NFinancial services can be accessed through DeFi (Decentralized Finance), which leverages blockchain technology, without being bound by traditional financial institutions like the banking system in the same way they are constrained. With a market valuation of more than $146 billion, DeFi has seen tremendous growth.
It doesn’t matter how quickly Defi has developed or how much it has improved access to financial services; it has become a popular method for online theft and criminal activities. Crimes of this nature, which occur regularly in DeFi, have earned the moniker “rug pull.”
In the world of DeFi, rug pull is a widespread crime that affects both individuals and companies. There is a lot to learn about rug pulls and how to keep yourself safe.
Fraudulent developers typically use “rug pulls” to produce new cryptocurrency tokens, then manipulate their prices by taking as much value as possible from those tokens before abandoning them when their value drops to zero.
What Is A Rug Pull?
A rug pull occurs when malevolent developers leave their projects and flee with investors’ money. After creating a token and listing it on a DEX, malicious individuals couple it with a large cryptocurrency like Ethereum.
By eliminating money from the liquidity pool, the coin’s price is pushed to zero by its producers. A transient buzz on social media platforms like Telegram, Twitter, and others may even be created by flooding their liquidity pool to boost investor confidence.
Decentralized exchanges (DEX) allow users to publish their tokens for free and without audit, unlike controlled cryptocurrency exchanges. Open-source blockchains like Ethereum make token production simple and free.
Types Of Rug Pull
Rug pulls can be categorized into three, namely, limiting sell order, dumping, and liquidity theft.
1. Limiting Selling Order
Fraudulent investors may attempt to fool their victims by placing limiting selling orders. Because of the way the tokens are coded, they can only be sold by the creator. This tells investors to buy or sell tokens at a pre-determined price specified by the founders.
The creators then wait for ordinary investors to buy into their new coins using matched currencies. An exchange rate is set up between two currencies to facilitate trade. When the price is good, they sell their assets and leave behind a worthless token in their wake.
As soon as the tokens are created, developers begin to dump them. Investors are left with worthless coins as a result of this devaluation.
A dumper may dump after a lot of social media promotion. A “Pump and Dump Scheme” refers to the resulting price increase and subsequent sell-off.
False information is used by developers to artificially boost the price of a cryptocurrency, which they then sell for a profit. Assailants may employ celebrities to promote the cryptocurrency on their social media accounts in some cases.
Coincidences like the Squid game’s inflated currency and disappearance of $3 million in investor monies are well-known.
3. Liquidity Theft
For example, when token creators extract all of the coins from a crypto liquidity pool, they are committing liquidity theft. What does it mean in this context to talk about a crypto liquidity pool?
Cryptocurrency assets that are protected by a smart contract and can be utilized for exchanges, loans, and other purposes are referred to as liquidity pools.
Top 10 Crypto Rug Pulls In DeFi
1. Thodex (Over $2 billion)
Investors’ assets totaling more than $2 billion went lost from the Turkish crypto exchange Thodex in April 2021.
A cyberattack forced Thodex to halt trading, although the company’s initial deposits were safe, according to the CEO.
Even though the exchange was shut down the night before, she allegedly left the country and promised to refund the money when he arrived back home in Turkey.
In certain cases, their investors have a substantial sum of cryptocurrencies in their wallets. Almost $12,000 worth of Dogecoin is kept on Thodex by Kaan Savukduran. Several other dealers represented seven investors, including one with three Bitcoin ($150,000) locked up in Thodex, who was represented by Mertcan Bayraktar.
2. Uranium Finance (Over $50 million)
Uranium Finance tweeted in April 2021 that $50 million in investor cash had been stolen. However, it didn’t appear to be the case, and investors’ funds were once again wiped clean.
After April 28, 2021, a hack of Uranium Finance, a decentralized finance (DeFi) firm based on the Binance Smart Chain, $50 million was destroyed.
Several tokens, including bitcoin and ether, were allegedly taken from the Uranium protocol, according to Igor Igamberdiev of The Block Research.
According to the business, the exploitation occurred after Uranium’s protocol was upgraded to version V2.1 this month.
Uranium is an automated market maker (AMM) protocol that promises to pay its customers a certain amount of money each day. Uniswap V2 is a fork of this application.
3. Arbix Finance ($10 million)
After being branded a “rug pull” and losing $10 million scam bitcoin deposits, Arbix Finance, an audited platform for yield farming, had its website, Twitter, and Telegram channels were taken down.
The Binance Smart Chain underpins Arbix Finance’s claim to be a yield-farming aggregator. Deposits from consumers have totaled roughly $10 million thus far.
