Crypto Scam Tokens Surge: Over 117,000 Rug Pulls Detected in 2022 – Are You at Risk?

Are you navigating the exciting world of cryptocurrency? It’s a landscape brimming with innovation, but unfortunately, also with traps for the unwary. Imagine this: every single day in 2022, over 350 new scam crypto tokens emerged, designed to lure investors into a financial dead end. Alarming, right?

The Explosive Growth of Crypto Scams: A Deep Dive into 2022’s Rug Pull Epidemic

According to a recent report by Solidus Labs, a leading blockchain risk monitoring firm, the numbers are staggering. Their 2022 “Rug Pull Report” reveals a disturbing trend: a massive surge in scam tokens. Let’s break down the key findings:

• Unprecedented Volume: A whopping 117,629 “scam tokens” were unleashed onto the crypto market between January 1st and December 1st, 2022. That’s nearly 118,000 opportunities for fraudsters to exploit unsuspecting investors. According to nearly 118,000 scam tokens were deployed between the beginning of January and the end of November.
• Daily Scam Token Creation: Think about this – more than 350 fraudulent cryptocurrency tokens were created every single day throughout the year. According to blockchain risk monitoring firm Solidus Labs, more than 350 fraudulent cryptocurrency tokens were created per day this year, defrauding millions of investors.
• Significant Increase from 2021: The situation is worsening. The number of scam tokens detected in 2022 represents a 41% jump compared to the approximately 83,400 identified by Solidus in 2021. According to Solidus’ 2022 “Rug Pull Report,” 117,629 “scam tokens” were deployed from the start of the year to December 1. This is a 41% increase from the nearly 83,400 scam tokens detected by Solidus in 2021.

These numbers paint a clear picture: scam tokens are not just a minor issue; they are a pervasive and growing threat in the crypto space.

Which Blockchains are Hotbeds for Scam Tokens?

The report also sheds light on which blockchain networks are most affected by these fraudulent tokens. Here’s a breakdown:

• BNB Chain Leads the Pack: The BNB Chain, known for its lower transaction fees and faster speeds, unfortunately, also tops the list for scam tokens. A concerning 12% of all BEP-20 tokens on the BNB Chain are classified as fraudulent. According to the report, BNB Chain has the most scam tokens, with 12% of all BEP-20 tokens being fraudulent.
• Ethereum Network in Second Place: The Ethereum network, the second-largest cryptocurrency by market cap, isn’t immune either. 8% of ERC-20 tokens on Ethereum are flagged as potential scams. The Ethereum network came in second, with 8% of ERC-20 tokens allegedly being scams.

It’s important to note that while these percentages might seem small, the sheer volume of tokens on these networks means a significant number of scam tokens are circulating.

Decoding the Scam: What is a ‘Rug Pull’?

You’ve heard the term ‘scam token,’ but what exactly does it mean in practice? The most common type of crypto scam associated with these tokens is the infamous ‘rug pull.’

A rug pull is a type of crypto exit scam in which an individual or group creates a token and raises its price before extracting all of the value from the project and abandoning it as the token price falls to zero.

Imagine a scenario where developers create a new cryptocurrency token, heavily promote it, and encourage investors to buy in. Initially, the price goes up, creating hype and FOMO (Fear Of Missing Out). However, once they’ve attracted a substantial amount of investment, the creators suddenly disappear, taking all the funds with them, leaving investors with worthless tokens. The ‘rug’ is pulled out from under the investors, hence the name.

The Devastating Impact: Millions of Investors Affected

The consequences of these rug pulls are far-reaching and deeply damaging to individual investors. Consider these sobering statistics:

• Millions of Victims: Since September 2020, an estimated 2 million investors have fallen victim to these scam tokens, losing their hard-earned money. Since September 2020, nearly 2 million investors have lost money to these scams, which is more than the estimated 1.8 million creditors affected by the bankruptcies of crypto exchanges and lending platforms FTX, Celsius, and Voyager.
• More Victims than Major Exchange Failures: Shockingly, the number of people affected by scam tokens surpasses the estimated 1.8 million creditors impacted by the high-profile collapses of crypto giants like FTX, Celsius, and Voyager. This highlights the widespread and often underestimated impact of scam tokens.

