Exit scams take centre stage in crypto-currency crimes

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In 2020, major crypto thefts, hacks and frauds totalled $1.9 billion (R29 billion) – the second-highest annual value in crypto crimes yet recorded.

This is according to crypto intelligence firm CipherTrace, which yesterday released its Crypto-currency Crime and Anti-Money Laundering Report, detailing the crypto landscape in 2020.

CipherTrace notes that massive exit scams have dominated crypto-currency crimes in the last two years.

In 2019, it says, the Ponzi scheme PlusToken netted $2.9 billion with its exit scam – 64% of the year’s major crime volume.

Last year saw WoToken, a similar scheme operated by some of the same people as PlusToken, defraud investors out of $1.1 billion in its exit scam – 58% of 2020’s major crime volume.

CipherTrace notes that while major fraud volume saw a significant decrease, it still made up 73% of 2020’s crime total.

Although not included in the report, SA last year also had its fair share of crypto thefts reported. For example, Mirror Trading International (MTI), which was started in April 2019, collapsed after its CEO Johann Steynberg fled the country with over R5 billion worth of investors’ Bitcoin.

A South African High Court recently granted a provisional liquidation order against MTI following an application for relief by two investors who failed to withdraw their Bitcoin.

SA’s Financial Sector Conduct Authority this month finalised its investigation into the now liquidated MTI and will share its report with the liquidators appointed by the Master of the High Court.

Meanwhile, CipherTrace points out that while 2019 and 2020 saw a similar number of thefts, hacks and fraud, the average value taken by criminal actors in 2019 was 160% higher than in 2020, indicating maturity in the crypto space as entities continue to harden systems and take precautions against inside and outside threats.

While 2020 did see a large $281 million hack of crypto-currency exchange KuCoin, the exchange claims to have already recovered 84% of the stolen funds – something almost unheard of in previous years, says the crypto intelligence firm.

It explains that another factor contributing to this discrepancy is that 2020 was overrun by dozens of decentralised finance (DeFi) related hacks and scams, which were much smaller in size.

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 initial coin offering craze, says CipherTrace.

It explains that in a rug pull, which is similar to a pump and dump, some investors will liquidate the entire DeFi pool, leaving the remaining token-holders with no liquidity and unable to trade, wiping out the remaining value.

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