Lately, several DeFi firms have fallen victim to threat actors. Cryptocurrency users and platforms are being targeted on a regular basis. As per Chainalysis’ 2022 Crypto Crime Report, scams accounted for the largest type of crypto-based crime this year. 

The report finds

  • Crypto scams have earned a revenue of $7.7 billion from victims worldwide. This is an 81% rise from that in 2020. 
  • The increase in scam revenue was majorly caused by rug pulls - a new type of scam involved in the DeFi ecosystem.
  • Rug pulls accounted for 37% of all crypto scam revenue, which is $2.8 billion of stolen crypto. 
  • The number of deposits to scam addresses fell to $4.1 million from $10.7 million, implying that there were fewer individual scam victims. This, however, implies that the average amount extorted from each victim increased.

Let’s talk about rug pulls

Rug pulls are referred to instances in which cryptocurrency developers build seemingly legitimate projects and disappear after stealing investors’ money. In the DeFi environment, rug pull involves developers creating new tokens and promoting them to investors, who trade for the new token. However, the developers drain the funds from the liquidity pool, sending the token’s value to zero. This is a common phenomenon in DeFi as with the proper technological knowledge, it is easy and cheap to create new tokens on blockchains. 

Why this matters

DeFi is an up-and-coming innovative domain in the cryptocurrency landscape, providing a myriad of opportunities to early adopters. Nevertheless, the novelty of the space and relative inexperience of many investors provides advisories with ample opportunities for launching scams. 

The bottom line

The rising prevalence of scams has become a noticeable hurdle to successful cryptocurrency adoption. Defending against them is not just the responsibility of law enforcement agencies. Financial institutions and cryptocurrency platforms should fight back against these scams and educate users on such threats and how to stay safe from them.

Cyware Publisher