The coming of a still somewhat novel market space, through cryptocurrencies, offers fertile ground for scams and other digital crimes to flourish in as well. And keeping that in mind, “Rug Pulls”, a type of scam that’s most often seen in decentralised finance (DeFi), stole $2.8 billion from investors this year, according to new data released on Thursday.
In the report, Blockchain analytics company Chainalysis found that rug pulls have been a key driver behind the $7.7 billion in cryptocurrency-based crimes in 2021. It may be noted that rug pulls accounted for only 1% of the under $5 billion illegal revenue from crypto just the previous year.
About Rug Pulls
Rug pull is a seemingly harmless Twitter buzzword used to refer scams that are slightly different from simple scams like fake giveaways or more sophisticated crypto hacks. This type of scam occurs most frequently in DeFi spaces, because decentralised exchanges (DEXs) permit virtually anybody to created their own digital currency with little to no protocol audit.
Rug pulls drew quite a bit attention just recently, when a cryptocurrency that’s linked to the mainstream Netflix drama Squid Game soared in value before its developers pulled the plug on it, leaving its investors holding empty bags in its wake. Chainalysis claims that rug pulls have turned into the “go-to scam in the DeFi ecosystem” this year, entailing 37% of all scam revenue over the year versus just 1% in 2020.
On tuesday’s hearing centered around stablecoins, US Senator Elizabeth Warren called DeFi “one of the shadiest parts of the crypto world” and called out to the regulators “to get serious about clamping down before its too late.” She is an active critic of cryptocurrency who asserted that stablecoins pose risks to the consumer as well as the economy as a whole.
Stablecoins pose risks to consumers & to our economy. They’re propping up one of the shadiest parts of the crypto world, DeFi, where consumers are least protected from getting scammed. Our regulators need to get serious about clamping down before it is too late. pic.twitter.com/hMOT1HIQgn— Elizabeth Warren (@SenWarren) December 14, 2021
According to The Indian Express, out of the $2.8 billion lost, the crypto exchange platform Theodex accounted for the largest piece of the pie, where over $2 billion in client funds were misplaced after the founders of thos exchange disappeared in April. This was followed by Dogecoin-inspired AnubisDAO at a $58 million loss, and a $50 million scam at Binance Smart Chain-based exchange Uranium Finance.
You may already be aware that the main appeal of DeFi is in the idea that anyone can build anything they want on these platforms. However, decentralised tokens also come with governance or voting rights to those holding these tokens, which ordinarily prevents any rug-pulling behind the scenes by developers. A code audit is also used to confirm the legitimacy of a project for the for all the investors and potential investors of that project.
In the end, it is also worth noting that the vast majority of the funds stolen in rug pulls in 2021 actually originate from a non-DeFi project; where Theodex, a Turkish exchange, was deprived of a mind boggling sum of $2.6 billion when the CEO of Theodex vanished shortly after halting its users’ ability to withdraw their funds.
Why are your thoughts on the safety of cryptocurrency investments and the surge in cybercrimes relating to cryptocurrency in recent years? Share them with us by commenting below.