In a shocking turn of events, a group of cryptocurrency scammers has successfully deceived over 42,000 victims and made off with more than $32 million in ill-gotten gains since April 2023.
Their novel method has not only trapped unsuspecting investors but has also managed to outsmart some of the industry’s so-called “rug pull detectors,” according to a recent report by blockchain security firm Blockfence.
The deceptive scheme
Cryptocurrency rug-pull scams typically involve the creation of tokens that impersonate upcoming crypto projects. These scams exploit the fear of missing out (FOMO) to lure investors who hope to capitalize on the next big thing in the crypto world. However, the scammers behind this recent wave of fraud have employed a distinctive and sophisticated method.
Pablo Sabbatella, the Head of Security Research at Blockfence, shed light on the scammers’ tactics in a report dated January 18th. According to Sabbatella, the scammers initiated their scheme by sending between 10 and 20 Ether (ETH), the native cryptocurrency of the Ethereum blockchain, to an externally owned account. They then used these funds to create counterfeit tokens.
In a classic rug-pull maneuver, fake liquidity was injected into the scam project, creating the appearance of legitimate trading activity in liquidity pools (LPs) on decentralized exchanges like Uniswap, which operate on the Ethereum network. To further deceive investors, the scammers employed a “lock() function” on the LP tokens, giving the false impression that investors’ funds were safe from being pulled out from under them.
As the scammers artificially pumped up the price of the fake token through wash trading, they executed a crucial move by invoking the “setUserBalance” function. This action effectively updated victims’ token balances to “1,” rendering the tokens unsellable as they were technically considered burned. Despite this, victims could still see the worthless tokens in their wallets, perpetuating the illusion.
In the final phase of the scam, the perpetrators removed liquidity from the LP, causing the token’s value to plummet to nearly zero. This drastic measure left investors with worthless tokens and a significant financial loss.
Rug-pull detectors fooled
One of the most alarming aspects of this cryptocurrency scam is its ability to bypass even the most vigilant rug-pull detectors. These specialized tools and algorithms are designed to identify and flag suspicious activities in the crypto space, particularly those associated with rug-pull schemes. However, the scammers behind this operation managed to evade detection, further highlighting the sophistication of their tactics.
The impact of this elaborate scam has been devastating, with over 42,000 victims collectively losing more than $32 million. Many of these individuals were enticed by the promise of quick profits and the fear of missing out on a potentially lucrative investment opportunity. Instead, they found themselves victims of a meticulously orchestrated deception.
Protecting yourself from cryptocurrency scams
As cryptocurrency scams evolve and become more sophisticated, investors must exercise caution and due diligence when entering the crypto market. Here are some key steps to protect yourself from falling victim to such scams:
Before investing in any cryptocurrency project, conduct thorough research. Verify the legitimacy of the project, its team members, and objectives. Look for red flags and inconsistencies.
Do not make investment decisions based solely on the fear of missing out. High-pressure tactics and promises of quick riches are common tactics used by scammers.
Use reputable platforms
Stick to well-known and reputable cryptocurrency exchanges and decentralized platforms. Be cautious when dealing with lesser-known or unregulated platforms.
Beware of unrealistic returns
Be skeptical of investment opportunities promising unrealistically high returns with little risk. If it sounds too good to be true, it probably is.
Use hardware wallets
Consider using hardware wallets to store your cryptocurrency assets securely. These wallets offer an extra layer of protection against online theft.
Stay updated on the latest cryptocurrency news and developments. Being informed can help you spot potential scams and make informed investment choices.