Crypto market integrity and risk monitoring leader Solidus Labs announced the launch of a new real-time on-chain Threat Intelligence tool, designed to help anti-money laundering (AML) teams proactively and preemptively address one of DeFi and Web3’s biggest challenges – smart contract scams. The solution represents a paradigm shift in DeFi risk monitoring, compliance and AML methodologies, which have so far taken a largely retroactive approach to identifying crypto scams and blocking their money flows.
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“While some of the big rug pulls and scams make the news, like the famous Squid Games Token that’s estimated to have cost users around $3 million in lost funds, the full picture stemming from our data shows the vast majority of these scams go unnoticed”
Covering Ethereum and 11 other chains like BNB and Polygon, Solidus’ Web3 AML redefines the compliance approach companies in the digital asset space should adopt to adhere to current anti-fraud and anti-money laundering laws. With this new capability, Solidus enables immediate and accurate detection at scale of a wide and growing array of smart contract scams across the Ethereum ecosystem, from the moment their malicious code is deployed, until their illicit funds reach centralized exchanges, and beyond. It therefore empowers crypto risk and compliance teams to act the moment scams are deployed, to protect users and prevent the acceptance of illicit money flows. The solution also enables entities like decentralized applications and exchanges running on those protocols to flag them for users or limit access to such scams through their user interfaces.
This new risk monitoring technology also provides the most comprehensive coverage and first real-time analysis of smart contract scams across the ecosystem, and the most complete on and off-chain view of the current state of crypto scams and market integrity.
Smart Contract Scams by the Numbers:
- 188,525 – number of smart contracts scams detected on 12 covered blockchains as of October 10, 2022
- 15 – number of newly deployed scams detected by Solidus Threat Intelligence every hour on average
- 12% – percentage of all BEP-20 tokens on BNB Chain that exhibit fraudulent characteristics
- 8% – percentage of all ERC-20 tokens on Ethereum that exhibit fraudulent characteristics
- $910,000,000 – lower-bound estimate in today’s value of scam-related ETH which flowed through centralized and/or regulated exchanges
Scam token smart contracts — cryptocurrencies that have been hard-coded to steal investors’ funds — contribute to a growing list of crypto-native market abuse typologies, including rug pulls, phishing attacks and token impersonations. Scam token contracts can be automatically deployed and easily repeated, allowing serial scammers to rapidly execute thousands of small value attacks without raising red flags among regulated exchanges, regulators and law enforcement.
“While some of the big rug pulls and scams make the news, like the famous Squid Games Token that’s estimated to have cost users around $3 million in lost funds, the full picture stemming from our data shows the vast majority of these scams go unnoticed,” says Solidus’ Vice President of Regulatory Affairs Kathy Kraninger, who led the U.S. Consumer Financial Protection Bureau (CFPB) before joining the firm. “Providing this level of transparency is a major step in assessing the true magnitude of crypto scams and market manipulation – which allows the industry and regulators to prevent consumer harm and ultimately raise market integrity and consumer protection standards.” Following the White House Executive Order earlier this year, U.S. financial regulators have been intensifying the effort to stymie crypto fraud and scams. The CFPB recently reported it has received more than 2,700 crypto-related consumer complaints from the beginning of 2020 to August this year – 28% of which were tied to scams and fraud.
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Over the past two years, in light of the growing public and regulatory concerns with high rate of theft and abuse in decentralized services, and a clear and growing need for DeFi risk mitigation tools, Solidus has intensified its R&D focus on the bleeding edge realm of on-chain market integrity.
In developing this Web3 AML solution and the DeFi-specific typologies it addresses, Solidus combined its category-defining crypto-native market surveillance capabilities and know-how with cutting-edge smart contract scanning technology and proprietary on-chain and off-chain datasets. The data was enhanced with Solidus’ acquisition of Token Sniffer, the smart contract scam scanner website and its technology, which is now integrated into Solidus’ DeFi Threat Intelligence and Web3 AML solutions. Recently cited by the U.S. Department of the Treasury and in testimony before the Senate Banking Committee, Token Sniffer is an established authority on smart contract scams screening, and as such – will be kept publicly available even after the acquisition, as part of Solidus’ commitment to the future and prosperity of the DeFi ecosystem.
“Sunlight is the best of disinfectants. This new product is part of Solidus’ vision – simplifying risk in crypto and decentralized finance, shedding light on manipulative and abusive behavior and enabling the rating of various assets and products,” says Asaf Meir, Solidus’ founder and Chief Executive. “HALO Threat Intelligence is a major step toward de-risking DeFi. We’re delighted to provide this Web3 AML solution and the unprecedented level of transparency and proactiveness it enables, as the crypto industry continues and expands its effort to combat smart contract scams. This launch is the result of hundreds of hours of work by our R&D team alongside our clients, industry partners and regulators who are on the front line of enabling safe and regulated crypto services.”
Solidus Web3 AML is the new addition to Solidus HALO, the firm’s crypto-native market integrity suite of solutions. HALO is currently used to monitor more than 1 trillion events per day across more than 150 markets, protecting more than 25 million retail and institutional entities. It allows Solidus’ clients to manage multiple crypto risk and compliance programs in one platform, while also utilizing behavioral-based detection models powered by machine-learning to address a range of crypto-specific threats and alerts.
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