Frauds and scams have been consistently rising in the crypto sector, jeopardising the investors’ funds and stressing the industry participants.
As per a recent study by Solidus Labs, a blockchain risk monitoring firm, more than 350 fraudulent crypto tokens were created daily this year. Solidus Labs is the category-definer for crypto-native triple T (3T) market integrity solutions – trade surveillance, transaction monitoring, and threat intelligence.
These tokens have been used to defraud millions of investors across the globe. In its 2022 “Rug Pull Report,” the monitoring agency published that 117,629 “scam tokens” were deployed from the start of this year to December 1.
A rug pull is a crypto exit scam where an individual or team creates a token and pumps up its price before extracting all the value from the project. This deteriorates the token price as it plummets to zero.
There is approx a 41% increase this year compared to last year, where the total number of scam tokens detected was 83,400. The report claims that BNB Chain fosters the maximum number of scam tokens, with about 12% of all BEP-20 tokens being fraudulent. Build N Build (BNB) Chain is a distributed blockchain network upon which developers and innovators can build decentralized applications (DApps) as part of the move to Web3.
The Ethereum network was second, with an estimated 8% of ERC-20 tokens alleged to be scams.
As per the report, about 2 million investors fell prey to these scams and lost their money in September 2020. The number is greater than the estimated 1.8 million combined creditors affected by the bankruptcies of big-shot exchanges and lending platforms like FTX, Celsius, and Voyager.
Among the scams, the most popular type of scam token was a “honeypot,” a token smart contract that doesn’t allow buyers to resell.
The monitoring firm said that the most prolific “honeypot” successfully executed this year was the $3.3 million Squid Game (SQUID) token scam. The token grew by 45,000% within a few days as investors bought the hype but could not sell. In the end, the anonymous founders ran off with investor funds.
Sources reveal that the centralized exchanges have also been affected by rug pulls as many behind these scam tokens used them to fund their fraudulent project and cash out the illegally gotten gains.
Solidus also alleged that around $11 billion worth of Ethereum was exploited from scam tokens that flowed through 153 centralized exchanges since September 2020. Interestingly, most of these exchanges are under the supervision of United States regulators.
Nearly $4 billion flowed to US centralized exchanges in the estimated time frame, approximately double that of the second most exposed jurisdiction – The Bahamas.
Earlier this year, Todayq News reported JP Morgan saying that the collapses of cryptocurrencies in recent times have been triggered by centralized companies and not by decentralized institutions.