Regulators Take Legal Action Against Alleged Crypto Ponzi Scheme YieldTrust.ai

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On April 4, regulatory bodies from Montana, Texas, and Alabama collaborated to take legal action against crypto trading platform YieldTrust.ai, alleging that it is involved in a Ponzi scheme.

YieldTrust.ai and its owner, Stefan Ciopraga from Romania, claimed that their decentralised application (DApp) called "YieldBot" uses advanced artificial intelligence technology, which enables it to execute trades that generate 25 times more profit than any human trader could and performs 70 times more trades.

The regulatory bodies accused YieldTrust of failing to provide any evidence to investors that the AI-powered YieldBot exists or that it can perform at the level claimed by YieldTrust.

The Montana regulator's cease and desist order stated that YieldBot was developed for Binance's Smart Chain and can interact with staking programs to generate returns for new investors. YieldBot can analyse the crypto market and make its own trading decisions in milliseconds, choosing from hundreds of trading methods and combining them to create unique strategies that yield high returns. YieldTrust claimed that the bot can generate returns of up to 2.2 percent per day.

State regulators alleged that an audit of YieldBot's smart contract conducted by an independent firm revealed that it was risky, as the deploying team had enough control to prevent users from withdrawing their assets.

Montana's securities commissioner, Troy Downing, emphasised in an April 4 tweet that scammers are taking advantage of the excitement surrounding AI by using sophisticated methods to deceive investors.

The Montana regulator has ordered YieldTrust.ai to cease all activities in the state and pay a total of $100k in fines.

Following the publication of an audit of its smart contract, YieldTrust.ai allegedly announced that it would stop operating, which is supported by the lack of trading activity observed on DappRadar. 

However, the regulators' orders accused YieldTrust.ai of using public funds to pay withdrawals from past investors, which, along with the promise of big returns, are typical warning signs of a Ponzi scheme. YieldTrust.ai's website has been taken off, and its Twitter account has been deleted.

Since the launch of OpenAI's ChatGPT AI chatbot on November 30, the use of AI has become more widespread, accessible, and subject to hype. Although ChatGPT is not always completely accurate, it has demonstrated its capabilities, with the latest version able to pass the bar exam, perform well on SAT tests, and identify vulnerabilities in smart contracts.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash