The decentralized finance (DeFi) environment has seen a significant increase in the frequency of rug pull occurrences, even as the Crypto industry has reached new heights, recently reaching a market valuation of $3.89 trillion. Scammers’ increasing proficiency was demonstrated on November 14 when the number Rug pull scams in DeFi instances peaked at 31 daily, with a substantial $15 million monthly cumulative losses.
Most of these events did not involve large sums of money, with losses usually around $100,000. However, the growing number and sophistication of these scams have seriously compromised the trustworthiness of the DeFi industry. According to Allen Zhang, co-founder and chief technologist of Web3 cybersecurity company GoPlus, who spoke with Cointelegraph, more than 5,688 tokens have been determined to be victims of the “honeypot token” fraud since November. He noted that it is difficult to evaluate risk only using holder concentration data because modern scammers have adjusted by using complex multi-wallet control tactics.
Sophisticated Scams in Meme Coins
Michael Heinrich, co-founder of Web3 infrastructure firm 0G Labs, shared with Cointelegraph that con artists today employ sophisticated marketing techniques that would make real businesses envious. The Peanut (PNUT)meme coin’s recent introduction is a prime illustration of this.
After PNUT’s introduction on November 1, its price surged 161 times in only seven days, leading scammers to produce fake tokens. The con artists swindled over ten thousand dollars. One especially sinister approach in this area is the weaponization of front-running bots, which are apps that monitor transactions in a mempool to select targets for a front-running attack. According to Zhang, malicious actors are starting to create automated token launch tactics to take advantage of front-running bots.
According to him, this has resulted in an intriguing game-theoretic dynamic in which the rivalry between automated trading tools and token issuers has grown more sophisticated and intelligent. Heinrich highlighted a newly developed pull scam in DeFi.
The “fair launch” of memecoin tokens elaborated on the increasing sophistication of these scams. According to him, there was a high degree of interconnection among the 90% of wallets on Pump. fu n, a marketplace based in Solana that enables users to produce and distribute their currencies, mainly meme coins.
Blockchain Security vs Memecoin Scams
The blockchain security community has started a complex counteroffensive in response to the increasing number of memecoin scams. Carnegie Mellon University’s CyLab and the security research firm Anaxi Labs have developed algorithms to streamline blockchain components and improve transparency.
Given the recent launch of Jolt by venture capital firm Andreessen Horowitz, Anaxi Labs co-founder Kate Shen told Cointelegraph that the next few months may mark a watershed moment in blockchain security and audibility. The present developer experience is typically “effort-intensive” and gives an enormous surface area for security-critical defects to seep in, so “[Jolt’s] goal is to offer simpler, faster, more auditable toolings,” she said.
GoPlus developed the SafeToken Protocol, which offers standardized security templates to reduce the frequency of code-based rug pulls. Co-founder Zhang said, “We’re helping to establish a safer foundation for token launches in the Web3 ecosystem” by providing these standardized and secure templates. Crypto wallets should employ automated code-scanning tools whenever a user engages with a contract, according to Nanak Nihal Khalsa, co-founder of the Web3 security protocol Holonym, who spoke with Cointelegraph about this topic.
TheWallett has fixed this issue, not the wallet argued for adding this feature to Wallet’sWallet’sities, along with tranWallet’ssimulation. While promoting open-source code development on platforms like GitHub, Heinrich thinks DeFi platforms should regularly hire trustworthy third-party organizations to examine contracts. He reiterated, “EnsureHeinrich emphasized the importance of conclusively fixing contracts after deployment.
Psychological Manipulation in Rug Pull Scams
Rug pulls can use complex psychological manipulation techniques. According to Ben Caselin, chief marketing officer of VALR, a digital asset trading platform, most cryptocurrency traders have accepted the inherent danger of the market.
Caitlin went on to say. Investing in numerous low-market-cap tokens with the hope that one or two might succeed in the short term is essentially gambling,” they said. Scammers have taken advantage of this dynamic to attract unsuspecting investors enticed by the promise of rapid gains and the fear of missing out (FOMO).
Heinrich asserts that scammers today are adept at presenting themselves convincingly and professionally. According to him, “an ‘investment fund’ claims interest in my project,” and he receives at least one email per week.
Fake endorsements, made-up success stories, and coordinated marketing campaigns are now commonplace, further attesting to the importance of social media and influencer marketing. Con artists use social media campaigns to exploit investors’ irrational fears of missing out (FOMO). Shen expressed concern that some con artists improve their methods using the same playbook for different ventures.
Spotting Token Manipulation Risks
Traders can identify potential manipulation by monitoring specific indicators. Token concentration” is one example. Scammers, according to Khalsa, can make it look like they have distribution under control by using numerous wallets that appear to be separate. The stronger the centralization of a token supply, the greater the possibility and consequence of a rug pull,” he stated.
Coins with limited liquidity often feature in scam projects, allowing concentrated holders to exploit their victims. Since more tokens in circulation reduce the likelihood of manipulation, projects with a small community size are at a higher risk.
By dividing funds among multiple addresses controlled by a single person or creating a sham ERC-20 token contract that may fabricate information regarding supply and user balances, it is already easy to make a centralized token supply appear widespread. According to Khalsa, “the average user won’t usually catch them,” even though these methods are catchable.
FAQs
How are scammers using sophisticated marketing techniques?
Scammers use advanced marketing tactics like fake endorsements and FOMO-driven campaigns to attract investors to fraudulent tokens, like the Peanut meme coin.
What are honeypot tokens and their risks?
Honeypot tokens trap investors by appearing legitimate, only to block withdrawals once funds are invested, causing significant losses.
How can blockchain security be improved to combat scams?
Blockchain security improvements include streamlined protocols, automated code scanning tools, and third-party audits to help detect vulnerabilities and prevent scams.
How can traders spot potential token manipulation?
Traders should monitor token concentration, liquidity, and wallet control patterns to identify signs of centralization, which may indicate fraudulent activity.
