Most Rugpulled Projects Lack Audit Reports
A recent report by blockchain security firm Hacken has revealed that the majority of crypto projects involved in rug pulls during the third quarter of 2023 did not have audit reports. Out of the 78 examined rug pulls, only 12 had conducted and reported audits. An independent third-party audit plays a crucial role in identifying vulnerabilities and warning investors about potential scams. Hacken emphasized that rug pulls can be easily prevented if investors pay attention to certain patterns, such as the presence or absence of an audit.
Audit Does Not Guarantee Protection
While an audit can validate a project’s authenticity, it does not guarantee protection from sudden liquidity withdrawals. Even audited projects can make malicious changes to their tokenomics and smart contracts to defraud users. Some rug-pulled projects from last quarter had undergone audits but received poor scores. Unfortunately, users often overlooked these findings because they believed that the fact that the projects were audited was sufficient.
“Token owners continued to participate in the protocol for almost three months after the audit results…we got the 2nd largest rug pull this quarter with over $5 million stolen,” Hacken stated.
A Common Pattern Among Rug Pulls
Hacken identified a common pattern among rug pulls. Malicious developers typically follow five steps: creating tokens, aggressively marketing them, inflating token supply when liquidity accumulates, vanishing with drained funds, and leaving investors with worthless assets. This pattern was observed in various rug pulls, including the case of DeFiLabs, a decentralized crypto staking platform. Despite warnings raised in an audit by CertiK about centralization risks within its contracts, users did not take heed, and DeFiLabs eventually disappeared with $1.4 million of users’ assets.
Hot Take: The Importance of Audits in Crypto Projects
The recent findings from Hacken’s report highlight the significance of audits in the crypto space. While audits can provide valuable insights into a project’s vulnerabilities, they are not foolproof protection against rug pulls and scams. Investors must exercise caution and consider multiple factors before investing in a project, including the audit results, team transparency, tokenomics, and community feedback. Additionally, it is crucial for users to stay informed and educated about the risks associated with decentralized finance (DeFi) projects. Only by conducting thorough research and due diligence can investors mitigate potential risks and make informed decisions in the crypto market.
By
By
By
By
