The crypto market, that is already volatile enough for investors to experiment in, is also plagued by scammers who are always on the lookout for unsuspecting victims. This year, over 117,620 scam tokens were launched into the global crypto market that managed to dupe several people off their hard-earned funds, Solidus Labs, a crypto trade research organisation said in its latest “Rug Pull Report”. Scam tokens are often launched under the pretence of promising projects, that lure in early investors who are looking to bet on the next ‘to-the-moon’ tokens.
Binance’s BNB Chain and Ethereum have respectively emerged as the two blockchains, most used by fraudsters to host their fake initiatives.
Over 350 fake tokens alarmingly entered the crypto market on a per day basis between January 1-December 1 this year, Solidus said in its report.
This has marked a 41 percent rise in the launch of fraudulent tokens since last year, when the total number of scam cryptocurrencies stood at 83,400.
“Over the past five years, rug pulls have ballooned from a small problem into a major epidemic, with scam token developers stealing billions of dollars from millions of retail investors,” the report said.
Scam tokens are a major part of rug pull scams, where a project is advertised, investors are enticed with early privileges, and once a substantial investment is gathered, the project developers abandon investors, leaving them high and dry.
Most scammers used the ‘honey pot’ technique to dupe investors, by having them invest in fake tokens and preventing them from re-selling the tokens only to drop the project later.
Over 98,400 cases of honey pot rug-pulls were reportedly observed this between September 2020-December this year.
In its report, Solidus named the infamous Squid Game-inspired scam from November last year as the most ‘prolific’ honey pot scam.
At the time, scammers were believed to have collected around $3.3 million (roughly Rs. 22 crore) with this project before abandoning the project, leading the ‘SQUID’ token to crash by 99.99 percent.
The report estimates that since September 2020, over two million people have fallen prey to these rug pulls from around the world.
“These fraudsters — benefiting from the fact that more than 99 percent of their malicious tokens have evaded detection under traditional approaches to scam identification – deposited and withdrew a combined $11 billion worth of ETH to/from 153 different CeFi exchanges during the time period we studied (September 2020-December 2022),” the report noted.
In light of the growing number of scams around the crypto sector, several industry players are encouraging community members to practice major caution.
Polkadot, for instance, has planned a community-driven anti-scam initiative, to give its community members a say in the governance of the protocol, while also rewarding them in bounties paid in USD Coin for keeping the network scam-free.
In August, the developers of the Ethereum blockchain quadrupled bug bounty to go as high as $1 million (roughly Rs. 8 crore).
A recent report by BanklessTimes has claimed that Americans crypto investors lost over $1 billion (roughly Rs. 8,000 crore) in total to scammers.
Crypto-related scams also rose significantly this year, according to the report. Chainalysis, in a report two months ago, said that the month of October this has been the worst in terms of crypto crimes, with losses of over $718 million (roughly Rs. 5,890 crore) recorded that month.
In order to execute a crackdown on crypto criminals, law enforcement agencies from around the world, are getting in touch with crypto firms seeking details on suspicious transactions.
In its annual transparency report, Coinbase crypto exchange showed a rise of 66 percent in the requests it received from law enforcement agencies taking the annual figure to 12,320. While the US clocked 5,304 requests, the UK ranked second with 1,744 queries between the period of October 2021 and September 2022.