top of page
Search

25th April 2022 > > Rug pulls.

tl;dr

Rug pulls and private key theft are to be made criminal offences.


Market Snap (at time of writing)








Market Wrap

Just under three weeks ago BTC looked like it might breach $50k to the upside. How very different things look now.


Curious Cryptos’ Definition of the Day – Rug pulls

From cryptowiki.me:

  • A scam in which developers raise a lot of money for a crypto project, then disappear with all of it. One of the most notorious rug pulls took place in 2018, when a start-up called Prodeum, after receiving a modest amount of funding, disappeared with all of the users’ money and left only the word penis on its home page.

  • The act of a platform, founder or team to cash out / steal the projects funds/tokens and afterwards quit the projects further development or services.


Curious Cryptos’ Commentary – Rug pulls are not illegal, and neither is theft of private keys

This revelation took me by surprise.


Decrypt reported in January 2021 (so a little out of date but still relevant):


"DeFi ‘rug pulls’ and exit scams made up 99% of all crypto fraud schemes in the second half of 2020, according to new data from blockchain analytics company CipherTrace. According to CipherTrace’s data, criminals “netted” $1.9 billion in 2020. That’s down from $4.5 billion in 2019, and up from $1.7 billion in 2018. A massive fraud scheme surrounding a coin called WoToken was responsible for $1.1 billion of last year’s figure. It was the single most expensive crypto crime of 2020, according to the report. Criminal activity surrounding the KuCoin hack and Fcoin came in second and third place.


“Half of all 2020 crypto hacks were of DeFi protocols—a pattern that was virtually negligible in all prior years—and nearly 99% of major fraud volume in the second half of 2020 stemmed from DeFi protocols performing ‘rug pulls’ and other exit scams in a pattern eerily reminiscent of the 2017 ICO craze,” says CipherTrace."


Note that Decrypt themselves were not aware that rug pulls are not classified as a crime.


Until now that is.


Senator Kevin Thomas and Assembly member Clyde Vanel have introduced a new bill (https://www.nysenate.gov/legislation/bills/2021/s8839) with the objective of closing this glaring loophole in US law relating to cryptos:


“Establishes the offenses of virtual token fraud, illegal rug pulls, private key fraud and fraudulent failure to disclose interest in virtual tokens.”


The specific mechanism for assessing an illegal rug pull is this:


“A developer … is guilty of illegal rug pulls when such developer develops a class of virtual token and sells more than ten percent of such tokens within five years from the date of the last sale of such tokens.”


The penalties for committing any of these proposed crimes is a maximum fine of $5mm and up to 20 years in jail for an individual or $25mm fine for a company or organisation.


Probably the most famous example of a rug pull is Squid Game, a decentralised finance (DeFi) protocol that took its inspiration from the Netflix series of the same name. The website was very slick, with graphics taken from the series and notably, no spelling errors.


SQUID began life trading at $0.016 and reached nearly $3k within a week purely on the back of FOMO. That price dropped to a quote of $0.0007926 in less than 5 minutes following the rug pull. Interestingly it still trades around a cent and a half giving post rug investors a near 20x return on investment.


Establishing new criminal acts and enforcing them are two very different beasts, but this development can only be seen as positive news for growing investor confidence in cryptos.

6 views0 comments

Recent Posts

See All

23rd July 2024 > > Nashville.

tl;dr It’s all happening in Nashville this weekend. Market Snap Market Wrap Despite twelve consecutive days of inflows to the spot BTC ETFs, and some like yesterday at over half a billion dollars were

Comments


bottom of page