Crypto crime in 2021: Ponzi, rug pulls and more

Crypto crime in 2021: Ponzi, rug pulls and more

Crypto finance and DeFi are great tools democratizing finance and allowing every person in the world to invest, trade and earn yields on crypto markets (and not only).

Its democratic nature, however, attracts not only honest developers, but also all sorts of scammers who surf on the hype and users’ naivety.

On-chain analytics firm Chainalysis published its preview of 2021 crypto crime report, noting several tendencies.

Over $7.7Bn were taken by the crypto scammers in 2021, which is 81% more than in 2020, but nearly 20% less than in 2019.

2021 was marked by an increasing number of rug pulls – the projects where the founding team drains the project’s treasury or a liquidity pool funded by the users/investors and leaves. The biggest rug pull of 2021 was the Turkish centralized exchange Thodex, whose CEO left the country with over $2Bn worth of users’ cryptocurrency, which represents 90% of all value stolen in rug pulls this year.

Other rug pulls were all in the DeFi, where the developers sell tokens to the investors providing liquidity, and then drain the liquidity pool and disappear, leaving investors with worthless tokens. DeFi is decentralized, which means that normally the code doesn’t allow any person in particular to mess with it, whether they be in developing team or no. However, most users don’t go as far as reading the code, and decentralized exchanges allow listings without code audit

Another notable scam of the year was a Russian Ponzi scheme Finiko, which had operated for over a year and a half, before collapsing in July, liquidating over $1.1Bn of its users funds. Finiko head and his associate were arrested soon after.

The good news is that the average lifespan of a financial scam is getting shorter : from 192 days in 2020 to 70 days in 2021. One of the reasons for this could be their better investigation and prosecution, notably by the American CFTC, which charged 14 scams falsely claiming they were compliant.

The best practice, however, stays a proper due diligence of every project you want to invest into. So DYOR (do your own research), and do not forget to check for a DeFi project’s audit and centralized company’s compliance.