Those eight people involved got arrested with luxury cars and houses valued at millions of yuan. The deceivers used a rug pull to pocket the liquidity of a fake token.
Eight people got prosecuted and arrested this week in China. They got involved in a cryptocurrency scam of about 50 million yuan ($7 million) in digital assets.
The public security office of Chizhou, in Anhui, based on the eastern side of the country, expressed via WeChat that the scam impacted hundreds of investors who lost their money in a scheme that allowed criminals to send money to an anonymous group and launder it, without their knowledge.
The method used by the alleged criminals was the rug pull, or carpet pull, a type of scam that during 2021 had remarkable growth, according to a report by the blockchain analysis firm, Chainalyisis.
A rug pull is a fraud in which the criminals create a token, list it on a decentralized exchange (DEX), and start attracting investors who unsuspectingly inject liquidity into it so that its price increases. When criminals see fit, they take out the money accumulated by the asset and transfer it elsewhere.
Coincidentally, and according to the local press, this case in China responded to an alleged token project called Gainswap; A token project that belongs to a platform for decentralized finance (DeFi) that is almost unknown. Said asset, coincidentally, has no value, according to Etherscan.
Judicialized Rug Pull
The arrest of the eight people is something completely new, as it is one of the few times in which a State intervenes in a DeFi scam case. There are dozens of rug pulls every day without any government action to punish those involved. This action does not happen, for example, when it comes to scams committed on exchanges or other centralized platforms.
However, this happened in China, where the government has unleashed a crusade against cryptocurrencies, which it has banned since last year, alleging alleged damage to the economy and other reasons.
It is worth noting that the investigations began after an investor lost about 590,000 yuan ($92,000) in cryptocurrencies. Then it got learned that those criminals involved got arrested in December. According to local media, luxury vehicles and houses valued at tens of millions of yuan were found.
According to Nikkei Asia Review, after investigation and analysis by the police task force, the authorities noted that this was a typical case of illegal extraction of digital currencies through blockchain technology.
A Common Scam
As mentioned, carpet pulling grew in 2021. As reported by CriptoNoticias, these scams comprised 37% of all income obtained from illegal activity during the year just ended. This phenomenon is a notable increase since, in 2020, the incidence was 1%.
Just starting this 2022, various mediums reported another rug pull. It was Tedefi, which vanished and left hundreds of investors up in the air. As it turned out, the team promoted a decentralized cryptocurrency exchange on Telegram.
By: Jenson Nuñez
