It should be noted that the cryptocurrency industry is attracting the attention of fraudsters - and for good reason. The fact is that bitcoins, ethers and other full-fledged digital assets are decentralised, meaning that they have no single supervisory authority. Accordingly, no one can freeze someone's assets, even if they have been stolen from another person.

The exception here is cryptocurrency exchanges, which can indeed take someone else's money. However, this requires the activity of relevant law enforcement agencies in certain countries.


How much is being lost in the cryptocurrency niche

In an interview with Cointelegraph, Kim Grauer, head of research at Chainalysis, noted that while there are many different types of cryptocurrency-related crimes, it was fraud that took the top spot in “popularity” this year. A large proportion of all cryptocurrency theft incidents are fraudulent schemes around the decentralised finance (DeFi) industry.

Trends in fraud volume over recent years

Most interestingly, many investors in this industry have fallen victim to the sudden theft of funds by project creators themselves, rather than by some outside hacker or other attacker. Such activity is called “ragpulling” – from the English phrase rug pulls, meaning “pulling the rug out”. Here’s a quote from the experts.

Rug pulls are increasingly common among fraud incidents in the crypto-sphere this year. In addition to financial fraud, it involves the deliberate exploitation of vulnerabilities in the code of smart contracts projects. Overall, ragpolls have caused at least $2.8 billion in damage.


As is traditional, let's start with an explanation. The ragpoll problem is directly connected with provision of liquidity to decentralized exchanges, which we already dealt with in a separate article. It is essentially about adding cryptocurrency assets that are traded on decentralised trading platforms.

The peculiarity is that liquidity providers - i.e. investors who add their coins to such exchanges - have to add two coins of equal dollar value for one trading pair. A decentralised exchange constantly balances these amounts, creating a balance. Ragpull is when liquidity providers, which usually include the developers of a particular cryptocurrency, withdraw the ethers or USDT that their projects are trading in. As a result, the exchange rate of the first coin drops to zero, all in a matter of seconds. As a result, developers make money on ragpolls and everyone else loses.


A recent publication on the Chainalysis blog also gives examples of some of the biggest such schemes in 2021. For example, the AnubisDAO project is cited as the second largest “ragpull” when more than $58 million worth of cryptocurrency was stolen.

AnubisDAO token price drop

As a reminder, AnubisDAO was launched on 28 October 2021 as a decentralised stackablecoin backed by multiple assets at once. However, the project did not even have its own website or wytepayer, while its developers maintained anonymity. In the end, they managed to raise almost $60 million, but 20 hours later all that money disappeared along with the startup's owners.

So how does one not become another item on the long list of those duped by cryptocurrency scammers? Grauer summarised that a DeFi platform should definitely have been audited by a company with a good reputation. Plus, every investor should understand that the probability of “ragpolls” is still quite high, meaning it is very dangerous to invest all funds even in one startup.


We should add for ourselves that an audit does not guarantee the impossibility of hacking or other difficulties. To illustrate the point, here is part of Rekt Finance's ranking of the largest hacks in the cryptocurrency industry. Almost all of the projects in the screenshot below were audited, but ended up being hacked. Consequently, their investors ran into problems.


Ranking of hacked cryptocurrency projects


We believe that this statistic is another reminder of the dangers of the cryptocurrency industry. The niche is still young, so problems like this can occur. Although it is impossible to predict the future, investors can protect themselves from such schemes. First of all, they should not invest all of their money in one project, thus minimizing the risks, and they should not invest something they cannot afford to lose.


Keep an eye on new trends, actively research the community and developers of crypto startups, and subscribe to our cryptochat. There we will discuss other important developments related to the world of decentralisation and blockchain.