In its attempt to derail scammers who use Decentralized Finance systems to orchestrate fraud, the United States’s Federal Bureau of Investigation (FBI) has created a cryptocurrency named NexFundAI. The new token was created to serve as bait to catch the fraudsters in the crypto industry.
The operation is named ‘Operation Token Mirrors’. After its launch, 18 individuals and four crypto firms were charged with fraud and operating scam projects. NexFundAI is the first attempt by a government regulatory organization to create a cryptocurrency.
How Does NexFundAI Work?
NexFundAI was built as a security token that will serve the special purposes of the operations.
In the case of NexFund AI, the tokens were created and transferred to identify fraudulent actors on the cryptocurrency platform. The new crypto token favours investigating and identifying potential members turning to illegal activities.
The most frequent uses of the NexFundAI token are that they are good at manipulating the data given to them to find out orchestrated wash trading and pump-and-dump schemes.
Wash trading refers to fake trades that the company itself conducts to fake severe market activities for a particular token. Pump-and-dump schemes in crypto refer to activities that show inadvertently high value for a token in the market to attract investors. But the value of the token will soon fall as it was shown as inflated.
Further Details of the FBI Probe
FBI charged the leaders of four crypto firms and four financial services firms, known as “market makers,” who allegedly manipulated the markets to make inordinate sales. FBI also seized unauthorized cryptocurrencies worth $25 million as part of the probe.
FBI also seized different crypto trading bots that were seminal in manipulating the market to orchestrate fake trades.
In the probe, the FBI understood that most of the companies that were involved in scams promoted false information about their tokens. These companies showed unduly high trade volumes for their coins with the help of market makers who used wash trading techniques to show high trading activities.
Using the NexFundAI token, the FBI could attract such market makers can scammers, identify them, and accord reasonable punishments to them.
Criticisms and Concerns
Even though the FBI attempted to safeguard the goodwill of the crypto industry and protect the investors from scams, this involvement has invited criticisms from many parts of the industry.
Many think that it is unethical for the FBI to regulate the decentralized market even at the cost of protecting investors. The Securities and Exchange Commission (SEC) has also joined the FBI in its attempt to trace down fraudulent transactions.
Conor Grogan, the director of the Coinbase Exchange, opined that the FBI’s involvement is raising concerns. He posted on X that the FBI, in its attempt to bait the fraudsters, has exposed their wallet addresses.
He also pointed out that the FBI-linked wallets that owned at least 75% of NexFundAI’s token supply made transactions with various platforms, including Tokenlon, Binance, Zixipay, and HTX.
Significance of the FBI Operation
The FBI operation using the NexFundAI token is quite significant in the backdrop of increasing cases of cryptocurrency fraud in the United States. According to an FBI report, cryptocurrency fraud accounted for half of the total money lost to financial fraud in 2023 in the United States. Investors lost a total of $5.6 billion worth of cryptocurrencies last year.
The most common type of cryptocurrency fraud in the United States in 2023 was investment fraud, which accounted for 71% of the total fraudulent crypto transactions.
Many criminals use media such as dating apps, social media, or professional networking sites to gain the confidence of investors before introducing fraudulent investment opportunities.
There were also cases where individuals were lured to go abroad through fake job advertisements and they were made accomplices of crypto-related scams.
The FBI’s sting operation to counter all the frauds is significant amid increasing frauds that misuse the decentralized nature of cryptocurrencies.
The Bottom Line
The decentralized nature of the transactions, the speed of finalizing the transactions, and the irreversibility of transactions are the elements that fraudsters use as opportunities for conducting crypto-related fraud.
The FBI’s attempts at countering the scammers using its native coin NexFundAI are expected to help crypto investors navigate the possibility of falling prey to scams.
