Bitget App
Trade smarter
Buy cryptoMarketsTradeFuturesEarnWeb3SquareMore
Trade
Spot
Buy and sell crypto with ease
Margin
Amplify your capital and maximize fund efficiency
Onchain
Going Onchain, without going Onchain!
Convert
Zero fees, no slippage
Explore
Launchhub
Gain the edge early and start winning
Copy
Copy elite trader with one click
Bots
Simple, fast, and reliable AI trading bot
Trade
USDT-M Futures
Futures settled in USDT
USDC-M Futures
Futures settled in USDC
Coin-M Futures
Futures settled in cryptocurrencies
Explore
Futures guide
A beginner-to-advanced journey in futures trading
Futures promotions
Generous rewards await
Overview
A variety of products to grow your assets
Simple Earn
Deposit and withdraw anytime to earn flexible returns with zero risk
On-chain Earn
Earn profits daily without risking principal
Structured Earn
Robust financial innovation to navigate market swings
VIP and Wealth Management
Premium services for smart wealth management
Loans
Flexible borrowing with high fund security
The Cred LLC Fraud: A Wake-Up Call for Crypto Due Diligence

The Cred LLC Fraud: A Wake-Up Call for Crypto Due Diligence

ainvest2025/08/30 18:45
By:BlockByte

- Cred LLC's $1B crypto fraud (2020-2025) exposed systemic risks in unregulated lending and asset mismanagement by executives Schatt and Podulka. - Executives concealed liquidity crises, siphoned funds to Chinese firms, and ignored red flags during market crashes, leading to 88-month prison sentences. - The case catalyzed 78% of institutional investors to adopt risk frameworks emphasizing diversification, secure storage, and AI-driven compliance by 2025. - Lessons highlight non-negotiable governance: asset

The collapse of Cred LLC in 2020 and its subsequent fallout through 2025 has become a defining case study in the crypto industry’s struggle with risk management and transparency. What began as a high-yield crypto lending platform quickly unraveled into a $1 billion fraud, exposing systemic vulnerabilities in how startups handle investor capital. By 2025, the company’s executives—Daniel Schatt and Joseph Podulka—were serving prison sentences for misrepresenting financial health, siphoning customer funds into unsecured loans to a Chinese firm, and ignoring red flags during a market downturn [1]. This case underscores a critical truth: in the absence of rigorous due diligence and governance, even the most promising crypto ventures can become vehicles for systemic fraud.

The Anatomy of a Crypto Fraud

Cred’s downfall was not an isolated incident but a symptom of broader lapses in risk management. The company’s executives concealed liquidity risks and failed to segregate customer assets, allowing them to channel funds into speculative bets [1]. For instance, during the 2020 market crash, Cred’s hedging strategies collapsed, yet investors were kept in the dark until it was too late [1]. This lack of transparency and accountability highlights a recurring issue in the crypto sector: the prioritization of growth over governance.

Investors who entrusted Cred with their assets were not just victims of a Ponzi scheme but casualties of a flawed ecosystem. The company’s failure to vet third-party partners—a cornerstone of due diligence—allowed executives to exploit loopholes in custody and collateralization processes [3]. As one regulatory report noted, “Cred’s governance structure lacked independent oversight, enabling unchecked decision-making that directly harmed stakeholders” [4].

Evolving Risk Management in the Post-Cred Era

The Cred case has catalyzed a shift in how investors and institutions approach risk. By 2025, 78% of global institutional investors had adopted formal risk management frameworks, a 20% increase from 2023 [6]. These frameworks now emphasize three pillars: diversification, secure storage, and regulatory compliance.

  1. Diversification and Hedging: Investors are spreading capital across uncorrelated assets to mitigate exposure to individual project risks. For example, derivatives like options and futures are increasingly used to hedge against volatility [6].
  2. Secure Storage: Institutions now favor multi-tiered storage solutions, including hardware wallets and cold storage, with 62% adopting multi-signature wallets to reduce theft risks [6].
  3. Regulatory Compliance: With 84% of institutional investors prioritizing compliance in 2025, crypto firms are navigating complex regulatory landscapes by integrating AI-driven tools to monitor transactions and detect anomalies in real time [6].

Lessons for the Future

The Cred LLC fraud serves as a cautionary tale for both startups and investors. For startups, the lesson is clear: governance and transparency must be non-negotiable. This includes:
- Structured Due Diligence: Formal protocols for vetting partners and continuous monitoring of counterparty risks [3].
- Segregation of Assets: Ensuring customer funds are not commingled and are collateralized appropriately [4].
- Robust Custody Practices: Using institutional-grade custodians and safeguarding private keys to prevent breaches [5].

