What Is Shilling & How Does It Affect Crypto?

Shilling is one of many key concepts when it comes to investing. Today, Pluto is diving into the details of shilling, including what it is, why it matters, and how it affects crypto.

What Is Shilling & How Does It Affect Crypto?

Disclaimer: This is for informational purposes and is not meant to serve as financial or investing advice.

What Is Shilling?

Shilling is the enthusiastic promotion of a product or service to encourage others to invest. It happens in traditional financial markets, and it occurs on crypto exchanges too. In the crypto market, this means encouraging others to invest in a crypto project, token, or service.

Often, the promotion is exaggerated to build hype. Shilling occurs on Twitter and in crypto-related Telegram or Discord chats. Forums like Reddit are also popular platforms for shilling.

Shillers often use nonsensical or esoteric memes to build hype around a project without offering concrete information. The goal is usually to encourage new investors to get in on a potentially ill-founded project to drive artificial price increases.

One of the more infamous cases was Dogecoin, which Elon Musk (CEO of Tesla and Twitter, for the time being) helped drive to record-high prices early in 2022. DOGE peaked in April and then tanked through the summer.

Shilling often occurs before an Initial Coin Offering (ICO), Initial Dex Offering (IDO), or an NFT mint. Shilling continues throughout the life cycle of a cryptocurrency project. Most significant altcoins, NFTs, and tokens have infamous shillers that talk about the project to anyone who will listen.

“Shillers” can be early investors, founders, or engaged community members. “Shilling” can also be a derogatory term for both scammers and well-intentioned people promoting their work.

Why Does Shilling Matter for Crypto?

Shilling matters because it can lead to hype, FOMO, and unrealistic expectations. If a cryptocurrency gets shilled enough, it can increase demand for the token and inflate the price. Retail investors may not know important details about the token and invest anyway.

Too much shilling involving exaggerated claims can cause distrust and skepticism within the crypto ecosystem.

Making exaggerated claims about financial products can also attract the attention of government regulators and law enforcement agencies. They could view shilling as securities fraud. This could lead to unfavorable regulation against blockchain technology and could even mean jail time for promoters.

What Are the Most Common Types of Crypto Shilling?

Influencer Rug Pulls

A rug pull is a colloquial term describing a scenario where bad actors add liquidity to a new crypto token to a pool, convince investors to trade ETH for the token in said pool, then drain all of the pooled ETH.

Colloquially “rug pull” refers to a hyped crypto project where no further work is done on the project after substantial retail investment. This is a common strategy influencers use with NFTs. It is also referred to as a “pump and dump.”

Influencers often shill an NFT project making promises about the team and the project's future. They make comparisons to successful NFTs like Bored Ape Yacht Club or Cryptopunks.

Then after the NFT mints out, they take the proceeds and move on as if nothing happened.

Overly Energized Entrepreneurs

As crypto has blown up, so have the personalities involved. Twitter users have gone from blogging about interesting crypto applications to running media operations covering the space. Many shillers made money by being early on Bitcoin and Ethereum and now think of themselves as kingmakers.

Crypto influencers feel pressure to comment on every project in the crypto ecosystem. Every day they navigate a gauntlet of podcast invites, DMs, Tweets, and emails asking them to endorse or comment on a project.

If someone is shilling different projects, they are likely not doing their due diligence. They can be well-meaning but still get swept up in their own hype.

Passionate Team Members

A huge part of being a crypto founder is energizing your project’s community. And even when a project isn’t going well, team members often continue to shill because their jobs depend on it.

Solo founders feel enormous pressure to spread positive news about their tokens. They can omit weaknesses or shortcomings of their project to keep their community happy.

How Can You Avoid Shilling Scams?

Do Your Own Research (Really)

You’ve probably heard the saying Do Your Own Research (DYOR) come up in the crypto space. But how do you actually do your own research?

At the minimum, you should read the project’s whitepaper and check out their roadmap — like Pluto’s vision for the platform.

You can check websites like CoinGecko for more information if it is a crypto token. These websites aggregate data about the token’s circulating supply, market cap, and other financial information. It is also helpful for finding links to the token’s social media accounts, blog, and official website.

Finally, you can check aggregator sites to find what exchanges the token is available for trading on. If it is not on reputable exchanges, it might not be as respectable as shills would have you believe.

Don’t Get Lost in Hype or Status

Most shilling scams happen on Crypto Twitter, or “CT” for short. Scammers use a few tricks to make them seem like an authority on crypto. The most obvious is they buy accounts with 10,000 or 50,000+ followers to gain status.

Another trick unique to crypto scamming is using an expensive NFT as their PFP. Often, scammers don’t even own the NFT they are using. You can look up who the actual owner is on Opensea and see if the accounts match.

Giveaways are an excellent tool for marketing a cryptocurrency project. But if giveaways feel spammy, that’s a red flag. Anytime the promotional campaign gives cash away for very little in return or makes vague promises in exchange for retweets, alarm bells should go off in your head.

Another trick promoters use to beef up their trustworthiness is bots. Scammers and even honest meaning promoters sometimes pay for bots to retweet their promotions or join and be active in a project’s Discord.

Be Cautious With Explosive Assets

Shilling can be a form of deception or financial manipulation. Investing in volatile tokens based on exaggerated hype can lead to massive losses.

Take a breath; crypto will be there tomorrow. A great (but challenging) practice is if you feel FOMO to wait a day before investing.

Even though emotional trades can turn out to be wins, it is not a good habit over the long term. Remember that even if a project's popularity surges quickly, it can decrease just as quickly.

Examine Promoters’ Backgrounds and Credentials

A cursory check on promoters’ backgrounds is always a good idea. See what projects they’ve been involved in the past. Have they failed? Or worse, have they promoted scam projects?

Another red flag is a lack of background altogether. If a Twitter account looks “fresh,” meaning it has many followers without many old tweets, that’s a red flag.

You can even go old school and look them up on Linkedin to see their educational and professional credentials. Does their background match up with what they’re selling?

Another place to check for credentials is a company’s funding. Is it clear where the funding comes from and how it is used? Pluto has always been transparent about our funding and investors.

The Bottom Line

There are some positive effects of so-shilling. The team you invest in must get its message and vision into the public domain.

Every company lives and dies by marketing and promoting. Not every salesperson is trying to deceive you.

But it is good to be discerning and suspicious of any investment advice when making decisions about your portfolio.

A great way to remove the emotion from your trades is by backtesting strategies and using automation to think for you. When it comes to investing data and strategies, Pluto has you covered. Take a look at some of our free investing resources today.

Sources:

What Is an IDO (Initial DEX Offering)? | Binance

Coingecko

OpenSea