In a recent scam involving Squid Game token, a DeFi project launched on Binance Smart Chain now a $2.1M scam, Binance founder and CEO Changpeng Zhao has warned users of the risks of these investments.
“Because these scams are becoming more commonplace as the DeFi space grows, I’d like to take this opportunity to remind users that DeFi is not without its risks, and we hate to see anyone lose their funds due to scams and other cybercrimes.”
The DeFi space has become a favorite hunting ground for these bad actors and prey with unwitting investors who have fallen victims to FOMO just like in the case of the Squid Game token which is now a $2.1M rug pull scam. A rug pull scam happens when crypto developers abandon a project and run away with investors’ funds. But why DeFi become a favorite place for these bad actors? The absence of a centralized oversight in these DeFi protocols has made them vulnerable to this type of scam. Tokens can be easily created and listed with DEX platforms like Sushiswap and Uniswap without going through audits. With the absence of regulation, DeFi platforms have become a hangout for scammers lurking in the crypto space.
In this article, we compiled the biggest scams in the DeFi market and a brief story on the projects.
Rug Pull Scam: An Investor’s Nightmare
Let’s begin our round-up of the biggest rug pull scams in the DeFi market to date.
A recently launched fork of Olympus DAO on October 28. Just like DOGE (Dogecoin), AnubisDAO is a dog-meme token. It was taken after Anubis, a jackal-headed deity who presided over the embalming process and accompanied dead kings in the afterworld. The DeFi platform was primarily launched to combine the liquidity bonding mechanism popularized by Olympus with a treasury that would consist of Shiba Inu (SHIB) tokens. It has conducted 24-hour fundraising on Copper, a token crowdfunding platform, and acquired $60M worth of ETH (ethereum). But with just four hours left on the token sale, 13,597 ETH from AnubisDAO’s liquidity pool was moved to another address draining all the funds from the token sale.
The ANKH token price plunged after the incident. In recent reports, Hongkong and US law enforcement agencies have now stepped to investigate the alleged rug pull scam. In a report by CNBC, Brian Nguyen, an investor of the DeFi project lost almost $470,000. It was initially claimed as a phishing attack but was later confirmed as a rug pull scam. In a tweet, Sisyphus, a DAO leader offered 1000 Ethereum (ETH) as a bounty for the stolen funds from his own pocket.
In lieu of a case number which can be released to the public (hopefully this is available tomorrow), please see below for confirmation I am actually in touch with authorities https://t.co/jCgOwaq129
— Sisyphus (@0xSisyphus) October 31, 2021
A synthetic index fund protocol launched on the Binance Smart Chain. It was designed to reflect the capitalization of and to serve as an investment vehicle for the entire DeFi market which can also be used as a speculative asset by traders.
On May 22, news broke out about the alleged DeFi100 rug pull scam after @CryptoWhale posted a tweet about a message on the platform’s website.
BREAKING: DeFi100 coin exit scams, and runs away with $32 million in investors funds.
Website is now updated with the message “We scammed you guys, and you can’t do shit about it” pic.twitter.com/uyeYUDgbwo
— Mr. Whale (@CryptoWhale) May 22, 2021
But DeFi100 creators were quick to deny the allegation and claimed that the accusations were baseless. They have reiterated that the website has been hacked in a post on their Twitter account but the funds were safe. Also, they have stated three reasons to debunk it.
1/2 Firstly, Total supply of D100 at present is less than 4 million tokens. At the beginning of the project, total supply was 2.5 million Tokens.
Secondly, D100 was never a yield farming protocol which was holding investors funds with TVL over 32 million.
— DEFI100 (@DEFI100) May 23, 2021
2/2 Thirdly, total tokens sold during IDO were 750,000 at $0.80 per token.
These facts are available in public for checking their authenticity. The rumours of stealing $32 million are absolutely false and baseless.
We reiterate it again that we have not made any exit.
— DEFI100 (@DEFI100) May 23, 2021
There were claims that some people that were outraged by the scam tracked down the dev’s online footprints and were able to discover his real identity and report him to Interpol. This is according to a tweet by a player dubbed as CryptoDragon but no news if he was apprehended by the authorities. Up to this day, it remains unclear what happened to the funds. The investors’ money vanished into thin air without any traces.
Meerkat Finance $31M
A DeFi yield farming protocol launched on Binance Smart Chain. A day after its launching, an announcement was made on its official Telegram account that its smart contract vault has been compromised and all its $31M funds were drained. 73,000 BNB and 13 million BUSD were transferred to new wallets.
On May 4, @WuBlockchain raised suspicion of a possible rug pull scam in a tweet.
