According to the Chainalysis 2022 Crypto Crime Report, Rug Pulls have emerged as the go-to scam of the DeFi ecosystem accounting for 37% of all cryptocurrency scam revenue in 2021, versus just 1% in 2020.
“Rug pulls refer to cases in which developers build out what appear to be legitimate cryptocurrency projects – meaning they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities – before taking investors’ money and disappearing.”
The rug pulls took in more than $2.8 billion worth of cryptocurrency from victims in 2021.
Globally, the biggest rug pull of the year involved Thodex, a large Turkish centralized exchange whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds, amounting to the loss of over $2 billion of user funds.
So, how do you avoid this type of scam that is becoming more common?
Here are three tips to look out for:
Always read the whitepaper – Whitepapers are crucial documents that communicate the team’s philosophy
Be skeptical of guaranteed returns – If it sounds too good to be true, it probably is, especially if the project is listed on a less well-known exchange
Choose a cold wallet – Storing your assets in a cold wallet will guard against some of the fraudulent tactics you read earlier
On the whole, when operating in the crypto space, being a new space, you want to keeb abreast with the latest news, information, and education to stay protected.