When crypto token promoters pull the rug out from under investors


(BFM Bourse) – The lack of regulation in the world of “DeFi”, or decentralized finance, facilitates the maneuvers of malicious actors. A type of scam called “rug pull” consisting in setting up a crypto-asset project without real fundamentals, waiting for enough investors to bet on it, before breaking camp by taking the cash. The equivalent of 2.8 billion dollars were subtracted last year.

For many investors looking for a more open and less corseted playing field than traditional regulated markets, decentralized finance (DeFi) which today is building on the possibilities offered by blockchain technology provides an exciting answer. The elimination of central authorities gives users more control over their funds, while reducing transaction costs and times: it’s no wonder that more and more savers are interested in them, says Edith Muthoni, expert from TradingPlatorms, a financial broker comparison site.

Unfortunately, DeFi is also full of malicious actors. These continue to rob unsuspecting investors. According to data compiled by DeFiYield in the REKT database (which aims to list the various crypto scams to prevent other investors from falling into the trap), “exit scams” or “rug pulls” (rug pull in English) represented more than 2.8 billion dollars evaporated out of the 7.7 billion dollars stolen in total in 2021 in the universe of crypto-assets. An increase of 36% compared to 2021.

“And the main cause of this type of scam is the decentralization of DeFi platforms. This peculiarity provides an opportunity for malicious individuals to set up and execute scam schemes due to the weak regulatory framework. who can set up a crypto project without much scrutiny”. Very common in decentralized exchange devices (DEX), rug pulls have also crept into centralized platforms (CEX), notes Edith Muthoni, citing the leak of the founder of the Turkish platform Thodex, Faruk Fatih Özer.

According to REKT, the biggest exit scam of 2021 was that of AnubisDAO, a project launched on the promise of offering decentralized, readily available sources of credit, backed by real assets. Investors contributed funds to build the initial cash fund and received in exchange for ANKH tokens – without reading the documentation, since it was simply non-existent, or paying attention to the fact that the developers were only ever identified by a pseudonym. Conclusion: the latter flew away, taking nearly 60 million dollars. Apart from AnubisDAO, the Uranium finance, DeFi100, Meerkat Finance and Snowdog Dao projects have, on the same principle, relieved too naive investors of a total of 140 million dollars.

Significant return promises

Another typical form of DeFi scam is called honeypot. Here, the initiators of the project trick its victims with promises of high returns, the famous pot of honey that irresistibly attracts gourmets. This is usually accompanied by a lot of hype and a marketing frenzy. Once the value of the token reaches a certain level, investors find that they actually cannot access their funds.

Another way is to use Flash lending attacks. These involve a bad actor who borrows a lot of unsecured loans. Then they manipulate the price of the asset in question before reselling it on another exchange. They repeat the process quickly in multiple exchanges before disappearing.

Learning to recognize the signs of a crypto scam is the first step to avoiding falling victim to it, Edith Muthoni points out. A major warning sign is the dubious, or unverifiable, reputation of the team behind the enticing project, with no evidence of their expertise in managing such projects. Another red flag is the absence of a white paper, a crucial document to explain the philosophy and characteristics of the project, or a white paper that is too brief or poorly done.

In addition, unscrupulous teams lure with unrealistic return projections. In DeFi as in finance in general, when a project is too good to be true… it is not. “To protect yourself against crypto fraud, you need to vet the team carefully. Also, make sure the project has a whitepaper that details its weak points. Also, beware of easy money-making schemes. money.In addition, choose a cold wallet [cold wallet, hors ligne] rather than a hot wallet [hot wallet, en ligne] is a plus”.

Guillaume Bayre – ©2022 BFM Bourse



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