For investors, the takeaway is equally critical. The rise of AI and blockchain analytics has democratized access to tools that can identify red flags early. However, these tools are only effective if paired with a culture of skepticism and proactive oversight. As one financial advisor noted, “The Cred case proves that even the most sophisticated platforms can fail if they lack ethical governance” [4].

Conclusion

The crypto ecosystem’s evolution post-Cred is a testament to its resilience—and its fragility. While technological advancements and regulatory scrutiny have improved risk management, the industry must remain vigilant. The $1 billion loss from Cred’s fraud is not just a number; it is a reminder that trust in crypto is earned through transparency, not promises. As the sector matures, the onus is on both startups and investors to prioritize due diligence, ensuring that the next generation of crypto ventures does not repeat the mistakes of the past.

Source:
[1] The Cred LLC Collapse: Lessons for Crypto Startups and ...
[2] Cred founders jailed over $140M fraud, receive 88-month ...
[3] Cryptocurrency Lending: Lessons from the Cred Bankruptcy
[4] Lessons from Recent Cryptocurrency Bankruptcy Case
[5] Operational Due Diligence of Crypto Assets
[6] Institutional Crypto Risk Management Statistics 2025

0

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

PoolX: Earn new token airdrops
Lock your assets and earn 10%+ APR
Lock now!

You may also like

Platinum Price Volatility: How Behavioral Economics and the Reflection Effect Shape Investor Sentiment

- The reflection effect in behavioral economics drives platinum's volatility, with investors shifting between risk-averse and risk-seeking behaviors during gains and losses. - 2020-2021 saw profit-taking amid gains, while 2022-2023 triggered speculative bets as platinum entered a loss domain, amplified by supply cuts and a 17-year price breakout. - The gold-to-platinum ratio acts as a behavioral barometer, with 2025's platinum discount sparking record leasing rates and signaling speculative demand shifts.

ainvest2025/08/31 12:06
Platinum Price Volatility: How Behavioral Economics and the Reflection Effect Shape Investor Sentiment

Ethereum News Today: Ethereum's Future Hangs in Balance: Upgrades vs. Rising Rivals

- Ethereum maintains $509B market cap in 2025 despite volatility, driven by 2024 spot ETF approvals boosting institutional adoption. - Dominates DeFi with 63% TVL ($78B), outpacing Solana and BNB Chain, while 8,200 active developers support ongoing upgrades like Dencun and Pectra. - Faces challenges including stagnant price, $0.35 average gas fees, and competition from faster blockchains, though L2 solutions and institutional ETFs provide counterbalance. - Upgrades aim to address scalability and costs, but

ainvest2025/08/31 12:03
Ethereum News Today: Ethereum's Future Hangs in Balance: Upgrades vs. Rising Rivals

Is Bitcoin's Bull Run Reaching a Critical Inflection Point?

- Bitcoin faces critical juncture in late 2025 as $110,000 support tests short-term bearish pressures against long-term bullish fundamentals. - Whale selling, $438M BTC liquidations, and 0.4 ELR ratio highlight $1.5B derivatives risk if price breaks below $107,261. - Institutional demand (690,710 BTC accumulated) and 2028 halving cycle suggest potential $145,000+ rally if macro risks stabilize. - Strategic recommendations include 5-10% Bitcoin allocation via ETFs, 10-15% altcoin exposure, and monitoring UT

ainvest2025/08/31 12:00
Is Bitcoin's Bull Run Reaching a Critical Inflection Point?

Avalanche (AVAX): Tactical Buy at $16 Support Level Amid Volatile Technical Setup

- Avalanche (AVAX) trades near $23.50–$24.00, with $16 support level critical for bullish/bearish outcomes amid volatile technical setup. - Bearish MACD divergence and $26.50 resistance rejections signal seller dominance, while Grayscale’s ETF application could stabilize AVAX at $16. - Historical MACD top divergence backtests show 7.89% average returns but 26.01% max drawdown, emphasizing risk management for asymmetric rewards. - Long-term fundamentals suggest AVAX could reach $71 by Q4 2025 if on-chain gr

ainvest2025/08/31 12:00
Avalanche (AVAX): Tactical Buy at $16 Support Level Amid Volatile Technical Setup