With the continuous increase in popularity of cryptocurrencies, there has been an influx of new investors looking to get involved in the market. With that, numerous scams and carpet pulls have also appeared in the space.
According to a 2022 report by blockchain risk monitoring firm Solidus Labs, more than 117,000 scam tokens were deployed in the year to December, a 41% increase from 2021. In fact, 15 new scam tokens are discovered every hour, and nearly 2 million investors have lost funds to rug pulls.
What are rug pulls?
Rug pulls are a type of crypto scam where the team or the founder of a project abandons the project and suddenly disappears, taking all invested funds with them and leaving investors dry. It is, of course, often done with little or no warning. This usually happens after a project has raised a lot of money.
Unfortunately, rug pulls are all too common in the crypto world. They can also be very difficult to spot before it’s too late. Because of this, it’s important to do your research before investing in any project and beware of red flags.
If you think a rug pull might happen, it’s best to get out as soon as possible and cut your losses. Also, don’t rely on influencer recommendations for your research.
Recently, Coffeezilla (aka Stephen Findeisen), a YouTube crypto “scam” investigator, tweeted that he tricked Bellator MMA fighter Dillon Danis into promoting a fake NFT project link that was causing fans led to a website listing all of his previous “scams.”
In a tweet, Coffeezilla revealed that he and his team paid Danis $1,000 to post about the project without disclosing that it was advertising – a condition enforced by the Securities and Exchange Commission (SEC). His post spelled the word “scam” with the first letter of the last four words.
The Coffeezilla team gave Dannis a link to the post, which would allow users to mint a new crypto project. Instead, it took them to a website that said “Have you been scammed by Dillon Danis?” and featured Dillon’s previous crypto projects that he promoted for money. The site also featured graphs to illustrate how many of the projects Danis supported fell in value shortly after he tweeted about them.
This further goes to show that you should not blindly trust the crypto projects promoted by influencers as they are often paid to promote them and their posts are not always accurate or impartial. It is important to do your own research before investing in any cryptocurrency and not rely on influencers’ opinions.
Worst rug pulls
Now let’s take a look at some of the worst carpet moves seen across all facets of the crypto sector.
1. OneCoin
The largest cryptocurrency Ponzi scheme, OneCoin, raised $4 billion and scammed people out of billions of dollars by promising investors returns on their crypto investments and presenting the company as a legitimate company.
OneCoin Bulgaria founder Ruja Ignatova disappeared in October 2017 and is wanted by US authorities for fraud and conspiracy. She is currently the only woman on the FBI’s Ten Most Wanted Men list and one of the 11 women to ever appear on it. If convicted, she faces up to two decades in prison.
According to court documents, she has scammed unsuspecting victims, whom she called “stupid,” out of billions of dollars by claiming that OneCoin is the “Bitcoin killer,” while the company’s primary business was selling courseware. The coin was also not actively traded and there was no blockchain. Instead, the currency was based on a SQL server.
After Ignatova disappeared, her brother Konstantin Ignatov took control but was arrested in 2019 and eventually pleaded guilty to fraud and money laundering.
2. Thodex
Founded in 2017, Thodex was a Turkish crypto exchange that disappeared in April 2021 with over $2 billion worth of investor funds. At the time, Faruk Fatih Özer, the founder and CEO of the now-defunct exchange, said they had to halt trading due to cyberattacks and that investors’ money was safe before it disappeared.
In 2021, Turkey launched an investigation into Özer on suspicion of fraud and the founding of a criminal organization, arrested dozens of Thodex employees and confiscated the company’s computers. Interpol also issued a Red Notice, meaning all police forces in the world were urged to locate and arrest him.
In September 2022, Özer was arrested in the Albanian city of Vlorë. According to blockchain analysis firm Chainanalysis, around 90% of the total value lost through rug pulls in 2021 was attributed solely to this one fraudulent centralized exchange.
Prosecutors are seeking 40,564 years in prison for all involved, including Özer, according to local reports, as over 2,000 people have been included as complainants in the indictment.
3. Anubis DAO
This dog coin project raised $60 million in ETH (13,597 ETH) from investors in return for native ANKH tokens. Not even 24 hours after the project started, the funding and funds in the investment pool were sent to another address and never recovered.
With no liquidity left to trade the coin, the carpet pull plunged the price of the ANKH token to zero.
AnubisDAO promoted itself as a fork of OlympusDAO, a decentralized reserve currency backed by bond sales and liquidity providers. At the time of launch, the team started with a Discord server and a now-defunct Twitter account, but no website or whitepaper, and its developers used pseudonyms.
“AnubisDAO should serve as a warning to investors exploring similar opportunities. The key takeaway is to avoid new tokens that have not undergone code review,” Chainalysis said in its 2021 Cryptocrime Report.
4. Squid Game (SQUID) Token
One of the worst carpet pullers in crypto was the Squid Game (SQUID) Web3 project, launched by an influencer on Binance SmartChain in 2021 and hyped by massive press coverage. According to Solidus Labs, 12% of all BNB chain tokens are scams.
Capitalizing on the popularity of the Netflix series of the same name, the Squid Game Token raised $3.3 million from investors. The developers then drained SQUID’s liquidity pools and ran away with users’ funds.
In its report, Solidus Labs noted that the Squid Game token was the most prominent example of the honeypot exploit, which invoked an external contract in its deployment contract, making it look like a fast-growing meme coin to many users.
The project had a website but was full of grammatical errors and an anti-dump mechanism. A twitch streamer witnessed the rug pull in a real-time live stream that showed the coin’s market cap dropping from $2.2 trillion to almost zero in an instant. As of this writing, SQUID is trading at $0.0096, down more than 96% from its all-time high.
5. Mutant Ape Planet (MAP) NFTs
The developer of the Mutant Ape Planet (MAP) NFT Collection, which is a copy of the popular Mutant Ape Yacht Club (MAYC) NFT Collection, earned $2.9 million in a rug pull. He was recently arrested and charged with fraud.
Aurelien Michel, a 24-year-old French national living in the United Arab Emirates, was arrested after landing at New York’s John F Kennedy Airport. According to the complaint, Michel and other unnamed defendants marketed their NFT project to potential buyers, promising them that their purchases would come with benefits such as “rewards, raffles, exclusive access to other cryptocurrency assets, and support for a community wallet with future funds.” would be used to market the NFTs.” The developers also made vague promises about acquiring “metaverse land,” but none of those promises materialized.
When all of the NFTs were sold, the defendants allegedly transferred the funds to other wallets under Michel’s control, who, using the alias “James,” admitted to committing the rug pull on the community Discord channel.
On-chain data suggests that Michel stole millions of dollars from several other similar scams such as Fashion Ape NFT and Crazy Camels from allegedly prominent blockchain analyst ZachXBT.
Last word
As we have seen, crypto rug pulls are among the worst ways to lose money in crypto. At rug-pulls, developers market their projects as legitimate and raise funds, but instead of using them for the good of the project, they pocket the money and run away.
Unfortunately, for those investors who fell for the hype and had their money stolen by a carpet puller, there is almost no recourse.
Therefore, it is important to pay attention to any noise about a new crypto project and always carefully examine any project that you are interested in. Be sure to read the project’s white paper and research the team members to make sure they are reputable.
Also, look for projects backed by well-known organizations or individuals in the crypto space. These projects are less likely to be abandoned because there is more to lose for the team or founders.
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