Beijing’s crackdown on cryptocurrencies continued with the start of the new year: Chinese police froze cryptocurrencies worth almost 6 million yuan ($1 million) and arrested eight people involved in them.
According to a report published in Nikkei Asia, the Chizhou public security bureau uncovered a cryptocurrency scam that could be valued at 50 million yuan ($7.8 million). Police launched an investigation after an investor lost 590,000 yuan worth of cryptocurrencies in June last year. The trail of the investigation led to eight people who lived in different provinces. Police also seized luxury cars, villas and other expensive items from the defendants that were allegedly purchased with the stolen money.
The decentralized finance (DeFi) scam lured investors with the promise of huge profits by exchanging liquidity. But nevertheless, after investors handed over their money, the scammers laundered it and took all the funds. Chizhou Public Security said:
“Upon investigation and analysis by the police task force, it was found that this case was a typical case of illegally obtaining virtual currencies through the use of blockchain technology.”
Rug thefts have become one of the most common scams in the DeFi space as it is comparatively easier to pull off. According to data from Chainalysis, investors lost more than $2.8 billion to rug pulls in 2021. These types of scams often offer investors lucrative returns, and once the fund has enough capital, the scammers run away with all the money. The Chainalysis report said: “Rug thefts have emerged as the go-to scam in the DeFi ecosystem, accounting for 37% of all cryptocurrency scam revenue in 2021, up from just 1% in 2020.”
While the use of cryptocurrencies for criminal activity is estimated to be around 1% of the total supply in circulation, the growing scams in the DeFi space have affected investor confidence. However, it is also important to note that these scams often take advantage of end-user vulnerabilities, rather than an inherent problem with crypto. Data from the 15 largest scams reveals that most of the largest scams occurred with new tokens that promised high returns.
Keep reading: