Exit scams or rug pulls contributed over $2.8B of the $7.7B the sector lost to theft in 2021. That’s per tradingplatforms.com’s data presentation.
Tradingplatforms.com’s Edith Reads has been dissecting the data. “In 2021, exit scams grew by 36% from the 2020 levels,” she said. “And the main reason driving this kind of scam is the decentralization of Defi platforms. That aspect provides an opportunity for malicious individuals to set up and execute con schemes due to the weak regulatory framework. Anyone can set up a crypto project here without much of an audit.”
Notable crypto rug pulls of 2021
AnubisDAO was the largest Defi rug pull by value. The project took off on the premise that it would provide decentralized, readily available money underpinned by a mix of assets.
Despite not having a whitepaper and its developers using pseudonyms, it raised some $60M. The developers then vanished with the funds, moving them to new addresses.
Besides AnubisDAO, other notable rug pulls involved Uranium finance, DeFi100, Meerkat Finance, and Snowdog Dao. The four collectively ripped investors off of $140M.
The various faces of DeFi Scams
Besides rug pulls, there are other forms of Defi cons. One of these is the Honeypot. Here the project dupes the victim with promises of massive returns. Once the token’s value rises to a certain level, the fraudsters lock investors out of their funds.
Flash loan attacks are another form. These involve a bad actor borrowing a lot of non-collateralized loans. Then they manipulate the asset’s price before reselling it on a different exchange. They repeat the process in multiple exchanges before vanishing.
Exploits on their part entail malicious actors hacking into the project’s hot wallets. They then siphon the funds to their wallet addresses.
Identifying and mitigating DeFi scams
A major telltale sign of a scam project is that the team has a dubious reputation. There’s very little vouching for their expertise in running such projects.
Another red flag is the absence of a whitepaper. Alternatively, the team provides one that’s sketchy or poorly done. Further, unscrupulous teams will bait you with projections of unrealistic returns.
Again, such projects have very few token holders and list on little-known exchanges. Do a thorough check on the team to protect yourself from crypto fraud. Also, ensure that the project has a whitepaper detailing its pain points. Besides, be wary of easy money-making schemes and choose a cold wallet over a hot one.
