The Long Con in Crypto: How Token Founders Profit from Retail

In the crypto world, it’s incredibly common to see projects that promise groundbreaking innovation, world-changing applications, and endless returns for early adopters. But as the hype fades, the vast majority of these projects fail to deliver, often taking years to reveal that their grand visions were just mirages. Unlike traditional pump-and-dump schemes, these long-term “drain and dump” projects play a slow game. Founders and insiders create sustained hype, build an image of progress, and gradually unload their tokens, profiting while everyday investors cling to the hope that the promised breakthroughs will someday materialize.

Let’s dive into how these projects unfold and cover the warning signs, including the use of inflated market cap metrics, misleading vesting schedules, and extended influencer-driven marketing campaigns.

The Anatomy of a Long-Term “Drain and Dump” Scheme

Here’s how these projects work:

Grand Promises and Vague Goals: Founders launch a token with high-minded visions of transforming finance, entertainment, data, or gaming. Their goals are ambitious but often extremely vague—promises of a “decentralized revolution” or “disrupting an entire industry.” The hype around these promises attracts retail investors, excited by the vision but without the technical background to see the potential pitfalls.
Tokenomics Engineered to Trap Investors: Founders reserve a significant portion of the token supply, often up to 50-80%, for themselves, early team members, and venture capitalists (VCs). For example, if the initial supply is 1 billion tokens, founders and insiders might control 600 million tokens. If these tokens launch at $0.10 each, that’s $60 million in potential insider wealth. If the token reaches $5 or $10 after a marketing campaign, those 600 million tokens would be worth $3-6 billion. If they can drag the project on for several years, founders can unload these tokens, making billions as retail investors hold on, hoping for further growth.
Ongoing Hype and Artificial Progress: To maintain momentum, the team continuously issues updates, development milestones, and partnerships. These updates are often superficial—a new website, a vague “roadmap update,” or an undeveloped whitepaper. The token’s price may fluctuate but rarely collapses all at once, keeping investor confidence alive while founders gradually unload their holdings over the years.
Token Unlocks, Vesting Schedules, and Gradual Sell-Offs: Many of these projects claim to have vesting schedules and lockup periods for founder and VC-held tokens, but these terms are often flexible. Instead of a strict lockup, tokens might be released gradually, allowing insiders to sell at regular intervals without causing major price crashes. Over months and years, these slow sell-offs keep the price relatively stable while insiders cash out.

Market Cap vs. Fully Diluted Market Cap: The Hidden Dilution Trap

One of the most misleading aspects of these long-term schemes is the discrepancy between market cap and fully diluted market cap:

Market Cap: This metric, which multiplies the current token price by the circulating supply, can be deceiving. It often reflects only the tokens currently accessible to the public, creating the illusion of affordability and growth potential.
Fully Diluted Market Cap: This figure, calculated by multiplying the token price by the total supply (including locked tokens), tells the real story. For many “drain and dump” tokens, the fully diluted market cap is shockingly high, indicating that insiders hold the majority of tokens. When these tokens eventually enter circulation, dilution drives down value for retail investors, who find themselves holding tokens worth far less than anticipated.

Founders count on retail investors overlooking the fully diluted market cap. If a token with a current supply of 100 million tokens has a fully diluted supply of 1 billion tokens, a seemingly low market cap of $500 million could actually be masking a $5 billion valuation when fully diluted. Over time, as new tokens enter circulation, dilution drives down the real value per token, and retail investors see only gradual declines rather than a sudden drop-off.

Vesting Schedules and Lockup Periods: How They’re Manipulated to Benefit Founders

Vesting schedules are designed to prevent founders and insiders from dumping tokens all at once. However, for projects focused on maximizing returns for insiders, these schedules often favor long-term extraction:

Flexible Vesting: Instead of strict vesting rules, founders sometimes implement rolling or irregular vesting, allowing tokens to be released in small batches that don’t significantly impact the price. This gradual unlock process enables insiders to liquidate their holdings without triggering alarms.
Early Releases or Amendments: In some cases, founders and VCs have managed to renegotiate vesting terms, allowing them to access their tokens sooner. If a project has lost steam but still has retail liquidity, insiders may petition for early unlocks, claiming “market conditions” or “development needs” as justifications.
Opaque Lockups: For some projects, the specifics of lockups are kept intentionally vague or hidden. Retail investors might assume a multi-year lockup on insider tokens, only to find these tokens hitting the market unexpectedly, driving down the price.

