The Most Devastating Crypto Exit Scams of All-Time

In 2022, Web3 globally lost $2.3 billion to different frauds and vulnerabilities, with 377 incidents registered. Cryptocurrency exit scams made up 97.7% of tokens offered on the decentralized crypto market Uniswap. If you invest in cryptocurrency, and especially if you like to buy into smaller projects, understanding this type of scam is a must.

What Is an Exit Scam?

An exit scam is a deceptive strategy used by unscrupulous cryptocurrency promoters who set up a phony cryptocurrency company and then disappear with investors' funds after they have amassed a large enough sum. The rug pull is a popular sort of exit scam in which scammers advertise a project and then abandon it after filling their wallets.

Unlike in centralized financial systems with central bank control, the decentralized, anonymous structure of digital currencies makes it difficult to track down fraudsters who defraud investors. Due to this, many gullible and uninformed investors have been duped out of their money through exit scams.

DeFi Exit Scams

DefI Exit scams are most common in tokens on decentralized exchanges (DEXs) that rely on a liquidity pool held on the DEX. Scammers that masquerade as developers typically develop and launch a promising Defi project that attracts a big number of users, they then raise funds from various investors and after that the firm may or may not operate for a period of time before the promoters vanish, either by fleeing with the ICO capital, removing the liquidity pool, or selling their own coin, leaving investors in the dark.

Decentralized finance-related projects published on decentralized exchanges are extremely dangerous due to the abundance of exit scams in the field. Defi exit scams have occurred on several occasions, even with currencies listed on prominent centralized exchanges.

Modus Operandi

1. Promoters launch a new cryptocurrency platform with exciting and promising investment concepts. It then starts to seek funds from investors via an ICO. The company may or may not operate. The promoters then vanish with the ICO funds, leaving the investors without anything.
2. Another sort of exit scam involves scammers operating a Ponzi scheme under the cover of a cryptocurrency exchange or investment firm. They keep the project going until the truth is revealed, at which time they vanish with all of the investment funds.
3. In certain situations, they may even manage the project for a period of time, pushing and boosting prices before trading their tokens and disappearing. In any case, after they've made their money, they're out the door, which is why these schemes are regarded as exit scams.

Red Flags Indicating A Cryptocurrency Exit Scams

There is no specific signal or rules for detecting an exit scam, but as an investor, you should consider key indicators before making investing selections. Thorough research is essential when investing in any asset, but especially with cryptocurrencies due to their volatile nature. And, while analyzing a project, it is critical to check for any potential red flags, which may include:

1. No recent independent code audit
2. Extremely extravagant return projections
3. Ambiguous team information
4. Shady white paper for the project
5. Overzealous promotional activities
6. Non-existent working model
7. Roadmaps that seem hazy or unrealistic
8. Invalid use cases
9. Inequitable token distribution
10. Hurriedly created webpage
11. Suspicious smart contract code

Here Are Some Of The Most Devastating Defi Exit Scams

Bitconnect

The firm swiftly ascended to become one of the top 20 exchanges in the world after launching its initial coin offering (ICO) in 2017. But in January 2018, BitConnect abruptly stopped operating its lending and trading platforms. The market value of BitConnect, which peaked in 2017 at almost $2.9 billion, quickly decreased to $17 million.

OneCoin

One-coin sponsored major conferences all around the world to market it as an attractive cryptocurrency to invest in. People then made purchases of the token but there was no mechanism to trade it, no blockchain, and no means of selling the coins. The only choice was to buy it. Over the duration of five years, approximately 3 million individuals bought Onecoin. In 2017,  the founder of Onecoin, Ruja Ignatova, vanished immediately after a warrant for her arrest was issued by law enforcement. The website then fell down in 2019, and it is estimated that they grabbed at least $4 billion.

Thodex

In April 2021, Turkish cryptocurrency exchange Thodex stated that it was experiencing difficulty completing transactions and soon after trading was halted, the company's founder, Faruk Fatih Ozer, purportedly fled the country with approximately to $2 billion in funds stolen from over 400,000 Thodex investors. Authorities confirmed that Faruk Fatih Ozer took at least $30 million from the scam.

