Is Crypto Audit Essential? Most Rug Pull Projects Have Not Undergone An Audit: Report

There are over 22,000 cryptocurrency projects in existence as of March 2023, but not all of them are legit or have undergone a crypto audit. Based on a report from Hacken, a blockchain security auditor with a mission to make Web3 a safer place, most rug pull projects have not undergone an audit, highlighting the important role of the accounting practice in the nascent cryptocurrency industry.

A new report released by Hacken, titled "Protecting Web3," revealed that rug pulls made up 6.9% of the total 117 hacks that stole $720 million in crypto assets.

While it appeared the rug pull was just a small chunk of the total hacking activities, its share is equivalent to almost $50M, specifically $49.810 million of the total funds malicious actors swiped from investors in the third quarter of this year alone.

In Q3 2023, Hacken listed 78 rug pull exit scams, or "a type of exit scam characterized by a sudden withdrawal of liquidity, often accompanied by changes in tokenomics or the project's smart contract," which it considered a "glaring trend."

The blockchain security services company also detailed the major reasons behind these rug pull exit scams, which include the lack of audits of these crypto projects.

According to the report, of the 78 rug pulls that took place in Q3 2023, only 12 have undergone "any kind of audit," noting that a "thorough audit" could have revealed "potential red flags."

"Most of the rug pulled projects didn't have audits, and audit reports of the projects that had it done, clearly indicated the red flags. So had the community read it carefully, they could have gotten that the project is not reliable to invest in," Hacken CEO and co-founder Dyma Budorin told International Business Times.

"Overall, scammers are very good at mimicking successful projects. They create fake websites and Twitter accounts, utilizing bot farms to rapidly grow a large audience, thereby fabricating the image of a highly prosperous project," the executive added.

Budorin, who is a cybersecurity expert and currently leads a team of over 120Hacken talents, said even though Shiba Inu and Pepe have proven it was possible to earn big money in crypto, the get-rich-quick mindset of some investors as well as their fear of missing out (FOMO) often allowed them to overlook the red flags in a crypto project.

"Some people come to crypto, hoping for quick and big money, like gambling or casino, so they are ruled by similar principles: FOMO of the chance to win big on a rapidly growing token A chance for big money How quickly and easy it is to try," the CEO told IBT, before adding, "Cases like PEPE or SHIBA (meme coins that led to x1000 profits) proved that it is possible in crypto. This desire for substantial returns in a short timeframe often causes individuals to overlook red flags and impulsively dive into investments. Scammers know it and get the most out of it."

Budorin also noted, "Overall, scammers are very good at mimicking successful projects. They create fake websites and Twitter accounts, utilizing bot farms to rapidly grow a large audience, thereby fabricating the image of a highly prosperous project."

"Notably, not only fake projects' accounts are promoted through bots, but it is also used to create fake influencers. A scammer can have dozens of such pages, and use those as an additional promo tool. The flow is simple here: they give predictions for several real projects that play out - the audience starts trusting them and relying on their opinion blindly - they recommend investing in a scam. It doesn't take much effort to create such fake influencers, so the audience has to be extra cautious about where to get information from."