Revenue from crypto scams in 2021 was up 81 percent from 2020. Rug pull tactics — where developers start a seemingly legitimate crypto project, rope in investors, and then abandon the project with investors’ money — accounted for 37 percent or $2.8 billion of all crypto scam revenue.
By comparison, rug pull tactics accounted for 1 percent of all reported crypto scam revenue in 2020.
As crypto adoption soared in 2021, so did intake from crypto scams which was at its highest since 2019 when revenue reached $9.5 billion, according to Chainalysis data.
The DeFi space is one of the fastest-growing in the cryptocurrency market so it was not a surprise when DeFi rug pull tactics led the scam chart, analysts said.
Rug pulls are popular within the DeFi space because it is cheap and easy to create new tokens on the Ethereum blockchain or others and get them listed on decentralized exchanges (DEXes) without a code audit.
“Scamming is one of the most significant barriers to building trust in crypto, simply because of how much money is scammed from users each year,” said Kim Grauer, head of research at Chainalysis, in the report. “There is a lot of hype around the crypto assets offering a unique opportunity for scammers.”
There were fewer individual victims of crypto scams in 2021, with the number of investment scam reports dropping from 10.7 million in 2020 to 4.1 million in 2021. This indicates that the amount stolen from each victim went up.
The news came after the U.K. advertising regulator raised a red alert over crypto ads which downplay investment and do not provide audiences with adequate context around the risks of holding digital assets.
“While it is likely scams will continue to be the most profitable form of crypto crime going forwards, the “inherent transparency” of blockchain makes it suited to analytics which can help to identify and block illicit actors,” Grauer said.
Photo credit: Михаил Руденко / iStock, https://www.istockphoto.com/portfolio/MikeShots?mediatype=photography
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?