One of the main problems in conducting an ICO is the problem of fraud. Investors never know who is really behind the project - a talented development team or a group of scammers. For example, in 2022 the blockchain security company PeckShield has compiled a list of 50 potentially fraudulent tokens. All of them are hosted on Binance SmartChain.
The solution to this problem was IDO. Now the development team needs to place their project on a decentralized crypto exchange, linking a liquidity pool to it. Thus, most of the scammers are eliminated, since the investments may be less than the liquidity pool.
The IDO has been criticized for its lack of clear rules for the token placement process. In fact, each exchange independently determines the rules, time and requirements for each project. This creates an uneven playing field for similar projects.
The SEC (Securities and Exchange Commission of USA) warned investors to be aware of scammers. They use special peculiarities of decentralized exchanges for pump and dump schemes. A recent mania has given rise to some blatant ripoffs in which companies take investors money but fail to build the promised blockchain application. But it’s also leading to more indirect scams—such as what the SEC warned about in a notice.
Some experts think that the crypto bubble is soon to burst. And this fact has flooded some investors to participate in the trading for speculating.