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While DeFi protocols continue to be targeted by scammers and hackers, there are ways to prevent yourself from investing in fraudulent projects. In addition, law enforcement agencies and regulators are continuing to crack down on crypto scammers, showing a broader interest in holding scammers accountable and discouraging bad behavior. In total, the men allegedly earned $1.1 million and were charged with conspiracy how to buy safex to commit wire fraud and conspiracy to commit money laundering in March 2022.

Many new projects don’t have a track record to prove their legitimacy or safety. While choosing to invest in an NFT project like Bored Ape Yacht Club is not entirely without risk, the project has established trust within its community over time. Some (not all) scams will often lazily imitate features from other popular projects, signaling that the project may not have originality or long-term value for investors. This appetite for high-risk, high-reward investment is particularly prevalent in the crypto space, where a steady stream of new projects builds buzz and encourages new investment.

The duo had created an NFT project called Frosties, which they advertised as coming with rewards, giveaways and exclusive opportunities. Hours after selling around $1.1 million of Frosties, Nguyen and Llacuna shut down the project and absconded with investor funds. If you’re confused, you’re not alone — ironing out what counts as an investment contract (a security) or not is tricky in the crypto space. However, the SEC does have a guiding principle for defining what’s a security.

Examples of notable rug pulls in cryptocurrency

These tokens are ostensibly secured with smart contracts, but developers can build loopholes into the contracts allowing them to steal the pool of tokens from their investors. This is considered a hard rug pull, as the developers created the project with malicious intent baked in. The most common of exit schemes, liquidity stealing, is when token creators extract all of the coins invested, or pooled, into a project.

Watch out for red flags such as anonymous developers, unclear roadmaps, unrealistic promises of returns, and no external audits. It offers tools like a Honeypot Checker and educational guides to help you understand scams and make bitcoin does consume a lot of energy informed decisions. Excessive marketing without a working product or clear utility can be a warning sign.

FAQs about crypto rug pulls

These scams exploit the nature of DEX platforms, letting malicious developers make fake tokens, inflate their value, and take the money. Scammers sometimes create tokens that you can buy but can’t sell, known as honeypots. Honeypot.is tests smart contracts by simulating buy-and-sell transactions to make sure there are no hidden restrictions. This tool is handy for spotting projects designed to trap your tokens.

• Cryptocurrency rug pulls are an unfortunate but common occurrence in the global crypto markets, resulting in billions of dollars of losses for digital asset investors.
• A rug pull is a term for a scam in the crypto space where traders are left hanging with worthless assets.
• Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues.
• The project saw a significant price increase, which saw its creator, the anonymous Chef Nomi, cashing out $14 million worth instantly.
• Here are a few things to look out for when scoping out your next purchase to protect yourself from the next big scam.

Overhyped Marketing and Social Media Presence

Active and transparent communication from the development team is a positive sign. Engage with well-established exchanges and platforms known for their security measures. These platforms often have vetting processes that can help filter out fraudulent projects. Some of the biggest red flags in the cryptocurrency world come down to human factors.

This case shows that U.S. prosecutors are both willing and able to convict exit scammers. Rug pulls are decked out in bells and whistles — a trail of social media hype and fancy graphics designed to bamboozle inexperienced investors, without any real follow-through when it comes to innovation. Once they’ve pocketed your cash, the project mysteriously comes to a stand-still. Pulling the rug out from you, its hopeful investor – you may also know this as a pump and dump scheme, or shilling. Reputable projects undergo third-party audits to validate the security and integrity of their code.

How to protect yourself from a rug pull

Some thought the community’s actions were a kind of poetic justice for rug pullers, while others criticized the situation. The stolen investor funds were then allegedly laundered through a process known as chain-hopping, where one coin is converted into another across multiple blockchains. In 2014, self-proclaimed “crypto queen” Ruja Ignatova coinbase to pay uk and eu customers 5% interest on crypto holdings and others set up a Bulgarian-based cryptocurrency company called OneCoin Ltd. Ignatova and her cohorts allegedly made false claims about the coin and its perceived value to solicit investments. Still, there are ways you can detect possible rug pulls and protect yourself from financial loss.

A case in point is Bitcoin, whose creator(s) is still unknown more than a decade later. Auditing is essential, especially when done by an external and independent security firm. Additionally, protections must be in place to guard a liquidity pool. If a project does not have these in place, walking away is advisable. OneCoin represents one of the largest cryptocurrency-related Ponzi schemes in the history of the nascent industry.