With the growing popularity of cryptocurrencies, new investors are looking to get involved in the market. With this, many scams and rug pulls have also emerged in the space.
According to a 2022 report from blockchain risk monitoring firm Solidus Labs, over 117,000 fraudulent tokens were deployed in the year through December, a 41% increase from 2021. In fact, 15 new fraudulent tokens are detected every hour and nearly 2 million investors lost funds due to draws.
What are Rug-Pulls?
Rug pulls are a type of crypto scam in which the team or founder of a project abandons the project and suddenly disappears, taking all the invested funds with them and leaving the investors homeless. Of course, this is often done with little or no warning. This usually happens after a project has raised a lot of money.
Rug pulls are unfortunately all too common in the crypto world. They can also be very difficult to spot before it’s too late. This is why it’s important to do your research before investing in a project and be wary of any red flags.
If you think an all-in might be happening, the best thing you can do is get out as soon as possible and cut your losses. When doing your research, don’t rely on influencer recommendations either.
Recently, Coffeezilla (aka Stephen Findeisen), a YouTube crypto “scam” investigator, posted on Twitter that he tricked Bellator MMA fighter Dillon Danis into promoting a fake NFT project link that led fans to a web page detailing all of his past “scams.” .”
In a tweet, Coffeezilla revealed that he and his team paid Danis $1,000 to post about the project without disclosing that it was an advertisement – a stipulation enforced by the Securities and Exchange Commission ( DRY). His message spelled out the word “scam” with the first letter of the last four words.
The Coffeezilla team gave Dannis a link to the post that would allow users to create a new crypto project. However, instead it directed them to a website that says: “Have you been scammed by Dillon Danis?” and showed Dillon’s previous crypto projects that he had promoted for money. The website also included graphs to illustrate how many projects Danis backed increased in value shortly after he tweeted about them.
This shows that you should not blindly trust crypto projects promoted by influencers, as they are often paid to promote them and their posts are not always accurate or unbiased. It is important to do your own research before investing in any cryptocurrency and not rely on the opinions of influencers.
The worst rug pulls
Now let’s take a look at some of the worst situations that can be seen in all areas of the crypto industry.
1. UnCoin
The largest cryptocurrency Ponzi scheme, OneCoin, raised $4 billion and defrauded billions of dollars by promising investors returns on their cryptocurrency investments and presenting the company as a legitimate business.
The Bulgarian founder of OneCoin, Ruja Ignatova, disappeared in October 2017 without a trace and is wanted by US authorities on fraud and conspiracy charges. She is currently the only woman in the FBI. List of the ten most wanted people and one of only 11 women who have ever appeared there. If convicted, she faces up to two decades in prison.
According to court documents, she tricked unsuspecting victims, whom she called “stupid”, into sending them billions of dollars by claiming that OneCoin would be the “Bitcoin killer”, when the main business of the The business was to sell course materials. The coin was also not actively traded and there was no blockchain. Instead, the currency was based on an SQL server.
After Ignatova disappeared, her brother, Konstantin Ignatov, took control but was arrested in 2019 and eventually pleaded guilty to fraud and money laundering.
2. Thodex
Founded in 2017, Thodex was a Turkish crypto exchange that went under in April 2021 with investor funds worth over $2 billion. At the time, Faruk Fatih Özer, founder and CEO of the now-defunct exchange, said it had to cease operations due to cyberattacks and that investors’ money was safe before it disappeared.
In 2021, Turkey opened an investigation against Özer on suspicion of fraud and founding a criminal organization, arrested dozens of Thodex employees and seized the company’s computers. Interpol also issued a red notice, meaning all police forces around the world were asked to locate and arrest him.
In September 2022, Özer was arrested in the Albanian city of Vlorë. According to blockchain analytics firm Chainanalysis, approximately 90% of the total value lost to rug pulls in 2021 was attributed to this single fraudulent centralized exchange.
According to local reports, prosecutors are seeking a prison sentence of 40,564 years for all parties involved, including Özer, since more than 2,000 people are included in the indictment as plaintiffs.
3. AnubisDAO
This dog coin project raised $60 million in ETH (13,597 ETH) from investors in exchange for native ANKH tokens. Not even 24 hours into the project, the funding and investment pool funds were sent to a different address and were never recovered.
Without liquidity to trade the coin, the rug caused the price of the ANKH token to drop to zero.
AnubisDAO presented itself as a fork of OlympusDAO, a decentralized reserve currency backed by bond sales and liquidity providers. At the time of its launch, the team started with a Discord server and a now-inactive Twitter account, but no website or white paper, and its developers used pseudonyms.
“AnubisDAO should serve as a cautionary tale to investors evaluating similar opportunities. The most important takeaway is to avoid new tokens that have not undergone a code audit,” Chainalysis said in its 2021 Crypto Crime Report.
4. Squid Game Token (SQUID)
One of the worst successes in crypto was the Squid Game (SQUID) Web3 project, which was launched by an influencer on Binance SmartChain in 2021 and publicized via massive media coverage. According to Solidus Labs, 12% of all BNB Chain tokens are scams.
Capitalizing on the popularity of the eponymous Netflix series, the Squid Game token raised $3.3 million from investors. The developers then emptied SQUID’s liquidity reserves and absconded with user funds.
In its report, Solidus Labs noted that the Squid Game token was the most famous example of a honeypot exploit, which called for an external contract in its deployment contract, making it look like a fast-growing coin to many users.
The project had a website but was full of grammatical errors and an anti-dump mechanism. A Twitch streamer caught the boost during a real-time live stream that showed the coin’s market cap falling from $2.2 trillion to almost zero instantly. At the time of writing, SQUID is trading at $0.0096, down over 96% from its all-time high.
5. NFT Mutant Ape Planet (MAP)
The developer of the Mutant Ape Planet (MAP) NFT collection, which is a knockoff of the popular Mutant Ape Yacht Club (MAYC) NFT collection, earned $2.9 million from a rug draw. He was recently arrested and charged with fraud.
Aurélien Michel, a 24-year-old French citizen residing in the United Arab Emirates, was taken into police custody after landing at John F. Kennedy Airport in New York. According to the complaint, Michel and other anonymous defendants marketed their NFT project to potential buyers by promising that their purchases would come with benefits such as “rewards, sweepstakes, exclusive access to other cryptocurrency assets and supporting a community wallet with funds to invest.” used to market NFTs. The developers also made vague promises about acquiring “metaverse lands”, but none of these promises came to fruition.
When all the NFTs were sold, the defendants allegedly transferred the funds to other wallets under the control of Michel, who admitted to pulling the rug on the community’s Discord channel under the pseudonym “James.”
On-chain data suggests that Michel made millions of dollars from several other similar frauds such as Fashion Ape NFT and Crazy Camels, claimed prominent blockchain analyst ZachXBT.
Last word
As we have seen, crypto rug pulls are among the worst ways to lose money in crypto. During rug pulls, developers present their projects as legitimate and raise funds, but instead of using them to benefit the project, they pocket the money and run away.
Unfortunately, there is virtually no recourse for investors who have been misled by this hype and had their money stolen as a result of a rug grab.
As such, it is important to pay attention to any noise regarding a new crypto project and always do your due diligence on any project that interests you. Be sure to read the project white paper and research the team members to make sure they are reputable. .
Also look for projects backed by well-known organizations or individuals in the crypto space. These projects are less likely to be abandoned because there is more to lose for the team or founders.