BSC project Meerkat Finance is suspected of being rug, taking away 13.96 million BUSD, and the other 73,635 BNB. MKAT claimed to be hacked and stole all resources. Currently the project website cannot be opened. This may be the largest fraud project on the binance smart chain. pic.twitter.com/KbdclfDBKA
— Wu Blockchain (@WuBlockchain) March 4, 2021
The suspicion was further confirmed when the platform’s website went offline and its official Twitter account was deleted. In the middle of Meerkat Finance’s controversy, Binance made a move to investigate the matter. A Binance spokesperson stated:
“The joint security team is monitoring the Meerkat Finance situation.”
But the spokesperson further adds:
“If the money flows into the exchange, it will be frozen as soon as possible. BSC is an open-source ecosystem and Binance is not directly connected to projects built on it.”
A DeFi liquidity mining pool was reported as an exit rug pull scam two days only after its launching. This was confirmed in a tweet by crypto analyst Cryptowhale.
Another day, another DeFi scam!
After promoting themselves on Twitter for 2 whole days, Yfdexf has taken a total of $20M of Investors funds in their recent exit scam.
99.99% of DeFi Tokens are scams, and will go this route. Please be very careful if you are heavily Invested. pic.twitter.com/WEkg7Sqo9i
— Mr. Whale (@CryptoWhale) September 9, 2020
Yfdex.Finance developers took off with $20 million of investors’ funds. The protocol’s website was taken down including its Telegram and Twitter official account. The platform has promoted itself as “a powerful player of industry (sic) that breaks down all barriers.” It has also promised investors that they will receive 12 YFDEX tokens for each Ether (ETH) deposited. As announced on its Telegram group, the pre-sale was to last only four hours “until the hard cap is reached… [and any] unsold tokens would be burned immediately.” True to their promise, 16,160 tokens were burned in a transaction in data by Etherscan which could have boosted investors’ confidence in the project.
After news of the alleged exit scam, the price of the YFDEX token suffered a nose dive with the last recorded transaction in Uniswap showing 10 YFDEX tokens swapped for only 0.002ETH ($0.73) as compared to its previous price at $36.06 per token.
Compounder Finance $10.8M
The DeFi platform described itself as a “smarter farming” platform and a Harvest/Yearn Finance clone. The project was launched in November 2020. In a blog post, the platform claims to as an automated farming system offering compound interest on digital assets while also earning native CP3R tokens as a “reward.” A claim by its developer states:
“We will examine yields, security, and complexity of new pools that will keep our stakers comfortable knowing they have a competitive edge to other farmers.”
And also a promise of high interest, which could be a definite red flag especially if it’s too good to be true.
“We hope to offer the next generation of high-interest returns.”
In a post-mortem report, Solidity Finance and @vasa_develop from Stake Capital narrated how the creators of Compounder Finance maneuvered the scam.
“The Compounder team swapped the safe/audited Strategy contracts and replaced them with malicious ‘Evil Strategy’ contracts that allowed them to steal user funds. They did this through a public, though clearly unmonitored, 24-hour timelock. The team had the power to update strategy pools and they did so maliciously here.”
A DeFi yield aggregator launched via SolPad, Solana’s launchpad. It was the second project launched on the launchpad and the first-ever rug pull in blockchain’s ecosystem.
On Aug. 16, the DeFi yield aggregator announced its IDO in a tweet.
The second IDO on Solpad Finance is live now!
— SolPAD (@FinanceSolpad) August 16, 2021
The platform’s developers got away with $6.7 million worth of cryptocurrencies and rug pulled its investors only two days after its launching. Luna Yield’s website has shut down and its social media accounts were deleted. Withdrawn crypto assets were transferred into an anonymous Tornado wallet. SolPAD Finance distanced itself from the scam project and stated that it “has no relation to the Luna Yield team”. They further stated:
“We only host IDO for projects that submitted qualified documents. SolPAD assumes no responsibility or liability for any activity by the projects that held a public sale on SolPAD.”
But the SolPAD team offered a bounty for anyone who can provide information that will help track down the people behind the Luna DeFi project. In a tweet, the team also announced that they will compensate participants of the Luna IDO.
Update on the compensation plan:
After internal discussion within Solpad Foundation, we have finalized the compensation plan for Luna Yield IDO participants.
— SolPAD (@FinanceSolpad) August 21, 2021
Rug pull scams continue to abound in the DeFi space which include TurtleDEX ($2.5M),WhaleFarm ($2.3M), PopcornSwap ( $2M), PolyButterfly (600.5 ETH ) DeFi Plant (1,100 BNB), Wine Swap ($345,000) and the most recent of course, Squid Game ($2.1M). So, how can investors avoid becoming prey to these scammers? What are the tell-tale signs that a DeFi project could be a possible rug pull? We will be answering those questions in our next article.