As 2022 ended, the cryptocurrency sector collectively thumbed its nose at the year as it was one of the worst in the history of the blockchain sector, particularly because of the way a number of prominent tokens collapsed and the people behind them involved in fraudulent activity.
But the blockchain community is also referring to 2022 as “the year of the rug pull” following numerous incidents where scammers deployed scam tokens throughout the digital asset market to dupe unsuspecting investors.
Indeed, the most recent report from blockchain risk monitor Solidus Labs shows that more than 117,000 faux tokens were deployed between January and December of last year, a whopping 41% more than in 2021. The data presented in the report was gleaned by scanning smart contacts as these were being deployed into a blockchain and by flagging token smart contacts that were specifically coded to dupe users.
According to the team that conducted the study, the fraudsters who planted these tokens used crypto-to-fiat exchanges to both execute their frauds and launder any proceeds. It was noted that around 12% of the BNB Chain tokens deployed this year were scams and that 8% of Ethereum tokens were meant to pull the rug under victims.
The rug pull was noted to be the scam of choice by many online malcontents in 2022. This scheme involves creating a token, funding its liquidity pool, then removing all its liquidity after people rush to buy the token. It’s infuriating, but many crypto investors – especially newbies – are at a loss to why such scams keep happening.
One reason why scammers are so cocky about deploying fraudulent tokens is that they have practically eluded detection by the standard measures used to detect scams. According to Solidus Labs’ chief operating officer Chen Arad, not all tokens deployed on a blockchain are listed on pricing data sites for the simple reason that they are not – or cannot be – verified.
Indeed, while data tracker CoinMarketCap says there are now more than 22,000 cryptocurrencies as of the end of 2022, a number of tokens have yet to meet its listing guidelines. As a result, they are still being featured online as either untracked or unverified listings. These include more than 145,000 Ethereum ERC-20 tokens as well as 1.2 million BNB Chain BEP-20 tokens.
Based on the Solidus Labs report, it is now imperative for the blockchain sector to address the glaring gaps in terms of consumer protection by placing more concrete safeguards against money laundering in order to protect the integrity of the industry.