The story of the SQUID crypto token is a perfect illustration of the opportunities cryptocurrency permits for scammers and the dangers it poses for investors.
The SQUID token was a game token, ostensibly used to play games within the internet environment made by the token’s creators. Like many game tokens, it had a play-to-earn system, but primarily investors were buying from other speculators, including the token’s creators. Tied to a pop culture phenomenon, the token quickly attracted buzz and its rise was truly meteoric. At its height, SQUID was trading at about $2,800. And then within ten minutes it was worth $0.
What Happened—Heard of a Rug Pull?
So, what happened? It was something called a “rug pull.” The creators of the coin sold off a large amount quickly, leaving no liquidity left in the exchange. Essentially this is a pump and dump for crypto and it is something that happens with some frequency in pop culture-based tokens. Indeed, the SQUID token story is a virtual beat-for-beat repeat of the MANDO (as in Mandalorian) token earlier this year. Again, there was a token tied to a hot IP property, again, there was hype and again, there were investors left holding the bag after the price plummeted—the classic “rug pull.”
Red flags were there for investors. The white paper and the website for the token were riddled with typos, which is a good indicator that this was something hastily put together to capitalize on a trendy topic. The token’s official social media accounts were also designed to prevent token holders from communicating their concerns. Moreover, the token system was designed to prevent non-insiders from selling. The SQUID token had to be converted to another token before it could be sold. This meant outsider funds were essentially locked up while insiders could sell off.
The SEC and its Role in Preventing Crypto Currency Scams
Scams such as these beg the question of when the SEC is going to step in and begin aggressively enforcing securities laws in the crypto space. These projects have gone well beyond the decentralized monetary future imagined by Bitcoin’s early adopters. New tokens are largely centralized plans tied to some sort of platform that is centrally managed, with gaming tokens being among the most popular versions of these centralized tokens. However, many purchasers are buying these tokens with an eye, not towards gaming, but towards investing.
Gaming is a perfectly legitimate use for blockchain-based crypto currency tokens. Projects like Zed Run and Decentraland are making a compelling case for in-universe tokens. But gaming tokens also have become a ripe environment for scammers and, unless the SEC or some other governmental entity is willing to exercise oversight, they will only become increasingly common.
The attorneys at The Law Offices of Andrew Dressel LLC are ready to assist people who lost money in crypto-based frauds or companies facing accusations of fraud. If you would like to contact one of our attorneys, please contact us via email at contact@d-mlaw.com, call at 848.202.9323, or visit our website www.d-mlaw.com.
Disclaimer: Please note that any legal question requires consideration of individual facts, and this article is not intended as legal advice to any individual or business and should not be relied upon as such.