Author: Swosti Singh Napit; Symbiosis Law School, Pune
To the point
A cryptocurrency called Squid Game Token, which was named after a popular South Korean Netflix series, Squid Game, suddenly crashed in 2021, falling almost to zero only after being revealed as an apparent scam. The price of the token eventually shot up, drawing the attention of several investors, though later it was condemned as it did not give people the freedom to sell their tokens, the BBC reported. In what came to be called a rug pull, the developers then disappeared and took all the funds. Such a scheme turned out to be one of the most infamous cryptocurrency frauds of the year that brought individuals serious losses.
Abstract
Squid Game Token was a cryptocurrency that was based on the Netflix hit Squid Game. It came out at the end of the year 2021 and was soon the focus of attention because its price dropped dramatically, only to be revealed as a scam.
The Major Points which are covered are:
Sudden Interest and Growth- An extremely fast jump in the value of the token gained the attention of a great number of investors.
Red Flags: Buyers were unable to sell their tokens, and they were stuck in losses.
Rug Pull Scam: The developers decided to immediately pull all funds, reducing the token to zero.
Investors were millions of dollars poorer, and the case turned out into a lesson on crypto-based scams. The BBC and other media houses covered the story of the fraud and exposed its fraudulent nature.
This scheme showed the danger of unregulated cryptocurrencies and pump-and-dump operations in the cryptocurrency market.
Analysis
The SQUID token scam was the prime example of how bad actors take advantage of decentralized finance. In fact, in order to downplay the collapse of their scam token, the scammers simply listed it on PancakeSwap so that they could liquidate liquidity pools without allowing investors to sell, effectively setting the stage so that the con would always have a winner. The mechanism through which the money laundering was done was very advanced. Having stolen money, they swapped it into SQUID, which is later turned into WBNB and then BNB; the majority of funds were sent to Tornado Cash to hide the tracks. They only did this with 55 withdrawals on a single day (1 November 2021) and merged them into a single address prior to draining them to Ethereum.
TRM Labs connected the scammers with two other similar rug pulls, which indicates an organized gang. Although it is not clear how much total amount was stolen because of elaborate laundering, estimations are up to 19.3 million BNB.
This example illustrates the main paradox of DeFi: its permissionless, trustless design can give a person financial freedom, but at the same time generates the possibility to conduct advanced fraud. Although forensic tools can eventually be used to locate stolen money, it is difficult to block without having to centralize prevention tools.
The Proof
The Q4 2024 Phishing Activity Trends Report issued by APWG points out a terrifying threefold increase in the number of BEC cryptocurrency scams, which was practically absent comprising earlier quarters, thus presenting a hazardous development of criminal patterns when it comes to phishing. This has seen a dramatic rise in other not-nice trends in crypto-related fraud. In its Data Spotlight report of 2023, the FTC has found cryptocurrency investment fraud to be the most expensive type of fraud, exceeding a loss of 3,8 billion dollars, frequently committed using advertisements on social media that pose as celebrities. In the meantime, Chainalysis has found that the number of so-called pig butchering scams, in which criminals con their targets into pseudo-romantic relationships and then cash out by pilfering crypto, has increased by 85 percent in 2023 to the loss of $7.8 billion in total. To such risks, in January 2024, the FBI warned of advanced AI deepfake deceptions, when scammers mimic the voice of executives of a company and order fraudulent transfers of cryptocurrencies in their names, with one attack alone costing a company 25 million dollars. Collectively, these developments point to an increasing number of risks in the crypto environment owing to more sophisticated social engineering methods.
Similar Case Laws:
AnubisDao 2021
Another rapid rug on DeFi was the AnubisDAO: a scam contract that disappeared with 60 million ETH only 20 minutes after the project launched. Being advertised as a community-driven project, it was done with the help of fake KYC verification and influencer shilling to make it look legitimate. The team also took liquidity and vanished, leaving investors with useless tokens. Subsequently, blockchain sleuths identified their way into mixers and offshore exchanges, but no charges have been made.
Frosties NFT 2022
The developers of the Frosties NFT stole 1.3 million in ETH, abandoned the project, and became the first NFT rug pull to lead to criminal charges in the United States. Its developers also assured investors of exclusive rewards and closed down the social platform after the launch, rendering their digital asset useless. In an iconic case, the DOJ apprehended two persons or suspects with the names Ethan Nguyen and Andre Llacuna and accused them of the crime of wire fraud and money laundering. This signified a change in the way NFT fraud would be dealt with by the authorities, as they would go after frauds of this nature.
Baller Ape Club 2022 NFT Scam
Wash trading Baller Ape Club NFT artificially raised the trading volume of the project to 2.8 million dollars, hyping the collection. The developers took the investors away with promises of exclusive amenities, after which they drained the funds and ran away with the project. Blockchain researchers exposed the scam through self-financed transfers used to manipulate wallets used by the same group. Such a case exemplified the wide use of market manipulation within the NFT world at the time of the boom in 2021-2022.
Conclusion
The sharp increase in crypto scams such as SQUID, AnubisDAO, and Frosties NFT shows that the digital asset economy has serious weaknesses. Such advanced scams reveal the way fraudsters use investor momentum by means of tampered smart contracts, invented trade volume, and complex exit systems. Although blockchain analysis tools are enhanced, so that certain investigations and arrests are possible, crypto remains decentralized, and thus still offers loopholes to criminals.
These cases teach three important lessons to investors. First, any promises that claim guaranteed returns should immediately raise red flags because legitimate ventures do not promise easy, get-rich schemes. Second, due diligence is not optional; it comprises a project team, code auditing, and community feelings, which may provide hints of illusions. Third, even though regulatory frameworks are developing slowly, there is still a need to be very cautious with the current state of affairs.
Crypto revolution is the real thing as far as financial innovation is concerned, but the unregulated side of it remains a field of scammers. These dangers require healthy doses of skepticism on the part of the investor until such time when greater protections are achieved. Until then, the investor in the cryptospace needs to become accustomed to the reality that when something seems too good to be true, it nearly always is. Safety is thus now more of a user issue than a systems issue, and the most effective protections against the continued shift in the threat environment are education and vigilance.
FAQS
What are the most common types of crypto scams?
Rug pulls (a project is abandoned by its developers after stealing money)
Phishing scams (imim thefts/scams of login details)
Pump and dump (artificial rising of the prices of a token followed by its hopeful sale)
Scam giveaways (Send crypto and get twice as much back)
Impersonation scams (sham celebrity endorsement or suchlike support)
What’s “DeFi”?
The process of financial services (loans, trading) without the intervention of banks, but with the help of smart contracts (e.g., Uniswap, Aave).
What are NFTs?
Special digital tokens demonstrating possession of objects (art, music, etc.). Foreign to crypto coins, NFTs are non-exchangeable 1:1.
What is the difference between Bitcoin and Ethereum?
Bitcoin (BTC): Digital gold (store of value).
Ethereum (ETH): App blockchain (use NFTs, DeFi).
