Chinese police unearth multi-million-dollar DeFi rug pull

Beijing’s crackdown on crypto continued with the start of the new year, with the Chinese police freezing nearly 6 million yuan ($1 million) worth of crypto and arresting eight people involved with it. 

As per a report published in Nikkei Asia, the public security bureau of Chizhou unearthed a crypto rug pull scam that could be worth 50 million yuan ($7.8 million). The police began an investigation after an investor lost 590,000 yuan worth of crypto in June last year. The trail of the inquiry led to eight people living in different provinces. The police also seized luxury cars, villas and other expensive items from the accused that were allegedly purchased using the stolen money.

The decentralized finance (DeFi) scam lured investors with promises of high returns by swapping liquidity. However, after investors put in their money, the scammers laundered the money from anonymous pools and got away with all the funds. The Chizhou public security said:

“After the investigation and analysis by the police task force, it was found that this case was a typical case of illegally obtaining virtual currency by using blockchain technology.”

Rug pulls have become one of the most common scams in the DeFi space, as it is comparatively easier to pull off. According to Chainalysis data, investors lost over $2.8 billion to rug pulls in 2021. These types of scams often offer investors lucrative returns, and once the pool has got enough capital, the scammers run away with all the money. Chainalysis’ report said, “Rug pulls have emerged as the go-to scam of the DeFi ecosystem, accounting for 37% of all cryptocurrency scam revenue in 2021, versus just 1% in 2020.”

Related: CertiK identifies Arbix Finance as a rug pull, warns users to steer clear

While crypto use for criminal activities is estimated to be around 1% of the total circulating supply, the growing scams in the DeFi space have affected investors’ confidence. However, it is also important to note that these scams often prey on the vulnerabilities of the end-user rather than an inherent issue with the crypto technology. Data from the top 15 biggest rug-pulls makes it evident that most of the biggest scams happened with new tokens promising high returns.