Chinese authorities have arrested eight people behind an alleged decentralized finance (DeFi) rug pull. The authorities from Chizhou arrested the suspects from several provinces in China and seized a million dollars in cash and other luxurious items allegedly bought using the proceeds from the rug pull.
The Chinese government has already banned digital currencies, but according to reports, DeFi scammers are still finding ways of targeting local investors. For investors in one sketchy unnamed DeFi protocol, it ended with them losing millions of dollars after the developers took off with their money.
A report by Nikkei Asia reveals that police in Chizhou, a city in the eastern province of Anhui, arrested the eight people following an investigation that spanned six months. The probe started after one of the victims reported losing 590,000 yuan ($92,875) to the DeFi scammers. In total, the police found that the scammers had taken off with about 50 million yuan ($7.8 million).
The investigation led to eight people located in different provinces across China who were reportedly behind the rug pull. In addition to arresting the scammers, the Chizhou police seized 6 million yuan ($976,000) worth of digital currencies. They also seized other items that the scammers had purchased from proceeds of the crime, including villas and luxury cars, Nikkei reports.
The scam had promised the investors lucrative returns if they put their money into providing liquidity on the platform. Once investors had put in enough money, the scammers made off with the digital currencies, laundered most of it, and abandoned the project.
According to the Chizhou public security department, this kind of scam is nothing new in China, even though digital currencies have been banned for years.
“After the investigation and analysis by the police task force, it was found that this case was a typical case of illegally obtaining virtual currency by using blockchain technology,” according to the Chizhou public security bureau.
Rug pulls, which is when the developers push a sketchy token and take off with investor funds, have become worryingly common. DeFi has made them even bigger, with the sector being largely unregulated. While some are sophisticated and the developers go to great detail to deceive investors, some are downright obvious and come with all the red flags, but investors still choose to ignore these as they chase the promised returns.
In 2021, they shot up to represent the single biggest avenue for digital asset scammers, as research by Chainalysis showed. They accounted for 37% of all scams last year, with $2.8 billion stolen, up from just 1% in 2020
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