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Rug Pulls Put 2021 Cryptocurrency Scam Revenue Close to All-time Highs



That represents a rise of 81% compared to 2020, a year in which scamming activity dropped significantly compared to 2019, in large part due to the absence of any large-scale Ponzi schemes. That changed in 2021 with Finiko, a Ponzi scheme primarily targeting Russian speakers throughout Eastern Europe, netting more than $1.1 billion from victims. To get more news about crypto currency spam, you can visit wikifx.com official website.

Another change that contributed to 2021’s increase in crypto scam revenue: the emergence of rug pulls, a relatively new scam type particularly common in DeFi, in which the developers of a cryptocurrency project — typically a new coin — abandon it unexpectedly, taking users’ funds with them. We’ll look at both rug pulls and the Finiko Ponzi scheme in more detail later in the report.
As the largest form of cryptocurrency-based crime and one uniquely targeted toward new users, crypto scams pose one of the biggest threats to cryptocurrency’s continued adoption. But as we’ll explore, some cryptocurrency businesses are taking innovative steps to leverage blockchain data to protect their users and nip scams in the bud before potential victims make deposits.

Cryptocurrency investment scams in 2021: More scams, shorter lifespans
While total crypto scam revenue increased significantly in 2021, it stayed flat if we remove rug pulls and limit our analysis to investment scams — even with the emergence of Finiko. At the same time though, the number of deposits to scam addresses fell from just under 10.7 million to 4.1 million, which we can assume means there were fewer individual scam victims.Scammers’ money laundering strategies, however, haven’t changed all that much. As was the case in previous years, most cryptocurrency sent from scam addresses ended up at mainstream exchanges.

The average financial scam was active for just 70 days in 2021, down from 192 in 2020. Looking back further, the average cryptocurrency scam was active for 2,369 days, and the figure has trended steadily downwards since then. One reason for this could be that investigators are getting better at investigating and prosecuting scams. For instance, in September 2021, the CFTC filed charges against 14 investment scams touting themselves as providing compliant cryptocurrency derivative trading services — a common scam typology in the space — whereas in reality they had failed to register with the CFTC as futures commission merchants. Previously, these scams may have been able to continue operating for longer. As scammers become aware of these actions, they may feel more pressure to close up shop before drawing the attention of regulators and law enforcement.

At the same time, we’re seeing the end of a long-standing statistical relationship between cryptocurrency asset prices and scamming activity. Scams typically come in waves corresponding with sustained price growth in popular cryptocurrencies like Bitcoin and Ethereum, which typically also lead to influxes of new users. We see this reflected in the chart below — scamming activity spiked following bull runs in 2017 and 2020.
This isn’t all that surprising. New, less savvy users attracted by cryptocurrency’s growth are more likely to fall for scams than more seasoned users. However, the relationship between asset prices and scamming activity now appears to be disappearing.

As is the case with much of the emerging terminology in cryptocurrency, the definition of “rug pull” isn’t set in stone, but we generally use it to refer to cases in which developers build out what appear to be legitimate cryptocurrency projects — meaning they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities — before taking investors’ money and disappearing.

Rug pulls are most commonly seen in DeFi. In a rug pull, a scammer creates a new token and then promotes it to crypto investors on the basis of false promises, who buy the new token in the hopes that it will rise in value,. This provides liquidity to the project, and is how most DeFi projects — not just scams — start out. In rug pulls, however, the developers drain the funds from the liquidity pool, sending the token’s value to zero, and disappear.

Rug pulls are prevalent in DeFi because with the right technical know-how, it’s cheap and easy to create new tokens on the Ethereum blockchain or others and get them listed on decentralized exchanges (DEXes) without a code audit. That last point is crucial — decentralized tokens are meant to be designed in such a way that investors holding governance tokens can vote on things like how assets in the liquidity pool are used, which would make it impossible for the developers to drain the pool’s funds. While code audits that would catch these vulnerabilities are common in the space, they’re not required in order to list on most DEXes, hence why we see so many rug pulls.