Chinese police unearth multi-million dollar DeFi rug pull

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Beijing’s crackdown on cryptocurrency continued with the start of the new year as Chinese police froze nearly 6 million yuan ($1 million) worth of cryptocurrency and arrested eight people involved.

According to a report published in Nikkei Asia, the Public Security Bureau of Chizhou unearthed a crypto rug bridge fraud that could be worth 50 million yuan ($7.8 million). Police launched an investigation after an investor lost 590,000 yuan worth of cryptocurrency in June last year. During interrogation, eight people living in different provinces were traced. The police have also seized luxury cars, villas and other expensive items from the accused, which were allegedly bought with fraudulent money.

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The fraudulent DeFi program lured investors with the promise of high returns by swapping liquidity. However, after the investors put their money in, the scammers laundered the funds from unknown pools and fled with all the money. Chizhou Public Security said:

“After investigation and analysis by a police task force, it was found that this case was a specific case of illegally obtaining virtual currency using blockchain technology.”

Rag bridge has become one of the most common scams in the decentralized finance (DeFi) space, as it is comparatively easy to pull off. According to Chainalysis data, investors lost more than $2.8 billion in 2021 from Rag Pull. These types of scams often entice investors promising high returns, and once the pool has sufficient capital, the scammers run away with all the money. The Chainalysis report states: “Rig Pull has emerged as the DeFi ecosystem’s go-to scam, accounting for 37% of all crypto scam revenues in 2021, compared to just 1% in 2020.”

RELATED: CertiK identifies Arbix Finance as rag bridge, warns users to steer clear

While crypto usage for criminal activities is estimated to be around 1% of the total circulating supply, rising scams in the DeFi sector have dented investor confidence. However, it is also important to note that these scams often fall victim to end-user vulnerabilities rather than an underlying problem with crypto technology. This is evident from the Top 15 Biggest Rag Pull data which shows that most of the big scams happened with new coins promising high returns.