What to do if you’ve been Scammed
If you’ve fallen victim to a cryptocurrency scam it’s critical to take immediate action. At Crypto Consulting NZ, we specialize in scam support services tailored to your specific needs. We’ll help you confirm if you’ve been scammed, guide you through documenting your case, and provide expert advice on what to do.
Whether it’s Rug Pulls or Romance scams our consultants can assist with every step of the process to ensure you’re informed and protected moving forward.
What is a Crypto Rug Pull Scam?
A rug pull is a type of scam in the crypto space where a team raises funds from the public by selling a token, only to abruptly shut down the project or disappear, taking the funds with them. This leaves kiwis with worthless tokens.
These scams can be highly orchestrated, with perpetrators using various tactics to attract as many victims as possible. Some may use well-known figures to build trust, while others might promise exceptionally high returns or offer exclusive digital goods to lure investors.
Types of Rug Pulls
Common types of rug pulls include:
- Liquidity Pulls: Scammers drain liquidity from a token pool, causing its value to collapse due to the absence of buyers and sellers.
- Fake Projects: Fraudsters create fake projects, collect investments, then disappear with the funds, leaving investors with worthless tokens.
- Pump and Dump: The token’s price is artificially inflated by coordinated buying, only for the fraudsters to sell at the peak, crashing its value.
- Team Exit: The project’s team suddenly disappears, leaving investors unsupported and the token’s value in freefall.
Hard Rug Pulls vs Soft Rug Pulls
A hard rug pull occurs when a project’s developers or administrators abruptly vanish, taking all the invested funds with them. The project’s website, social media, and communication channels are shut down, leaving investors with no way to contact or trace the perpetrators. In these cases, investors are often left with no opportunity to recover their money.
In a soft rug pull, the exit strategy is more gradual. The project’s administrators may slowly reduce communication and updates, signaling declining involvement. Meanwhile, they could be siphoning off funds over time, either by selling tokens or draining liquidity pools gradually. Although soft rug pulls offer warning signs, they still result in significant losses for investors.
Rug Pull Trends for 2023+
Between September 2020 and January 1st, 2022, fraudsters created over 212,000 scam tokens. This includes more than 83,000 scams in 2021 and 125,000 in 2022.
These numbers far exceed earlier industry research, which identified only 24 rug pulls in 2021 and 262 in 2022. The data also shows that a significant proportion of tokens on Ethereum and Binance Smart Chain are designed to defraud investors. Specifically, 8% of all Ethereum-based ERC-20 tokens and 12% of all Binance Smart Chain-based BEP-20 tokens are programmed as rug pulls.
How To Identify & Avoid Rug Pulls
To protect yourself from rug pulls, it’s essential to be diligent and cautious. Here’s how you can safeguard your investments:
- Thorough Research: Investigate the project’s team, technology, objectives, and community. Watch out for red flags like unknown team members
- Security Audits: Legitimate projects often have third-party security audits. Verify if the project has been audited and examine the audit report.
- Community Engagement: Engage with the project’s community. A strong and active community can be a good indicator of a genuine project.
- Warning Signs: Be wary of unrealistic returns, aggressive marketing, and pressure to invest quickly. Trust your instincts and avoid succumbing to fear of missing out (FOMO).
Notable Rug Pull in History
On October 28, 2021, the cryptocurrency Squid Game surged in popularity, drawing attention with its rapid price increase. Initially priced at 72 cents, the coin was heavily promoted on social media with promises of high returns and an exclusive play-to-earn game, despite some warnings about potential scams.
Over the next few days, the coin’s value soared, but on November 1, 2021, the creators executed a classic rug pull. They withdrew $3.36 million from the liquidity pool, causing the coin’s value to plummet to nearly worthless levels. The scam involved the manipulation of liquidity pools on Binance Smart Chain (BSC), where the Squid Game tokens were traded.
The scam leveraged a high concentration of tokens held by a few wallets. Out of the 43,455 addresses associated with Squid Game coins, eight wallets controlled more than 1% of the total supply, with one holding 5%.
This concentration allowed the perpetrators to drain the liquidity pool by converting the Squid Game tokens into Binance Coin (BNB) and then withdrawing the funds. To obscure their tracks, the scammers used a mixing service called Tornado Cash. The case highlights the significant risks in the cryptocurrency market, particularly in projects with opaque operations and unregulated environments.