Confido

In November 2017, the cryptocurrency firm suddenly vanished after raising $175,000 from its initial coin offering (ICO). Within a week, the market cap fell from over $6 million to $70,000 as a result of this occurrence. The Confido teams' LinkedIn pages revealed the pages of the four primary fraudsters involved. two developers and two execs, were new and had very few connections.

Evolution Darknetmarkets

Darknet marketplaces are darknet websites where buyers may go to buy prohibited items that vendors have advertised for sale. It functions as an escrow service for purchases made from there.

Evolution, a darknet market place, existed in 2016 and was quite well-known at the time. The website's escrow function was unexpectedly locked without warning, bringing the entire site to a halt. The entire website then crashed. There was $12 million in escrow funds at the time, and it seemed that management stole everyone's money.

LoopX

Loopx was another cryptocurrency firm that shut down unexpectedly in February 2018 after receiving $4.5 million from investors who invested with both bitcoin and Ethereum. Its ICO had claimed "guaranteed earnings every week," owing to "the most powerful Trading Software available to date.

Giza Device

After receiving US$2 million in bitcoins through a phony ICO, the project turned out to be another hoax and disappeared in March 2018. The irony of the situation was that they had told investors that the  funds would be used to support the creation of an "ultra safe storage device" for cryptocurrency.

Velox

In March 2019, the Brazilian fraud Velox 10 pulled its "exit scam," vanishing and taking millions in Kenyan shilling from local cryptocurrency investors in Kenya. Since September 2017, the hoax has been enticing individuals into donating money to its ostensibly sound "Bitcoin investment fund." Ricardo Rocha, the creator, had promised investors up to $4,000 in daily earnings based on the "membership fee" paid and offered to take the greatest donors on an all-expenses paid trip to the UAE to meet with "leading worldwide business experts."

Africrypt Exchange

Africrypt, a South African-based exchange, was founded by two teenage brothers, ages 18 and 21. While investigating a "hack," the company halted account withdrawals in April 2021. After then, the two brothers disappeared, and the website went black. The two brothers robbed investors of $4 billion in South African currency.

Yfdex Finance (Yfdex)

In 2020, the Defi startup Yfdex.Finance (Yfdex) stole $20 million from investors after just two days of internet promotion. The fraudsters launched a massive campaign on Telegram, Medium, and Twitter, as well as created a website to host the "false" business, promising massive profits on their tokens. In a transaction, the project burned 16,160 tokens, which may have increased investor trust in the company.

Compounder Finance

Compounder Finance investors were victims of an exit fraud in which $10.8 million in investor monies were taken. Compounder Finance's contracts were emptied of $750,000 in wrapped bitcoin (WBTC), $4.8 million in ether, $5 million in dai, and a few other tokens. Despite having been audited before, the team exchanged the safe and audited contracts for malicious ones that allowed them to hijack investor assets.

Pincoin And I-Fan Scam

The scam's founders organized meetings and seminars, going to great efforts to convince investors of the projects' feasibility. Investors were promised a monthly profit rate of 48 percent on their initial investment and a four-month recoupment of all deposits. Investors began getting their initial earnings in cash. Then, all of a sudden, Pincoin began distributing earnings in iFans tokens utilizing digital currency. When the money was collected, the team vanished, as did the money. Over $660 million in tokens were lost by 32,000 investors.

Closing Thoughts:

Despite the numerous frauds, the blockchain ecosystem is still producing outstanding businesses that tick all the right boxes. Aptos Network is a good example.

Aptos, a Layer 1 POS network with over 100 apps developed on it, was established by Mo Shaikh and Avery Ching with the goal of creating the most secure and scalable blockchain possible. After a series of testnets were released at the beginning of the year, the mainnet went live on October 19, 2022.

For application development, the Aptos blockchain employs the Move programming language and the Move VM, both of which were built and optimized for blockchain use cases. The language was created with scalability and security in mind.

Aptos blockchain is a Proof of Stake network with low latency Byzantine Fault Tolerant (BFT) technology. When a node or set of nodes behaves maliciously, the BFT mechanism prevents network failure.

‍Pontem is developing the next generation of dApps with simplified experiences supported by Aptos and Move in order to accelerate global adoption for both customers and institutions.

Pontem also created a fork of the Diem Move Virtual Machine that is easily deployable to other current chains such as Polkadot, Avalanche,  Cosmos, and others.

For more details of what Pontem is supporting the Aptos ecosystem, visit their website.