85% of crypto carpetbaggers didn’t report audits in Q3: Hacken

Cryptocurrency scams aren't too difficult for investors to spot, as most such scams often share distinct and visible characteristics, according to a new report.

Blockchain security auditor Hacken released its latest security insights on October 25, aiming to identify trends in Q3 crypto hacks and assess how affected projects approached security.

The report pays special attention to rice pools, a type of exit scam that occurs when a team withdraws their project's tokens before an emergency liquidation. According to Hacken, crypto rugs comprise the largest volume of exploits in crypto, accounting for more than 65% of all hacks in Q3 2023.

The reason there are so many rug pulls on the market is because it's easy to create such designs. “Serial fraudsters use token factories with similar characteristics to mass-produce fraudulent tokens,” the report said.

Despite their high prevalence, cryptocurrency scams are “one of the easiest scams to prevent,” Hacken said, based on Q3 observations, giving some advice on such scams.

According to Haken, one of the most critical ways to evaluate a project is to have an independent third-party audit. Of the 78 Q3 carpet cleaners audited by Hacken, only 12 reported completing “no audits.”

But even when a crypto project is audited, users should exercise due diligence as an audit alone cannot always protect against fraud, Hacken explained.

“The project may have an audit and an audit report, but it has a low score. However, users ignore this and consider it sufficient that the project is audited.”

According to Hacken founder and CEO Dima Budorin, investors tend to ignore red flags for reasons such as lack of audits and other issues such as fear of missing out (FOMO). The industry has seen success stories with memecoins such as Pepe (PEPE) and Shiba Inu (SHIB), which generated high profits of $100 due to enthusiasm, so people are hoping for this story to repeat itself, the executive explained.

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“This desire to make a lot of money in a short period of time often leads individuals to ignore red flags and rush into investments,” Budorin added.

“Fraudsters know this well, and are very good at copying successful projects. […] Scammers frequently mention promising projects, which reinforces FOMO for the next big opportunity.

Hacken's CEO also stressed that the process of investing in cryptocurrency is “a no-brainer for many users” and requires “just a few clicks”. According to the executive, this fact can also lead to sudden decision-making.

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