If you are familiar with the cryptocurrency space, you may have heard of the term ‘rug pull’. If not, here’s a quick recap. Rug pulls are tactics employed by scammers who initially promote their project by promising high returns, but then vanish with investor funds, leaving no trace behind.
Those new to the crypto space may wonder that such occurrences must be rare, but unfortunately, that is not the case. Rug pulls or exit scams accounted for over 35 percent of all crypto scams in 2021, draining about $2.8 billion in funds, according to blockchain research firm Chainalysis.
With that in mind, let us explore the most notorious crypto rug pulls witnessed by the industry so far.
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OneCoin
OneCoin was launched in 2014 with the ambition of becoming a "better Bitcoin". The company gained significant attention when its CEO, Ruja Ignatova, also known as ‘Cryptoqueen’, appeared at Wembley Stadium in front of an audience of 90,000 people in 2016. Around the same time, OneCoin even surpassed Bitcoin's market capitalization by 50 percent.
However, it was later discovered that OneCoin was not the revolutionary "Bitcoin killer" it claimed to be, but rather an elaborate Ponzi scheme disguised as a multi-level marketing operation. It was believed that OneCoin defrauded people out of more than $4 billion.
During the nascent stage of cryptocurrency in 2015, when scams were relatively easier to execute, Ignatova capitalised on the hype surrounding OneCoin. She sold fraudulent educational courses that purported to teach participants the process of mining OneCoins, which ultimately turned out to be a worthless digital asset.
With her impressive credentials, including a PhD and experience at top consultancies, Ignatova gained widespread recognition for OneCoin. She even appeared in the Bulgarian edition of Forbes, making it challenging for people to question its legitimacy.
In 2018, authorities raided OneCoin's headquarters in Sofia, Bulgaria, resulting in the arrest of co-founder Sebastian Greenwood and Ignatova's brother, Konstantin Ignatov. However, Ruja Ignatova managed to evade capture and was recently added to the FBI's most-wanted list. The investigations into the OneCoin scam are still ongoing.
Thodex
On April 22, 2021, Turkish cryptocurrency exchange Thodex abruptly ceased its operations without any prior notice, leaving the funds of 391,000 active traders locked on the platform. The exchange later posted on Twitter that this decision was made due to an external investment that required the suspension of trading for a period of 4-5 days.
A day before this development, Thodex CEO Faruk Fatih Özer fled the country and deleted his social media accounts. Furthermore, the company ceased all customer support services. It was later estimated that the total amount of funds trapped in the platform ranged between $2 to $10 billion.
Shortly before disappearing, Thodex ran a marketing campaign where it rewarded every new signup with 150 Dogecoins, resulting in a significant influx of funds. Between March 15 and April 15, 2021, the platform experienced its highest-ever daily trading volume, reaching a staggering $1.37 billion.
Unfortunately, this incident turned out to be a horrifying rug pull, leaving many investors in a state of shock.
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Anubis Dao
AnubisDAO was introduced in October 2021 and positioned itself as a part of OlympusDAO, a decentralised reserve currency supported by liquidity provider fees and bond sales.
Within a week of its launch, a staggering $60 million worth of ETH vanished from the project's liquidity pool. Investors had initially invested this capital in the token sale and had received ANKH tokens in return. However, within a mere twenty hours of the sale, the liquidity in the pool was transferred to a different address and the funds were never recovered.
One investor, Brian Nguyen, experienced a loss of $470,000. In an interview with CNBC, he said that he was attracted to the project due to its dog-themed logo, reminiscent of the hype surrounding coins like Dogecoin and Shiba Inu.
Luna Yield
In August 2021, DeFi yield aggregator Luna Yield disappeared with customer funds, defrauding investors of $6.7 million. This incident occurred merely two days after the project's launch. Shortly after its sudden exit, the project's website and social media accounts vanished.
The developers of the cross-chain project carried out the scam by conducting multiple transactions involving WETH, WBTC, LUNY, and USDT, which were subsequently transferred to an anonymous Tornado wallet. Tornado is a cryptocurrency mixer used for facilitating anonymous transactions.
Luna Yield had initially launched its project through SolPAD, a Solana-powered fundraising platform. This launch served as the project's second initial DEX offering (IDO), following Solstarter. An IDO involves a blockchain project selling a new cryptocurrency to raise funds, and in this case, it was the LUNY token.
StableMagnet
In June 2021, the StableMagnet team orchestrated a theft of $27 million, leaving their users in shambles. What made this scam distinct from other rug pulls was the manipulation of smart contracts.
Block explorers like Etherscan perform code verification to ensure that the listed source code matches the actual code stored on the blockchain. However, the StableMagnet team deployed a smart contract that claimed to use the functions from one particular contract while actually utilizing a different smart contract.
This tricked blockchain explorers into incorrectly verifying the posted source code, which made the smart contact appear legitimate. Exploiting this loophole, StableMagnet used a hidden backdoor in their smart contract to drain value from the protocol.
Conclusion
Rug pulls continue to rear their ugly head even in 2023. Just last week, the Swaprum rug pull incidentdefrauded investors of $3 million. Unfortunately, exit scams have become increasingly common due to the rapid emergence of new DeFi projects and poor security measures that are unable to keep up with the industry’s technological advancements.
While keeping an eye on new projects can be a way to stay ahead and potentially earn good returns, it is crucial not to overlook red flags, such as overly promising schemes, or projects lacking a whitepaper and proper information on team members. Diligence and thorough evaluation are essential to avoid falling victim to a rug pull.
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