Rug pulls dominated the landscape of crypto attacks in Q3 2023, making up 65% of all incidents within the crypto ecosystem.
According to a report from Hacken, there were 78 documented cases of rug pull attacks, resulting in the theft of nearly $50 million. These incidents were particularly prevalent due to the ease with which scammers could generate fraudulent tokens on a large scale.
A common crypto scam, a rug pull occurs when a creator or developer promotes a new cryptocurrency or NFT as a lucrative investment opportunity. As investors pour money into this digital asset, the creator suddenly disappears, along with investors’ funds and rendering the cryptocurrency worthless. The decentralized nature of the blockchain makes it difficult to identify these bad actors, as their identities are often concealed.
In light of these risks, Hacken recommends choosing projects that feature community-led governance, renounced administration controls, and developers with verified identities.
Crypto Scams Are Increasing
Scams continue to plague the crypto space, presenting an ongoing challenge without a clear resolution in sight. Amid significant price fluctuations and regulatory uncertainty, the emergence of rug pulls exacerbates the struggle for crypto to solidify its position as a stable, low-risk digital currency.
The FTX collapse in November 2022 contributed to a domino effect reaction, particularly as Visa and Mastercard pulled the plug on crypto-adjacent products. Although it was a temporary decision, a spokesperson for Visa made it clear that cryptocurrency has yet to prove itself before it can secure a permanent place as a mainstream payment method.
Last November, Lloyds Bank issued a warning to its customers, alerting them to the growing number of cryptocurrency scams. In fact, 66% of crypto scams were initiated through popular social media platforms such as Facebook and Instagram. Fraudulent tactics included direct messaging, fake ads, and celebrity endorsements. These types of scams surpassed other scams, including romance and purchase scams.
Liz Ziegler, Fraud Prevention Director at Lloyd’s Bank called crypto a “risky asset class and remains largely unregulated.” She stated that if things were to go awry, there would be no recourse.