Rug pull
If there’s a bright side to these events, it’s that they’ve informed people on how to identify and avoid NFT scams more effectively. In most cases, this occurs when founders and their teams dump their assets rapidly, ultimately devaluing the token and exploiting the profit created from investors buying the cryptocurrency itself. An example being where a crypto project that promises to donate funds, but chooses instead to keep the funds. Generally, once the prices hit a certain ceiling, the developers will quickly transfer the funds out of the ecosystem and disappear entirely. Those who invested in the project weren’t able to reach the developers and were never given anything they were promised. You only have to check for the signs before investing in a project.
Another way to pull the rug is by disabling buyers’ ability to sell. Malicious actors can add code to their token’s smart contract, which doesn’t allow users to sell back their tokens on DEXs. Knowing the signs of a potential rug pull can save you a lot of financial dilemmas. Unless you’re an experienced trader who’s spent years in the game, avoid venturing too deep into the DEX space.
In a scheme that sounds like something out of a thriller, the team replaced their secure and audited contracts with malicious ones that enabled them to steal locked investor money. They also cleverly mimicked the name of Compound Finance, a legit DeFi interest-earning protocol, to lure their marks into investing. Once the creators of a rug pull have amassed a large amount of liquidity providers with substantial capital, they pull all the available assets out.
FrostiesUnluckily for Nguyen and Llacuna, this was right around the time the Department of Justice began paying closer attention to cases of fraud in the crypto world. Launched on January 7, 2022, Frosties was an ice-cream-themed collection of 8,888 NFTs that went to great lengths to market itself as a “cool, delectable, and unique” project. If there’s anything we’ve learned from the DOJ, most recently with its Frosties NFT bust, it’s that the Justice Department isn’t messing around. Back in February, the Justice Department announced it had appointed its first-ever crypto enforcement team director, Eun Young Choi, to head the National Cryptocurrency Enforcement Team . But even if you do your homework, there’s no guarantee of success.
Investing anywhere, whether you're using regular stock exchanges or crypto, is risky. ONLY invest money that you can afford to lose, and invest safely, starting with this article on learning how to invest. It is a tactic mainly applied to cryptocurrencies or tokens with a low market capitalization and low liquidity. The rates of these cryptocurrencies or tokens are easier to manipulate. For many people, the mad rush into cryptocurrencies has evoked feelings of the Wild West.
Yet, while this isn’t the first “rug pull” to target both new and veteran investors in the NFT space, the DOJ’s recent bust against Nguyen and Llacuna is a first. As a result, the event certainly raises a lot of new questions about the legal landscape. But to understand the legal significance of this event, we need to dive a little deeper into the nature of this specific kind of crypto and NFT scam. At this point, if you want to be involved in the NFT ecosystem, you need to know what NFT and crypto rug pulls are and how to protect yourself.
Much of the crypto trading industry centers around buying low and Lina selling high, so it's no surprise that many traders flock towards coins or tokens that have a lot of promise. It's this hopefulness, or vulnerability, that cybercriminals take advantage of when carrying out rug pull scams. The growing interest in decentralized finance has created new projects and exciting opportunities for how people use their money.
DEXs, as opposed to centralized cryptocurrency exchanges, allow users to publish tokens for free and without audit. Token creation on open-source blockchains such as Ethereum is also straightforward and free. The developer gives themselves a bigger portion of the project.