Biggest Rug Pull Scams of 2023 and How to Be Safe

Cryptocurrency users lost $1.95 billion to scams, rug pulls, and hacks in 2023, security app De.Fi revealed in its annual report. Rug pulls alone accounted for a significant share of that loss, with scams totaling $760 million, according to data from blockchain security firm Quantstamp, via DL News. Rug pulls were also the most common type of crypto attack last year, targeting millions of victims across the globe. Thus, it is essential to learn more about crypto rug pull scams to mitigate the risk in 2024.

What is a crypto rug pull scam?

In a rug pull scam, a fraudulent developer or promoter launches and hypes a cryptocurrency project to attract investment. Further, when the project gains value, the scammer abandons it, leaving investors with a worthless asset. A rug pull begins with the creation and listing of a new cryptocurrency token which is often paired with a coin from a leading platform, such as Ethereum. Fraudsters then employ marketing tactics using social media and launch a buzzing promotional campaign across social media and other channels to bait a community of investors.

These scams often promise hefty returns or assign membership, like in a Ponzi scheme. Once the operation gains enough traction, the token’s value soars. As the price peaks, the core development team dumps its share of the tokens, crashing their value and leaving the investors with a worthless asset. While this is an example of a type of soft rug pull, in a hard rug pull, developers include malicious exploits in a project’s code to investors or prevent them from selling tokens.

The biggest crypto rug pull scams of 2023

Fintoch: $31.6 million

In May 2023, a crypto project called Fintoch stole nearly $32 million from investors in a rug pull scam. The project, claimed to be backed by investment banking firm Morgan Stanley, took off with the funds after promising a 1% daily interest for investments from users, according to on-chain detective ZachXBT.

Magnate Finance: $6.4 million

In the Magnate Finance project, scammers launched a protocol on Base in August 2023, and became the blockchain’s big kahuna with $6.4 million in deposits. The fraudulent developers then used their control over the protocol to manipulate the value of the crypto assets, according to an analysis from blockchain auditing firm QuillAudits. This let them withdraw all of the $6.4 million worth of user deposits.

Kokomo Finance: $5.5 million

According to blockchain security company Beosin, Kokomo’s developers orchestrated an elaborate bait-and-switch scam stealing over $5.5 million of investors’ funds in March 2023. 

How to be safe from rug pull scams?

Always be skeptical

Skepticism is necessary to sort through all the crypto hype on social media. It is important to realize that not every new cryptocurrency or NFT will be the next big thing. Thus, crypto investors are advised to look through the hype and not take anything at its face value, especially, if it’s a new project.

Do your research

Investors, especially beginners should gather as much information about a project as possible before investing. They should research the developers’ backgrounds, including past projects and experience, and look into the project specs. Further, if the project has a white paper, it is best to go through it.

Always read disclosures

In case the investment opportunity comes with disclosures, investors are advised to always read them. This may safeguard them from potentially falling for false promises as the SEC requires crypto companies to provide necessary information to investors and potential investors. In case a digital doesn’t have a disclosure, it may be a scam or dubious.