These delayed unlocks mean that retail investors hold tokens for years, often in the belief that progress is being made and the token’s value will eventually spike. Meanwhile, insiders liquidate their positions bit by bit, benefiting from the ongoing market interest and liquidity provided by hopeful retail investors

Influencers, Celebrity Endorsements, and the Cultivation of “True Believers”

To maintain momentum and trust among retail investors, these projects often leverage influencers, celebrities, and social media shills over a prolonged period. They create an ongoing narrative of progress and success:

Influencers as Proxies for Credibility: High-profile influencers with large followings often partner with these projects for months or even years, creating a “halo effect.” The influencers aren’t always technical experts but are masters of hype, framing the token as “the next big thing” without delving into its actual feasibility.
Strategic Hype Cycles: To maintain momentum, projects release updates, conduct “ask-me-anything” (AMA) sessions, and announce strategic partnerships, many of which are minor or even symbolic. These periodic boosts in excitement draw in new retail investors, allowing insiders to keep liquidating at favorable prices.
Creating a “True Believer” Culture: Over time, these projects cultivate a core group of loyal followers who genuinely believe in the project’s potential. These true believers become unpaid evangelists, creating social media buzz, challenging critics, and reinforcing the narrative that anyone who questions the project is simply a “doubter” or “FUD (fear, uncertainty, doubt) spreader.”

The Reality Check: Signs of a Token with Empty Promises

For retail investors, distinguishing between legitimate, high-potential projects and long-term “drain and dump” schemes can be challenging. Here are some warning signs to watch for:

Vague or Shifting Roadmap: Projects that fail to meet development milestones or constantly update their roadmap without clear accomplishments may be stalling for time. Look for tangible progress, like code releases, partnerships with credible organizations, or real use cases.
Inflated Fully Diluted Market Cap: If the fully diluted market cap is far higher than the circulating market cap, be cautious. This could indicate that a large supply of tokens is locked away with founders or VCs, ready to be released and dilute value over time.
Token Utility and Demand: A real token has a specific, functional use case. Projects that pitch “utility” without actual usage or fail to articulate how demand will grow over time may struggle to create real value.
Prolonged Hype Without Delivery: If the project relies heavily on influencer promotions, celebrity endorsements, or repeated cycles of hype but lacks concrete product progress, it could be a warning sign.
Unclear Vesting and Lockup Terms: Legitimate projects publish clear details on how and when tokens held by insiders and founders will be released. If this information is absent or overly flexible, proceed with caution.

Closing Thoughts: Protecting Yourself in a Space Ripe for Exploitation

Not all long-term projects are scams, and some take years to reach their full potential. However, many tokens exist primarily to enrich founders and early investors at the expense of retail participants. The “drain and dump” model can leave investors holding worthless tokens after years of promises, hype, and artificial progress.

To try to safeguard yourself, always research a project’s fundamentals, scrutinize tokenomics, and beware of influencer-driven hype cycles and think: what in the real world does this project ACTUALLY do? Is it genuinely something with an actual potential real life use case? Do the fundamentals (including revenues and profits and even whether or not the project requires a token at all!) make sense? Is it already hugely overpriced? Are the founders really just in it for the money? How centralised is this project? How many key people are these and how much of the token supply do they control? In a space where market caps, vesting schedules, and lockups can be manipulated, an informed, cautious approach is your best defense. Remember: not all that glitters in crypto is gold. Some projects are designed to slowly transfer wealth from hopeful investors to the pockets of those who crafted the illusion.

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