Eight people have been arrested in China for a rug pull they executed in June 2021.
The arrests came after a lengthy investigation found evidence that the group had used anonymous liquidity pools to steal crypto assets from their own investors.
Chinese police arrested the individuals in multiple provinces, seizing millions in luxury cars and homes. Shortly after the arrests, the police froze over $1m in digital assets related to the scam.
Rug pulls are becoming more frequent: start a cryptocurrency project, grow some hype, dump your tokens and live the millionaire lifestyle. It all seems so simple until the investigations start.
In this case, the investigation started when an unlucky investor found $90,000 worth of crypto assets had vanished from their holdings.
The Chinese police have not identified which cryptocurrency project was involved but rumors match the timing with a project named Gainswap. The total amount stolen during the scam is estimated to be around $8m in digital assets.
This rug pull was one of the many scams accounted for in China in recent years. According to reports, more than $2.8bn was stolen from Chinese citizens from fraud cryptocurrency projects. These constant issues were one of the main reasons China pushed to ban cryptocurrencies later that year.
Rug pull are a popular scam in decentralized finance. Investors will purchase a token that is only available on one decentralized exchange and will be left holding a valueless asset when the team removes the listing.
This type of scam was extremely prevalent in 2021 and accounted for more than 35% of the illicit revenue in China last year.
Regulators in China and around the world worry about decentralized finance due to these types of issues. Unregulated fundraising, exchanges and digital assets with no regulatory clarity have many lawmakers pushing to clamp down on decentralized finance in the name of protecting investors.
Crypto enthusiasts are typically not big on regulation and believe it will hinder growth. Instead, they hope continued police investigations will catch scammers and make the industry safer.
Some have even taken things into their own hands and created communities that push to flag scam projects before they have a chance to steal funds. Regardless of their work, scams and hacks continue to happen every week.