Crypto-scams have cost $7.7 billion, but how serious have rug pulls been?

 Crypto-scams have cost $7.7 billion, but how serious have rug pulls been?

The rapid growth of cryptocurrency acceptance over the last few years has caused the rest of the globe to take note of this rapidly growing business. However, this has resulted in an increase in the number of crypto-scams.

According to Chainalysis, cryptocurrencies-related scams increased by 81 percent in 2021 compared to the previous year, totalling $7.7 billion.

Source: Chainalysis

As expected, a majority of these figures can be attributed to the newly surfacing scam strategy called a ‘rug pull.’ This is particularly common in the DeFi ecosystem. As per Chainalysis’s report, they accounted for 37% of the total scamming revenue of 2021, up from a mere 1% last year. In total, these rug pulls amounted to over $2.8 billion in revenue.

A rug pull entails developers creating and marketing a cryptocurrency project that appears to be authentic. Customers are tempted to buy newly produced tokens in the prospects of future benefits, but the creators deplete the project's liquidity pools and flee with the users' funds by driving the token price to zero.

Rug pulls have become very popular in the DeFi ecosystem of late. Mostly owing to the ease with which new tokens may be created on the Ethereum network and listed on decentralised exchanges without requiring a code audit.

Consider the Squid Game project, which was inspired by pop culture. After a successful pump and dump scam, the developers made off with $3.4 million.

 

Source: Chainalysis

It was, however, far from the largest. In reality, Thodex, a Turkish centralised exchange, was the biggest rug grab of the year. Soon after the exchange banned all user withdrawals, its CEO purportedly vanished with all of Thodex's assets.

However, all future rug pulls took occurred within the DeFi ecosystem, with the greatest being carried out by a project called AnubisDAO. It cost more than $58 million in all.

On the plus side, the number of deposits to fraudulent addresses dropped from little under 10.7 million to just under 4.1 million. While this suggests that there were fewer individual scam victims, it also indicates that the average amount taken from each victim increased.

The average longevity of such investment schemes has also fallen dramatically, according to Chainalysis. "One reason for this could be that investigators are becoming more adept at detecting and prosecuting scams," the report continued.

Even so, with heightened surveillance and prosecution, scammers continue to get more sophisticated and innovative in their quest to illegally siphon off funds. In fact, a recent report by Tenable had found that scammers have been hijacking legitimate YouTube accounts in order to promote fake cryptocurrency giveaways.

For their fake live footage, scammers often use footage of industry figureheads such as Vitalik Buterin, Charles Hoskinson, and Michael Saylor.

Interestingly, Tesla CEO Elon Musk is another favorite among scammers as fake verified pages of the billionaire offering free crypto-giveaways continue to pop up on various social media platforms.

These scams are undoubtedly hampering the mainstream adoption of cryptocurrencies.

“As the largest form of cryptocurrency-based crime and one uniquely targeted toward new users, scamming poses one of the biggest threats to cryptocurrency’s continued adoption.”

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