A recent incident involving Arbix Finance, a cryptocurrency firm that was previously vetted by CertiK, has left customers reeling after developers made off with millions of dollars in deposited funds. This classic “rug pull” scam, where project developers abscond with investor funds, has once again highlighted the risks associated with investing in the decentralized finance (DeFi) space.
CertiK, a reputable DeFi security player, revealed in a tweet that the developers of Arbix Finance directed $10 million of investor funds to unverified pools, only to have an unknown hacker drain the assets and convert them to Ethereum through the AnySwap USDT exchange. The exploited contract was not part of the initial audit scope conducted for Arbix, as the project developers inserted eight “mint()” functions to a newly deployed ARBX ERC20 contract, allowing them to mint ARBX tokens to any address.
The fact that Arbix Finance had previously been certified by CertiK underscores the challenges faced by investors in the volatile world of DeFi. Rug pulls have become increasingly common, with a report revealing that they accounted for over a third of the revenue generated from cryptocurrency fraud in 2021, compared to just 1% the previous year. Fraudsters were able to net more than $2.8 billion through these scams in 2021 alone.
According to Chainalysis, rug pulls are prevalent in DeFi due to the ease and affordability of creating new tokens on blockchain platforms like Ethereum and listing them on decentralized exchanges without undergoing a code audit. Yield farming, which promises to generate “interest” on cryptocurrency similar to traditional banking yields, has become a prime target for fraudsters looking to exploit unsuspecting investors.
The allure of yield farming coupled with the lack of regulatory oversight in the DeFi space makes it a breeding ground for scams and fraudulent activities. Investors must exercise caution and conduct thorough due diligence before committing their funds to any DeFi project to avoid falling victim to rug pulls and other malicious schemes. The Arbix Finance incident serves as a stark reminder of the risks associated with investing in the fast-paced world of decentralized finance.