What is anti-dumping policy in crypto?

The term “anti-dumping policy” refers to a set of measures taken by project developers, communities or exchanges to avoid financial fraud, during which attackers sell cryptocurrency when the price reaches a certain level, in order to quickly make huge profits and leave the market. After this, the price plummets and other investors suffer significant monetary losses. Anti-dumping policy is aimed at preventing such fraud.

In the context of the crypto industry, anti-dumping differs significantly from traditional anti-dumping measures taken by governments to protect domestic industries from the impact of foreign imports. The government sets protective tariffs on imported goods and services to level the playing field for domestic producers and save the national economy.

What is a pump-and-dump scheme in cryptocurrency?

Pump and dump schemes involve an organized entity or group of individuals artificially inflating the price of a cryptocurrency and then selling its assets for profit, leaving investors with losses.

Fraudsters artificially inflate the price by spreading false information about the token and stimulating demand for the token through a coordinated purchase.

In anticipation of profit, without suspecting anything, investors pre-accumulate the asset at a reduced price. The scammers then dump or sell off their investments at inflated prices, leading to a sharp collapse. While the attackers make huge profits, other investors who believed in the potential of the asset thanks to the artificial hype simply lose all their investments.

The organizers of such schemes are taking advantage of the largely unregulated cryptocurrency industry. They create market sentiment around a fraudulent token and then profit from it, leaving other investors out of money and often without trust in the crypto ecosystem.

How does anti-dumping policy work?

Cryptocurrency anti-dumping measures aim to protect investors by placing certain limits or penalties on large dumping of tokens or by establishing an eligibility period.

Anti-dumping actions limit the purchase or sale of large quantities of tokens in a single transaction, limit orders for an entire supply, apply price caps, or impose daily caps or caps on prices. Dumping is usually carried out by fraudulent investors who buy large quantities of tokens to significantly increase prices and sell them for a significant profit.

Read more about how anti-dumping policy works:

Buying and selling restrictions

In the ever-changing cryptocurrency space, projects often implement strategic controls to maintain token stability and curb market dumping, including smart contract buying and selling restrictions. Such practices are essential for long-term sustainability and investor confidence as they reduce risks caused by price fluctuations.

Ethereum's EIP-1559 update changed the fee market mechanism by burning a portion of transaction fees, which could reduce the overall supply over time, potentially increasing the cost and reducing the incentive to dump.

This way, for example, Chainlink reduces the likelihood of dumping by encouraging node operators to use their Chainlink (LINK) tokens to continue collecting potential rewards. According to a predetermined inflation schedule, Solana's inflation percentage is intended to reward the bet. As a result, holders are encouraged to stake their tokens, which ensures a liquid market supply and curbs dumping.

Transition to tokens

Token transfer involves locking newly created or purchased tokens and releasing them after a predetermined time. Tokens granted to the founders and initial investors of a project typically hold title over time. This method of regulation prevents the influx of tokens onto the market and prevents any attempts by the founders to quickly make money and just as quickly leave the project. Investors should consider the investment schedule of the project.

How can investors avoid pump and dump schemes?

Investors should do their due diligence on which projects to choose that are transparent and have a track record of future growth. However, it is best to avoid get-rich-quick projects.

Generally, the best method of dealing with them is to avoid harm. When it comes to cryptocurrency, investors need to be extremely cautious, do adequate research before investing, and avoid projects that are suspicious or do not appear reliable.

Watch closely

Before investing in any project, investors should always be aware of the possible risks of dumping and invest very carefully. It is important to familiarize yourself with the founders of the projects and their track record, and review the relevant documentation.

Using the example of the Squid token scam, which is a great download and dump scheme, where the signs of attackers were obvious. The token dropped from $90 to $0.00079 in just a few minutes. During the investigation, they noted that the founders of the token were anonymous and found a number of errors and inaccuracies in the documentation.

All the warning signs pointed to a scam, and if investors had been careful, they could have avoided disaster. Also, some groups on social networks indicate a “pumping” scheme in the future. Being active in such groups and understanding the warning signs can be timely warning signs and help prevent such scams.

Ensure that the project has passed the audit stages

Comprehensive smart contract auditing helps prevent code vulnerabilities. An extensive audit emphasizes that the project meets security protocols. Project owners with fraudulent intentions may intentionally leave vulnerabilities that can be exploited later.

Anti-dumping measures are implemented through sound contracts and verified by a reputable auditor. If the project is open source, you can review it to determine how it works under the hood. If an investor lacks technical knowledge, he can use the help of an auditor.

Resist consuming FOMO

In the cryptocurrency space, the FOMO effect or “fear of losing” is a real concern. As the value of digital assets rises, many investors are tempted to take advantage of the trend. This behavior entails a significant increase in prices, and as a result a sharp drop. For example, the price of Bitcoin recently reached $70,000 due to factors such as the expected Bitcoin halving and the approval of BTC spot exchange-traded funds. Several investors may be caught up in FOMO, buy BTC at the peak, and end up incurring significant losses if prices decline rapidly.

Therefore, investors should avoid making significant investments in little-known cryptocurrencies. In any case, the investment should not be more than can be invested without any risk.

Consider the Lindy effect

The Lindy effect is the concept that the longer a non-perishable thing, such as technology, exists, the greater the chance of its durability. A technology or project that has been around for a long time will have a much better chance of surviving and remaining relevant.

Investors can use the Lindy effect to gauge the longevity and profitability potential of cryptocurrency and blockchain projects. If a blockchain project has already proven its longevity over time, it is likely to remain a player in the market and be able to generate profits in the future.