Decoding Crypto Asset Fraud: A Crime Script Analysis of Crypto Ponzi, Rug Pull, and Mint-and-Run Schemes

Abstract

Since the first implementation of a blockchain with Bitcoin in 2009, cryptoassets created and transacted using blockchain technologies have grown and diversified significantly. Because regulatory regimes, which govern cryptoassets, do not have global coverage, criminal actors find opportunities to commit cryptoasset fraud. While it can be difficult to distinguish between cryptoassets that are honest but high risk and cryptoassets that are outright fraudulent, investors seeking significant returns frequently invest in unregulated cryptoassets, namely cryptocurrencies and non-fungible tokens (NFTs). This study provides a crime script analysis to examine the chronological and functional steps offenders use to execute cryptoasset fraud. It considers three types of crypto asset fraud and how they have functioned over time: Ponzi schemes, cryptoasset exit scams, such as cryptocurrency “rug pulls,” and NFT “mint-and-run” schemes, where invested value is stolen from a crypto asset project. By outlining the fundamental crime script of cryptoasset fraud, this study considers the implications for regulators. Of note, this study shows that while the stages of cryptoasset frauds are consistent, the speed at which frauds are executed has, on average, increased significantly. This rapidity of execution provides enduring challenges to regulators, who often cannot respond quickly. This challenge must be considered if regulation is to be effective.