Crypto exit scams: over $2.8 billion lost in the past year

By Gaia Lamperti

Exit scams or rug pulls contributed over $2.8 billion of the $7.7 billion the cryptocurrency sector lost to theft in 2021. Malicious actors continue to steal from unsuspecting investors, as data collected by tradingplatforms.com shows.

“In 2021, exit scams grew by 36% from the 2020 levels, and the main reason driving this kind of scam is the decentralization of Defi platforms,” explained Edith Reads, a spokesperson for Tradingplatforms.com. “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 examples of crypto rug pull

In 2021, AnubisDAO was the largest Defi rug pull by value. The project took off on the premise that it would provide decentralised, readily available money underpinned by a mix of assets. Despite not having a whitepaper and its developers using pseudonyms, it raised some $60 million, yet, the developers then vanished with the funds, moving them to new addresses.

Besides AnubisDAO, other notable rug pulls of the past year involved Uranium finance, DeFi100, Meerkat Finance, and Snowdog Dao, the four of which collectively ripped investors off of $140 million.

Notwithstanding their dominance in decentralised exchanges, exit scams also found their way to centralized exchanges (CEX), and the largest of these heists occurred over the Thodex CEX.

The various faces of DeFi scams

Exit scams are increasingly becoming the medium for pulling off such heists, but DeFi scams come in varied forms and besides rug pulls, one of them is the Honeypot. The project dupes the victim with promises of massive returns, but 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-collateralised loans to 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 and then siphoning the funds to their wallet addresses.

Identifying DeFi scams

Getting to tell the signs of a crypto scam is the first step to avoid falling victim to them. A major telltale sign of a scam project is that the team has a dubious reputation. Another red flag is the absence of a whitepaper or, if there’s one, it looks sketchy or poorly done. The whitepapers are a crucial document as it shares the team’s philosophy and only unscrupulous teams will bait you with projections of unrealistic returns.

Further, unscrupulous teams will bait you with projections of unrealistic returns. More often than not, these too good to be true projects are just that and such projects have very few token holders and are usually listed on little-known exchanges.

To protect yourself from crypto fraud, it is always advisable to you need to do a thorough check on the team behind the project and ensure that the project’s whitepaper details its pain points clearly and accurately.