AI trading dApp YieldTrust is accused by Securities regulators of operating a possible Ponzi.
Securities regulators from Montana, Texas, and Alabama have accused cryptocurrency trading platform YieldTrust.ai of operating a Ponzi like scheme.
The regulators claimed that the company and its Romanian owner, Stefan Ciopraga, made false claims that the decentralized application (dApp) called “YieldBot” is powered by cutting-edge artificial intelligence (AI) and can execute trades with higher profits than human traders.
However, YieldTrust.ai did not provide any evidence that the AI-powered bot exists or performs as claimed.
Montana’s securities regulator stated that YieldBot was developed for Binance’s BNB Smart Chain and could generate returns for new investors of up to 2.2% per day through analyzing the crypto markets and making autonomous trading decisions.
However, an independent audit of YieldBot’s smart contract found it to be “dangerous” as the deploying team retained sufficient control to block users from withdrawing their assets.
The regulators have taken enforcement actions against YieldTrust.ai and its owner, including cease and desist orders and fines. Montana’s regulator demanded YieldTrust.ai to cease all activity in the state and seek a total of $100,000 in fines, while the Texas State Securities Board issued multiple cease and desist orders.
An April 4 tweet from Montana’s securities commissioner, Troy Downing, suggested scammers are capitalizing on the hype surrounding AI and scamming unsuspecting victims
Ceasing Operations
YieldTrust.ai allegedly announced it would cease operations after the audit of its smart contract was published, which appears to be verified by the lack of trading activity according to DappRadar data.
However, the regulator’s orders accuse YieldTrust.ai of “raising capital from the public to cover withdrawals from prior investors,” which alongside the promise of high returns are the characteristics of a Ponzi scheme.
The regulators’ actions highlight the dangers of investing in unverified cryptocurrency trading platforms that make bold claims but lack evidence to back them up. Investors should always do their due diligence before investing in any financial product, including cryptocurrencies.
AI has become far more prominent, accessible, and surrounded by hype since the release of the ChatGPT AI chatbot on Nov. 30 by AI research company OpenAI. While ChatGPT has proved to be a powerful tool, capable of acing the bar, SATs, and even identifying exploits in smart contracts, it is essential to remember that AI is not infallible and can still make mistakes.
In the case of YieldTrust.ai, the alleged use of AI as a marketing tool to deceive investors is a reminder that caution and skepticism are still necessary when evaluating claims made by companies.
The case also highlights the importance of regulatory oversight in the cryptocurrency industry. The lack of a centralized authority and the anonymity of cryptocurrency transactions make it easier for fraudulent actors to operate.
However, regulatory bodies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been taking steps to bring more oversight to the industry and protect investors from fraud and scams.
AI Trading Ponzi
In conclusion, the allegations against YieldTrust.ai and its owner serve as a reminder to investors to be cautious when evaluating claims made by cryptocurrency trading platforms. The lack of regulation and oversight in the industry makes it easier for fraudulent actors to operate, and investors must do their due diligence before investing in any financial product, including cryptocurrencies. Additionally, the case highlights the importance of regulatory oversight in the cryptocurrency industry to protect investors from fraud and scams.