Honeypots: Another Common Scam Tactic

Besides rug pulls, another prevalent type of scam token is the ‘honeypot.’

A “honeypot,” which is a token smart contract that does not allow buyers to resell, was the most popular type of scam token.

Honeypot tokens are designed to lure buyers in with the promise of quick profits, but with a hidden catch. Investors can buy the token, often seeing the price increase, but when they try to sell, they find they are unable to. The smart contract code is deliberately designed to prevent selling, trapping investors’ funds.

The Squid Game Token Scam: A Case Study in Hype and Deception

Remember the Squid Game (SQUID) token scam? This is a prime example of how quickly and dramatically these scams can unfold. The $3.3 million Squid Game (SQUID) token scam, which grew 45,000% in a few days as investors bought the hype but were unable to sell, ended with the anonymous founders apparently running off with investor funds, according to Solidus.

Fueled by the popularity of the Netflix series, the SQUID token price skyrocketed by a staggering 45,000% in just days. Investors, caught up in the hype, rushed to buy, only to discover they couldn’t sell their tokens. The anonymous creators vanished with an estimated $3.3 million in investor funds, leaving buyers with worthless tokens and a harsh lesson learned.

Centralized Exchanges: Unwitting Facilitators of Scam Token Flow?

You might think scam tokens are confined to decentralized exchanges (DEXs), but they also impact centralized exchanges (CEXs). Rug pulls also affect centralised exchanges (CEXs), as many behind these malicious tokens use them to fund their fraudulent project and cash out the ill-gotten gains.

Scammers often use CEXs to launder their ill-gotten gains. They deposit the Ether or other cryptocurrencies stolen from scam tokens into CEX accounts and then cash out or move the funds elsewhere, making it harder to trace and recover.

Solidus Labs’ report reveals a significant flow of illicit funds through CEXs:

• Billions Laundered Through CEXs: Around $11 billion in Ether derived from scam tokens has flowed through 153 CEXs since September 2020. Solidus claims that around $11 billion in Ether stolen from scam tokens has flowed through 153 CEXs since September 2020, with the majority of the exchanges overseen by US regulators.
• US CEXs Most Exposed: Alarmingly, US-based CEXs are the most exposed jurisdiction, receiving nearly $4 billion of these illicit funds during the examined period. This is almost double the amount that flowed to exchanges in the Bahamas, the second-most exposed jurisdiction. During the examined time period, nearly $4 billion dollars flowed to US CEXs, which was nearly double that of the second-most exposed CEX jurisdiction: The Bahamas.

Staying Safe: How to Protect Yourself from Crypto Scam Tokens

The rise of crypto scam tokens is a serious concern, but you can take steps to protect yourself. Here are some crucial tips:

• Do Your Research (DYOR): This is paramount. Before investing in any new token, thoroughly research the project, the team behind it, and its whitepaper. Look for red flags like anonymous developers, unrealistic promises, and lack of transparency.
• Check Token Contract Audits: Reputable projects often have their smart contract code audited by independent security firms. Look for audit reports and review them carefully.
• Verify Liquidity: Ensure the token has sufficient liquidity on reputable decentralized exchanges. Low liquidity can be a sign of manipulation and potential rug pulls.
• Be Wary of Hype and FOMO: Scammers often create artificial hype to lure investors. Be cautious of tokens experiencing rapid, unsustainable price increases, especially if driven by social media buzz rather than fundamental value.
• Start Small: If you’re unsure about a new token, invest only a small amount that you can afford to lose.
• Use Reputable Exchanges: Stick to well-known and regulated cryptocurrency exchanges. They are more likely to have security measures in place to detect and prevent scam tokens.
• Trust Your Gut: If something feels too good to be true, it probably is. If you have doubts or concerns, it’s best to steer clear.

The Bottom Line: Vigilance is Key in the Crypto World

The findings from Solidus Labs’ report serve as a stark reminder of the risks lurking within the cryptocurrency market. The proliferation of scam tokens and rug pulls demands increased vigilance and caution from investors. While the potential rewards in crypto can be significant, so are the risks. By staying informed, doing thorough research, and exercising caution, you can navigate the crypto landscape more safely and protect yourself from becoming a victim of these increasingly sophisticated scams. The key takeaway? In the world of crypto, knowledge and caution are your best defenses.