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Hacken Research Claims That The Majority Of Crypto Projects Rug-Picked In Q3 2023 Lacked Audit Reports
The majority of cryptocurrency projects that were abruptly terminated in the third quarter of 2023 lacked audit reports, and investors are cautioned about the risks and recurring patterns associated with these types of frauds.
Research by the blockchain security firm Hacken, as reported by CryptoPotato, indicated that a significant proportion of cryptocurrency projects that were abruptly terminated in the third quarter of 2023 lacked audit reports. According to the Q3 2023 Security Insights report, audits were conducted and reported by a mere 12 out of 78 examined rug pulls. An audit conducted by an impartial third party conducts an exhaustive examination of a token, detects weaknesses in a project, and notifies investors. While these audits may verify the legitimacy of a project, they do not provide assurance against an abrupt withdrawal of liquidity.
According to Hacken, rug draws are among the most straightforward frauds to thwart, as investors can discern their structure by observing specific patterns, such as the existence or non-existence of an audit. Certain projects that were delayed during the previous quarter underwent audits but were subsequently assigned low scores. Users disregarded the audit results, perceiving the mere audit status of the projects as satisfactory. An audit of Magnate Finance, a lending protocol utilising the Base network of cryptocurrency exchange Coinbase, cautioned that the project's deployer might be able to manipulate the token; however, users disregarded the audit's findings. In the end, the deployer executed multiple transactions to remove liquidity from LPs, resulting in the theft of more than $5 million, the second-largest rug draw of the quarter.
The experience of users of the decentralised cryptocurrency staking platform DeFiLabs was comparable. In an audit, the blockchain security firm CertiK identified a centralization risk in the project's contracts; however, no concerns were raised by users. In the end, the platform vanished from existence with user assets valued at $1.4 million. A prevalent trend observed in rug pulls was that developers of malicious projects consistently adhere to the subsequent five stages: token creation, aggressive marketing, supply inflation due to liquidity accumulation, disappearance with depleted funds, and provision of investors with worthless assets.
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