In a recent report, blockchain security auditor Hacken emphasizes that cryptocurrency rug pulls, a prevalent scam in the crypto world, are relatively easy for investors to identify. These scams exhibit distinct characteristics that make them stand out, according to the report, which focuses on trends in crypto hacks in Q3 and how affected projects addressed security.
Rug pulls, a form of exit scam where a project’s team artificially inflates its token’s value before abruptly withdrawing liquidity, were a significant contributor to crypto exploits in Q3, accounting for over 65% of all reported hacks during that period.
The simplicity of executing rug pulls lies in the ability of serial scammers to use token factories, which enable the mass production of fraudulent tokens with similar behavior.
Hacken suggests that despite their prevalence, rug pulls are one of the easiest crypto scams to prevent. The report provides some tips for identifying and avoiding such scams based on observations from Q3:
Check for Independent Audits:
A crucial step in assessing a project is to ensure it has undergone an independent third-party audit. Shockingly, only 12 out of the 78 Q3 rug pulls examined by Hacken reported having any type of audit. The report warns that even when a project claims to have been audited, users should scrutinize the audit reports, as an audit alone does not guarantee protection.
Hacken CEO Dyma Budorin pointed out that the crypto investment process is relatively straightforward, requiring just a few clicks. This simplicity, coupled with the allure of substantial returns in a short timeframe, often causes users to overlook red flags and make impulsive investment decisions. Scammers exploit this behavior by mimicking successful projects and creating a sense of FOMO (fear of missing out) around their schemes.
Budorin urged users to exercise caution and conduct thorough research before diving into crypto investments, emphasizing that being aware of potential risks and verifying audit claims can significantly reduce the likelihood of falling victim to rug pulls and other scams.