Crypto scams soared in 2021, driven by ‘rug pulls’

Yahoo Finance’s David Hollerith reports about how crypto scam revenues are surging.

Video Transcript

ZACK GUZMAN: Welcome back into “Yahoo Finance Live” on this New Year’s Eve special. We’re, of course, taking a look back at some of the biggest stories in 2021. And when it comes to crypto, as we highlighted, some of the biggest booms– Dogecoin out there and some other coins as well. On the flip side, some of the biggest busts also have to be highlighted.

For more on that, I want to bring I’m Yahoo Finance’s senior crypto reporter David Hollerith with a closer look at some of those. David.

DAVID HOLLERITH: Yeah, so as in years past, scams proved to be the biggest source of cryptocurrency-related crime this year or the biggest busts, according to Chainalysis and a paper from the National Bureau of Economic Research.

Now, Chainalysis found that at least $7.7 billion worth of cryptocurrency has been taken from victims in crypto-related crime worldwide this year. So interestingly, that amount is less than 2019 but more than 2020.

Now, the biggest change this year has been that most of the scams or at least a growing majority has come from rug pools, which is sort of a relatively new type of scam where people find a cryptocurrency project that offers a new token. They invest in, and shortly after, the creators of the project exit with the user’s funds.

So this year, revenue from rug pulls increased by 36%. And obviously probably the best well known is Squid Coin, which sort of occurred in October. So piggybacking off of the South Korean Netflix series “Squid Game,” scammers launched Squid Coin in October. After buying in, investors quickly discovered that they couldn’t actually sell their tokens.

Now, this came as a surprise, obviously, but the price actually climbed to $2,860 per token before it plummeted to $0, and the creators made off with the funds. So that’s actually a run of the mill scam, and in total, the creators got away with about $12 million from victims.

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But the largest scams actually not come from the DeFi segment but from centralized exchanges. So there isn’t a centralized exchange in Turkey called Thodex which was a similar rug-pull scenario where the CEO of the exchange mysteriously disappeared, and he made off with about $2 billion of victims’ funds.

So, you know, people talk about DeFi being a particularly hot and sort of, you know, crime-sensitive area, but what we’re finding is that actually a lot of the scams are sort of happening across the board. It’s just sort of what we’ve seen in the last year is that in DeFi, perhaps, a newer area, there’s a lot more newer types of crime happening.

ZACK GUZMAN: Yeah, there’s obviously scams to be had everywhere. Scammers are going to scam you whether they’re trying to do it in cash or crypto, centralized, decentralized. Always got to be on your toes out there. A good tip for 2022 as we move forward.

David Hollerith bringing us the latest there. Appreciate that.