Crypto investors lost a total of $7.7bn to scams in 2021 a staggering 81 per cent increase from 2020 a study has revealed.
As crypto adoption skyrocketed this year so did intake from crypto scams which was at its highest level in five years bar 2019 when the figure reached $9.5bn, data from Chainalysis has shown.
This year, the figure was boosted by the rise of rug pull scams, which have become particularly popular in the DeFi ecosystem, which involves teams of developers creating new tokens and then abandoning it unexpectedly – making off with user funds in the process.
Kim Grauer, head of research at Chainalysis, said: “scamming is one of the most signifiant barriers to building trust in crypto, simply because of how much money is scammed from users each year.
“There is a lot of hype around the crypto assets offering a unique opportunity for scammers,” Grauer continued, adding that while it is likely scams will continue to be the most profitable form of crypto crime going forwards the “inherent transparency” of blockchain makes it suited to analytics tools which can help to identify and block illicit actors.
Rug pulls took in more than $2.8bn worth of cryptocurrency from victims in 2021, accounting for 37 per cent of all cryptocurrency scam revenue in 2021 versus just one per cent in 2020. The biggest rug pull of the year involved the Thodex exchange, a Turkish centralized exchange whose chief executive disappeared shortly after users were blocked from withdrawing funds from their accounts – users lost over $2bn.
Investment scam Finiko also took upwards of a billion dollars from unsuspecting victims. Finiko, an Eastern European Ponzi scheme targeting Russian speakers took more than $1.1bn from victims.
While the amounts lost climbed the number of deposits to scam addresses fell from just under 10.7m to 4.1m, which could mean there were fewer individual scam victims this year according to Chainalysis.
The news comes a day after the UK’s advertising regulator raised a red alert over crypto ads which trivialise investment and do not provide audiences with adequate context around the risks of holding digital assets.
The government’s Online Safety Bill was recently criticised for failing to make big tech companies responsible for removing fraudulent crypto adverts from their websites.