As the crypto space grows, it has become more common to hear stories of airdrop scams, rug pulls, and disappointed crypto users. While no investment is guaranteed, the decentralized nature of crypto, and confusion of such early markets make it the perfect environment for crypto scams.
Since October of 2020, over $80 million dollars have been lost in crypto related scams, and those numbers do not seem to slow down any time soon. Criminals today can capitalize from the popularity and ambiguity of digital assets, leaving crypto users with a bad taste in mouth. The most recent scam happened to investors of the Squid Games token, a Netflix show inspired token where users play deadly games to win the jackpot. The popularity of the show along with media exposure all over the news and social media influenced the quick success of the token, rising from $.01 the day of release to an all-time high of $2,861.80. Minutes after the rise in price, the project plummeted to $.0007 and developers abandoned the project claiming someone hacked the project and they were too depressed and overwhelmed to continue. The sudden disappearance of the developer team and dumping of the token cost the SQUID community over $3 M dollars.
Rug Pull Scheme
What happened to SQUID token and how was their team able to get away with it? The Valid Network team breaks it down for you:
There were many red flags in their white paper, marketing strategies, and smart contracts capabilities. There were countless of typos in their white paper and telegram conversations, and they often made statements to invest fast before missing out, causing major FOMO. It is important to highlight the way their smart contract was developed, especially their anti-dumping mechanism in which investors were unable to withdraw funds unless they bought a ticket to play an online version of the squid games. Investors had to purchase 456 SQUID tokens to acquire a ticket to the game, which if they won, they could withdraw profits, however, if they lost the game, they lose SQUID tokens. For investors that did not have the 456 SQUID, the possibility of cashing out was non-existent.
Valid Insights on SQUID
While we recognize that their white paper, marketing tactics and complex set of smart contracts made them look like a convincing project, investors can avoid future scams by using Valid Insights’ reputation capabilities which can determine account reputation by identifying fake and one-time accounts vs well-established accounts/entities. Valid Insights can also detect if an asset has been associated with any crypto mixers, assigning an appropriate risk level.
Although smart contracts were verified, one contract had two versions with similar names (MastorChef and MasterChef). While one was legit, the other was just a back-door that facilitated the rug pull. Verified sources are important, but they are not enough to determine safety and reliability. Valid’s automated scanning is not fooled by similar names like humans, and can examine contracts after they have been deployed. The use of binary contract code allows Valid Insights to detect vulnerabilities and fraud without the need to source code.
Investors were able to deposit and withdraw (as long as they met game guidelines) but even users that were careful and tested before investing large funds were still affected in the rug pull. When investing in riskier assets, it is important to continuously monitor withdrawals. One way to do this is using Valid Insights which scans all activity within and asset, and can warn you of concerning activity that affects users. Most importantly, Valid Insights can detect hidden contract conditions that may apply in the future, such as time-locks or other mechanisms.
Although many were suspicious on the credibility of the Squid Games project, investors ignored the signs and still decided to enter in the hopes of large returns. It is important to highlight that even after the rug pull, investors continued to invest in the token as the development team announced they were leaving the project and Squid Game will enter a new stage of community autonomy. Our recommendation is that moving forward, investors take Squid Games as a learning lesson, and that they acquire strong security monitoring systems that can help them prevent similar types of fraud in the near future.
This content was originally published here.