Using CertiK’s Skytrace algorithm, which assesses the possibility of fraud, the company identified many red flags in Arbix. According to some of Arbix’s earliest discoveries, the depositor contract was used to disperse investor money into unconfirmed pools, which were then drained by the Arbix team.
4. Snowdog ($10 million)
SDOG was a meme currency that sold for over $30 million, making it one of the year’s most valuable.
Insiders tried to use “game theory went awry,” a form of cognitive dissonance. Snowdog, on the other hand, promised massive returns on a $40 million repurchase of Snowdog tokens.
Customers could not access the contract for the buyback on the new DEX without a mechanism called a challenge key in the fund’s contract.
5. TurtleDEX ($2.4 million)
On March 15, TurtleDEX announced its admission into the Binance Smart Chain, claiming that it will provide consumers with secure online storage.
Two hours into its presale, the decentralized exchange generated $2.4 million. Within five days of the platform’s introduction, its creators had already attracted investors. According to records, the platform’s pools of liquidity on ApeSwap and PancakeSwap were depleted.
According to Etherscan data, the monies in the liquidity pools were depleted and then transferred to a list of Binance wallets. Before shutting down their website, the founders deleted their Twitter and Telegram accounts.
6. OneCoin (Over $4 billion)
OneCoin has been one of the most infamous rug-pulls in the history of the crypto industry. ” The creators of the scheme were able to defraud unsuspecting investors out of more than $4 billion.
Ruja Ignatov and other members of the OneCoin team participated in the rug pulling event. In June 2016, Ignatova, dubbed the “Cryptoqueen,” unveiled OneCoin, claiming it was the “Bitcoin killer” and convincing investors to spend billions of dollars.
Despite the project’s accomplishment, some of the project’s leaders were jailed and others went missing, according to the BBC. Because it lacked a blockchain and a payment system, OneCoin was never exchanged and could not be used to buy anything.
7. AnubisDAO ($60 million)
On October 28th, 2021, AnubisDAO, an OlympusDAO fork, was released. With the help of bond sales and fees from liquidity providers, OlympusDAO has become a decentralized financial currency.
Before the token went live, its developers kept a Discord server and a Twitter account active to keep the community informed.
More than $60 million was invested in the initial coin offering (ICO), which would have given the investors ANKH tokens. The pool’s liquidity was transferred to a new wallet when the sale hit 20 hours. A large number of investors projected that the token would be popular like earlier dog-themed tokens.
Soon after, investors began giving $1,000 in Ethereum to anyone who could provide crucial information.
8. Meerkat Finance ($31 million)
On March 3, 2021, the Binance Smart Chain launched Meerkat Finance, which quickly attracted a large number of investors.
A day later, Meerkat Finance announced that it had been breached. According to the engineers, hackers gained access and stole $31 million. While most investors believe the developers defrauded them out of their money, a minority disagree.
According to a press release, the company’s vaults had been breached, resulting in the theft of $13 million in BUSD and more than $17 million in BNB. After the breach, the protocol, social media, and the official platform all went dark.
9. Luna Yield ($10 million)
Luna Yield was an ecological liquidity farming effort built on the Solana (SOL) platform. The SOL project’s total locked value had increased significantly before Luna Yield disappeared, reaching over $2 billion (TVL).
Withdrawing over $10 million in cash, the project’s creators quickly wiped up their online presence and their Telegram and Twitter accounts.
Luna Yield investors attempted to withdraw their unstated monies but were unsuccessful due to the pool’s negative value following the deletion of the social media pages. The Luna Yield community determined that the transactions that led to the rug pull were permitted at the address of the project’s developer after further investigation.
10. Squid Game ($3.36 million)
The most recent and largest crypto rug pull is the Squid game. A play-to-earn token based on Netflix’s mega-hit TV show Squid Game called the “Squid.”
In the first few weeks after its launch, the token surged significantly, rising from a cent to $3.36 by more than 33,600%.
The token soared to a high of $2861 before it was wiped out. The Squid token had been dismantled, and its creators had become inaccessible to the general populace. At this point, more than 43,000 people have invested in the token. Currently, the coin’s worth is approximately $0.003028.
Rug pulls and NFT frauds are becoming prevalent in the Bitcoin and DeFi markets as the blockchain industry advances. Doing careful study and looking for obvious signals can help investors avoid them.
In a decentralized banking system, it’s nearly impossible to spot a fake account. The majority of endeavors that appear to be too good to be true usually are.