Fake Stablecoins: $2 Billion in Losses and Counting

Losses linked to fake token scams reached a whopping $2 billion last year. A large portion of these losses are attributed to stablecoins. 

A stablecoin is a token pegged on a 1:1 basis to a currency such as the dollar, dirham or euro, or to a precious metal like gold. As of today, they account for roughly 8 percent of all cryptocurrencies in terms of market cap. Unfortunately it is relatively easy to issue fake stablecoins. Many investors are unaware of this, making them vulnerable to traps set by malicious actors. 

A good example is the plethora of fake PYUSD tokens that popped up within hours of PayPal’s announcement of the launch of its stablecoin PayPal USD ($PYUSD) in August 2023. The largest of these scam coins saw $2.6 million in trading volume within minutes of the announcement, according to data from DEX Screener.

Ease of setting up fake stablecoins creates opportunities for bad actors

Let’s see how a typical fake stablecoin scam is set up. Firstly, scammers create fake crypto tokens on blockchain platforms such as Ethereum, Binance Smart Chain or Solana through standardized smart contract templates. They then assert that these fake tokens are backed by real assets and often provide falsified documentation backing their claims. The fake tokens are then heavily advertised on social media, websites and at times even promoted by influencers and listed on crypto exchanges. The fake tokens are usually issued in jurisdictions with weak consumer protection. 

Given the degree of anonymity provided by stablecoin transactions, it is difficult for authorities to track transactions and identify the stablecoins’ beneficial owner, the European Parliament warns in a brief about stablecoins.  

And as just discussed, the stablecoins’ beneficial owner is in some cases a scammer. “Most scammers used to exploit bitcoin, but are now taking more of their revenue from victims in stablecoins,“ the stablecoin payments platform Bvnk underlines. Stablecoins now account for a majority of illicit cryptocurrency transaction volumes, with transactions associated with scams and sanctioned entities or jurisdictions.

“Sanctioned entities, as well as those operating in sanctioned jurisdictions or involved with terrorism financing, also have a greater incentive to use stablecoins, as they may face more challenges accessing the U.S. dollar through traditional means, but still want to benefit from the stability it provides,” Chainanalysis said in its Crypto Crime Report 2024. 

Fake USDT in vogue

Being the largest stablecoin, with a market cap of $115 billion, USDT is also the preferred stablecoin of malicious actors. One of their favorite working methods is to send phishing text messages to potential victims on Telegram or Instagram, or by email. The messages typically claim that a new account has been set up with a balance of $1 million USDT or more – fantastic news to unsuspecting victims. In reality, it all turns out to be a fake USDT transaction.    

Right now, they target TON (The Open Network), where Tether, the issuer of the stablecoin USDT, is expanding. “Attackers are attempting to fake TON chain USDT recharges in large quantities. Exchanges should take precautions,” the Dilation Effect, a crypto security firm, warned in June.  
If you are subject to crypto scam, report the scam to the relevant regulatory authority. In Switzerland it is the Swiss Financial Market Supervisory Authority (FINMA), in the US  is the Federal Trade Commission (FTC) and within the European Union, Europol advises scam victims to report cybercrime to t