Report Reveals Shocking Lack of Audits for Majority of Rugpull Incidents in Q3 2023

Research conducted by blockchain security firm Hacken has revealed that the majority of crypto projects that conducted rug pulls in the third quarter of 2023 did not have audit reports. According to Hacken’s Q3 2023 Security Insights report, out of the 78 rug pulls examined, only 12 of them had conducted and reported audits.

An independent third-party audit plays a crucial role in providing a detailed review of a token, identifying vulnerabilities, and alerting investors. Hacken emphasized that rug pulls are one of the simplest scams to prevent, as investors can identify certain patterns, such as the presence or absence of an audit. However, it is important to note that even if a project undergoes an audit and publishes a report, it does not guarantee protection from a sudden withdrawal of liquidity. Projects can still make malicious changes to their tokenomics and smart contracts, defrauding users.

In the last quarter, some of the projects that were rug-pulled had undergone audits but received poor scores. Unfortunately, users ignored the audit results, believing that the fact that the projects were audited was sufficient. One such case was Magnate Finance, a lending protocol based on Coinbase’s Base network. Despite an audit report stating that the project’s deployer could manipulate the token, users did not pay heed to the findings. As a result, the deployer removed liquidity from LPs in multiple transactions, leading to a rug pull that resulted in over $5 million being stolen.

A similar experience was faced by users of the decentralized crypto staking platform DeFiLabs. An audit conducted by blockchain security firm CertiK revealed a centralization risk within the project’s contracts. However, the warnings raised no concern among users, and the platform eventually pulled the rug, disappearing with $1.4 million worth of users’ assets.

Hacken’s research also identified a common pattern among rug pulls. Developers of malicious projects typically follow five steps: creating the tokens, aggressively marketing them, inflating the tokens’ supply when liquidity accumulates, vanishing with drained funds, and leaving investors with worthless assets.

It is important for investors to be cautious and conduct thorough research before investing in any crypto project. Relying solely on the fact that a project has undergone an audit may not provide sufficient protection against rug pulls.

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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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