By Michael Scott
The annual report by Solidus Labs decries that ballooning rug pulls turned into an epidemic where scam token developers defrauded billions of dollars of unsuspecting crypto retail investors.
The inaugural report released on December 16 lamented that developers deployed over 117,500 crypto rug pulls since January. In particular, the blockchain risk assessment by Solidus Labs pointed out that rug pull developers portrayed higher appetites in 2022 as crypto investors encountered 350 new tokens daily.
Crypto Investors Susceptible to Fraudulent Hypes
The report highlighted the increased susceptibility of crypto investors to aggravated fraud traps laid by scam token developers. The monitoring conducted on blockchain risk by Solidus reported a heightened fraudulent activity, with scam tokens realizing a 41% uptrend from 83400 in 2021 to 117629 this year.
The detailed scrutiny of various blockchains indicates that BNB Chain hosted the largest number of rug pulls. Solidus’ report alleged that 12% of the BEP-20 tokens harbored in the chain were fraudulent. The Ethereum network ranked second, with an estimated 8% of the ERC-20 tokens considered to facilitate scam activities.
Solidus report portrays 2022 as a period where crypto investors experienced the calamitous collapse of critical players, including FTX, Celsius Network, Three Arrows Capital, and Terra Luna. Furthermore, the report condemned FTX’s collapse for triggering a wave of bankruptcy risk as exposed crypto firms face declining liquidity.
Overview of Notable Crypto Fraud
Similarly, crypto investors faced the highest number of fraudulent crypto tokens. The report explained that rug pulls involve crypto exit scams where the development team launches tokens that artificially manipulate the price before extracting value in the short-lived project. Often, the development team abandons the token when the price nosedives to zero.
Solidus showed an increased number of scam victims to nearly 2 million, almost matching the 2.3 million creditors whose digital wealth is trapped or forever lost in the bankrupt crypto actors, including Voyager, Celsius, BlockFi, and the FTX Group.
The blockchain risk assessments indicated that honeypot is a preferred scam vehicle, particularly for its smart contract design that hinders buyers from reselling. Solidus identified Squid Game (SQUID) as the lead scam executed successfully to yield $3.3 million. The anonymous founders of SQUID artificially increased the token price by 45,000%. Investors fell victim to the hype, losing millions of dollars as founders disappeared with the proceeds.
Widespread Effect of Rug Pulls
Solidus’ report emphasized the vulnerability of centralized exchanges (CEXs) as the preferred channel for fraudulent developers to fund malicious schemes and cash-out proceeds. The report indicated that 153 CEXs facilitated the pilferage of scam proceeds estimated at worth $11 billion Ether since September 2020.
Solidus’ report portrayed the failure of the US watchdog agencies to safeguard investors since most CEXs that facilitated the fraudulent activities were domiciled in the US. The report estimated that $4 billion was pilfered via the US CEXs, almost twice the proceeds processed in exchanges within second-ranked Bahamas jurisdiction.