First, come up with a catchy name for a cryptocurrency project. Next, convince the credulous to buy associated digital tokens. Finally, abandon the project and keep investors’ funds.
This “rug pulling” scam lacks sophistication but evidently it works. According to Chainalysis, a blockchain data biz, separating cryptocoin buyers from their money in this manner has become particularly popular in the DeFi (decentralized finance) ecosystem and has contributed to a scam surge.
In a post previewing the company’s 2022 Crypto Crime Report, Chainalysis said scams constituted the largest form of cryptocurrency-based crime, as measured by transaction volume. Cryptocurrency investors – if that’s the right term – lost over $7.7bn worth of digital whatever in 2021.
That’s up 81 per cent from 2020, but 2020, amid the COVID-19 pandemic, was an unusual year. This year was not quite as bad as 2019, which was close to $10bn worth of scams. But there were more scams overall (3,300 in 2021, up from 2,052 in 2020), albeit with shorter lifespans (~70 days in 2021, compared to ~192 in 2020 and to around ~2,369 in 2013).
Take-the-money-and-run gambits should not to be confused with losses attributable to security shortcomings at DeFi services that let hackers steal funds, like the recent theft of some $120m in tokens from BadgerDAO or the $31m taken from MonoX. That’s a separate dumpster fire.
The decreasing survivability of crypto scams, Chainalysis suggests, follows from increasing regulatory enforcement, like the charges filed in September against 14 crypto-oriented entities by the Commodity Futures Trading Commission for fraud and other rule flouting.
There’s no authoritative list for such a fast moving market though TokenSniffer aspires to keep track of dubious crypto cruft. The website currently has flagged 66,239 crypto tokens as potentially problematic, with the obligatory disclaimer a listing isn’t a definitive determination. After all, with names like KingSmudge, ELONSHIBASOK, and Honey Badger, who’s to say what possible riches might be yours by sending your money to unknown people on the internet?
Total scam revenues for the year would have remained flat, Chainalysis said, but for the rise in rug pulls, which accounted for 37 per cent ($2.8bn) of all 2021 revenue from cryptocurrency scams, compared to just 1 per cent in 2020.
The number of deposits to scam addresses – blockchains make such things visible – fell from about 10.7 million to 4.1 million, which suggests fewer people were victimized. However, the figures also indicate that the average amount taken from each victim increased.
The largest alleged rug pull of the year involved Thodex, a Turkish centralized exchange rather than a DeFi project driven by, ahem, smart contracts. What happened was people invested and the CEO – who denied any wrongdoing – disappeared with the funds. Users lost over $2bn in cryptocurrency, which is most of the 2021 loss attributable to rug pulls.
The second most significant alleged rug pull was AnubisDAO, a DeFi project – meaning transactions get governed by code, in …….
Source: https://www.theregister.com/2021/12/16/cryptocurrency_rug_pulls/
