount of outflow occurs, in order to protect the safety of your assets, you should withdraw it first and observe for a period of time, just in case a black swan like FTX appears again.
Conclusion
The above are 4 basic screening criteria for determining whether a virtual currency exchange is safe or a scam, which can help you avoid some obvious scam exchanges. However, scammers are also constantly evolving, and there will be more carefully designed scams, so we need to keep learning, understand its business model, and more complex data, so that we can see through more advanced scams.
