Cryptocurrency rug pulls are not too difficult to be spotted by investors as the majority of such scams usually share distinct and visible features, according to a new report.
Blockchain security auditor Hacken on Oct. 25 released its latest security insights report, aiming to spot the trends in Q3 crypto hacks and evaluate how affected projects approached security.
The report paid specific attention to rug pulls, which is a type of exit scam occurring when a team pumps their project’s token before the sudden withdrawal of liquidity. According to Hacken, crypto rug pulls made up the largest amount of exploits in crypto, accounting for more than 65% of all hacks in Q3 2023.
The reason for so many rug pulls on the market is that it’s easy to create such schemes. “Serial scammers use token factories that exhibit the same behavior to produce fraudulent tokens on a mass scale,” the report notes.
Despite its high prevalence, cryptocurrency rug pulls are “one of the simplest scams to prevent,” Hacken said, providing some tips about such scams, based on its Q3 observations.
One of the most crucial ways to assess a project is checking for an independent third-party audit, according to Hacken. Of the 78 Q3 rug pulls examined by Hacken, only 12 reported having completed “any kind of audit.”
But even when a crypto project provides an audit, users should be vigilant to properly check them, as an audit alone doesn’t always guarantee protection from scams, Hacken noted, stating:
“The project can undergo an audit and have an audit report, but with a poor score. Yet, users overlook this and consider the mere fact that the project was audited as sufficient.”
According to Hacken co-founder and CEO Dyma Budorin, investors often ignore red flags like the absence of audits and other issues due to factors like the fear of missing out (FOMO). The industry has seen success stories with meme coins like Pepe (PEPE) and Shiba Inu (SHIB), where $100 out of curiosity led to significant profits, so people tend to hope for this history to repeat, the exec noted.
“This desire for substantial returns in a short timeframe often causes individuals to overlook red flags and impulsively dive into investments,” Budorin said, adding:
“Scammers are well aware of this and they are very good at mimicking successful projects. […] Scammers frequently refer to thriving projects, intensifying the FOMO on the next big opportunity.”
Hacken CEO also stressed that the process of investing in cryptocurrency is a “no-brainer for many users”, requiring “only a few clicks.” According to the exec, this fact also can lead to impulsive decision-making.