Co-founder of Avalanche blockchain, Emin Gün Sirer, has raised an alert on the infiltration of certain layer-2 solutions, which poses risks to investors. In an X post on March 23, the Ava Labs boss expressed concerns over these “trash” projects while educating users on several of their common characteristics.
Related Reading: Blasted By Deception: Layer 2 Project Suffers 500 ETH Rug Pull OnslaughtHey y'all,
We all ignored the huge red flags associated with SBF because "he looked smart" and "he made a lot of money." Then it turned out that he was dumb as rocks, was a sociopath, and was just stealing our money.
The next cycle is going to be even more noisy, with even…
— Emin Gün Sirer
(@el33th4xor) March 23, 2024
Red Flags To Watch For In L2 Projects – Avalanche Co-founder
According to Gün Sirer, the rise in substandard L2 projects represents the next big hazard in the crypto ecosystem following the crypto exchange heist pulled off by former FTX founder and CEO Sam Bankman-Fried (SBF). The prominent crypto figure argued the procedures involved in launching an L2 solution were rather loose, allowing the influx of bad actors who created projects with no actual value.
In the interest of promoting investor security, Emin Gün Sirer then proceeded to list several red flags that accompany these risky L2 solutions. Firstly, he stated that there is usually a discrepancy between the project’s narrative and technology, i.e., its marketing pitch does not align with its technical implementation.
Examples of such projects are those with centralized sequencers without fraud-proof, which is against the cryptocurrency principles of decentralization and security. Emin Gün Sirer also highlighted L2 solutions that conduct token sales to raise funds rather than for a specific, practical purpose on the network, indicating it was likely to be a dubious investment.
Furthermore, the Avalanche co-founder also spoke about L2 projects in which founders sold their personal native tokens before the launch. Regardless of the motive, Gün Sirer characterized a large volume of native token sales pre-launch as a massive red flag.
Another point the crypto figure highlighted was projects with low-float tokens which allow for artificial inflation of the token’s value through manipulation tactics as commonly done by SBF. Finally, Gün Sirer advised investors to pay attention to project founders’ morals and habits and screening for any form of personal misconduct.
Related Reading: Crypto Scams Persist: Exit Scams, Hacks Cost Crypto Sector $160 Million In February
The Simple Authenticity Test By Emin Gün Sirer
In addition to the red flags mentioned above, Emin Gün Sirer also proposed a simple test that could help investors in screening through the masses of L2 projects being launched daily for authentic, profitable ventures.
Firstly, the Ava Labs founder suggested identifying the main issues – known as “blockers” – in the crypto space at any time. He stated that, for example, issues such as scalability and performance were quite significant until blockchains such as Avalanche and Solana emerged with solutions.
Emin Gün Sirer believes that supporting multiple use cases on the same platform as well as integration with traditional finance (TradFi) are currently critical issues facing the crypto ecosystem. Before investing in an L2 solution, the Avalanche co-founder advises users to assess where the project offers a genuine solution to these challenges.