With today's post I start a small series of articles about the main threats and scams present in the crypto world and how to avoid them, the first one will deal with Rug Pulls, well known to those who have been in the crypto world for a while but became famous with the Squid Game scam token.
WHAT IS A RUG PULL?
Imagine being in a room and standing on a rug. You're not thinking about anything and you think you're fine. Then all of a sudden, someone pulls the rug out from under you and suddenly you fall and hurt yourself.
ICOs (Initial Coin Offer) that had become trendy in 2017 (also leading to a lot of scams), are now out of fashion: "Rug Pulls" and in general "Exit Scams" made up 99% of all cryptocurrency inherent fraud schemes in the second half of 2020. In fact, 2021 didn't start much differently either.
This is a report by CipherTrace, according to which, criminals "cashed in" $1.9 billion in 2020. Most of this criminal activity falls under the crimes of "fraud and embezzlement." The second most popular category, according to CipherTrace, are hacking attacks. A pyramid platform called WoToken was responsible for a $1.1 billion scam.
DeFi has also been particularly vulnerable, mostly thanks to the aforementioned "Rug Pulls" a scam in which scammers drain liquidity from a protocol, leaving investors with no recourse.
A bit like providing a rug (great earning possibilities, crazy returns, etc) and then all of a sudden, removing it from under the users' feet, running away with all the money.
Basically you create a new token, you put it in a liquidity pool, you give the possibility to trade it (with BNB on BSC and with ETH on ETH platforms) and after a while you empty the liquidity pool (BNB, ETH) leaving the buyers with a worthless token.
In fact, as if that wasn't enough, as a result of "Rug Pulls", holders who don't use that protocol are also affected because the fate of the native token of the platform that executed the Exit Scam...is now sealed (it will go to 0). Since the amount of crypto (hence money) locked up in liquidity pools (of ETH but more recently also thanks to Binance Smart Chain) has more than tripled in the last year, the risks are also much higher. When certain protocols are started quickly to take advantage of the hype cycle that is created around these platforms (which often guarantee very high interest at 3 zero), users are put at risk who could fall victim to Exit Scams but also to smart contract bugs.
Other strategies that scammers use is to pump the token and then dumped suddenly (selling everything).
In the last few months, we have seen the dumps of Beer Finance (the founders held over 50% of the tokens in their portfolio) and BFI with website and social pages deleted.
Among the speed records that of Wine Swap (authors of an Exit Scam, after only 1 hour from the launch) even if Binance has managed to recover most of the liquidity (after all most of the nodes of the Binance Smart Chain are centralized and belong to Binance). ChessFarm was also featured in an exit scam in November 2020 but we can also mention VikingSwap which scammed recently (a clone of Goose Finance which in turn was imitating SushiSwap's model on ETH). The token lost 90% in a few hours.
MANY EXAMPLES
"On Ode To Warriors" users catapulted into the pools, trying to get their liquidity back but by then it was too late, meanwhile Viking (the native token) was dropping more and more due to massive sales (including holders).
Among the biggest Rug Pulls, surely the one of Meerkat Finance, according to the founders of the hackers had stolen 31 million dollars from their wallets. However it was a full blown Rug Pulls with drained liquidity (about $31 million in BNB and BUSD). Subsequently, the project's Twitter account and website were deleted, triggering accusations of running off with the money.
Something similar was seen on TurtleDex (TTDX). The protocol drained 9,000 BNB, about $2.5 million, before deleting its Telegram group, official website and Twitter page. Also a Rug Pull here.
The scam was confirmed by Jet Fuel Finance, the Yield Farming protocol that listed TurtleDex. In those hours, there were serious liquidity issues on PancakeSwap as users were desperately selling TTDX tokens they were dumping dropping to nearly 0.
The moral of the story is that you should always do your research before venturing into uncharted and murky waters.
MALICIOUS TOKEN
By implementing a malicious code, you can create a new token, and list it on a dex (Uniswap in this case) and the creator can start trading, users can buy but never sell. By the time someone notices it, the damage is already done.
Rug Pulls is the inevitable consequence!
The token inspired by Squid Game, born following the success of the Netflix series, could only end up with a mega exit scam of about 3.38 million dollars. $Squid, this is the name of the token, had grown in value reaching 2,800 dollars. Since its launch, in the second half of October, it had seen a 310,000% growth in 3 days. According to them, it was a tool for online gaming based on the South Korean series. On Monday morning, however, the cryptomoney's value plummeted to 0, the site disappeared, and the Twitter account was blocked. Its creators essentially did a "rug pull," emptying the cash pool on PancakeSwap (where it was being sold).
The signs that this token was a scam were all there from the beginning, since it was not possible to sell it and there were many reports coming in (also on CoinMarketCap and on various social networks, above all Twitter and Telegram, where obviously users were banned). Through rugcheck it was possible to see that the token had the contract (code) hidden.
THE CHALLENGES OF THE TOKEN SCAM SQUID
Following the TV series, the Squid token was also created in the form of challenges and games.
"Introducing the first Game Token on Binance Smart Chain Network. Squid Token is inspired by the popular Netflix series "Squid Game", the way the game will unfold is simple and easy to follow, all you have to do is participate in the pre-sale, the first 10 holders of the token in pre-sale will receive VIP entry to our game app. The Squid Token app will have a prize pool, the prize pool will be 2% of the amount collected on the pre-sale and 10 of you will be able to participate in the games in the app and 3 of you will share the prize pool. All you have to do is play and survive."
What were the warning signs?
- Whitepaper that was non-existent and only covered 3 months (the end of the game so the exit scam was planned for late October)
- Site full of errors with a shaky English
- Invented partnerships (CoinMarketCap who would have been one of the partners, warned that they were receiving reports that it was impossible to sell the token)
- A large supply of the tokens were owned by the dev team
- Inability to sell the tokens
As mentioned before, since the prize pool would be divided among the players, an anti-dumping system was put in place (which was precisely the inability to sell the token). The token for 3 days had only risen because it was only possible to buy it.
Basically it was created a pool of liquidity on PancakeSwap, adding a certain amount, let's assume 100,000 dollars of Bnb and 100,000 dollars of Squid (the price of the single token is decided by who creates the pool, based on the amount of Bnb or Busd put and the number of other tokens entered).
When I buy Squid, the pool fills up with Bnb (to buy it) and empties of the other token but since the pool of liquidity must always be in proportion of 50 and 50, the price of Squid rises (if in the pool I put 100,000 dollars of the token and someone buys 50,000 dollars obviously I will have an increase of 50% in the value of the token). Then the scammers remove all the liquidity (Bnb) from the pool and the dump we witnessed happens with the shitcoin scam going to 0 and the holders are left with nothing in hand.
In the next article I will show you how to recognize Scam and Rug Pulls Of Token (Smart Contract).
Thanks for reading
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