Over $100 million stolen in NFT fraud as Tornado Cash’s role exposed

Quick take:

• Over $100 million was stolen in NFT fraud between July 2021 and July 2022.
• Fraudsters used crypto-mixing platform Tornado Cash to launder 52% of NFT fraud.
• Criminals stole an average of $300,000 per scam, according to the report published by Elliptic.

Non-fungible token (NFT) enthusiasts lost more than $100 million in NFT scams between July 2021 and July 2022, according to a report by UK blockchain analytics and financial crime firm Elliptic.

According to the report, criminals made an average of $300,000 per fraud based on reported cases.

The report also shows that US-sanctioned crypto mixer Tornado cash processed over $137 million in crypto assets, including 52% of the reported NFT scam money, before the US Office of Foreign Assets Control (OFAC) stepped in with a ban in August.

CryptoPunk #4324 sold by fraudsters on November 13, 2021, for a whopping $490,000, was the most valuable NFT stolen according to the report.

“Meanwhile, the largest single heist by an individual victim resulted in the loss of 16 blue-chip NFTs worth $2.1 million on December 28, 2021,” Elliptic wrote in the analysis.

“Underscoring the ongoing problem of fraud, assets #9650 and #5759 in the CloneX collection have been stolen twice in three months – in two unrelated fraud incidents – after being worth around $50,000 on both occasions,” points out the report.

NFT scams often target unsuspecting traders through phishing links placed on community platforms, including social media channels such as Twitter, Discord and Instagram.

For example, Yuga Labs’ BAYC Instagram account was hacked earlier this year, resulting in the loss of $3 million worth of Bored Ape NFTs.

There are also frauds that are particularly unique to NFTs. In May, NFTgators covered one of the most NFT fraud exposés after a trader revealed how a scammer used smart contracts and airdrops to trick unsuspecting traders.

This type of scam uses a Trojan horse’s smart contract to set a trap for traders. When a trader accepts the contract, their wallets are drained immediately.

Fraudsters use mixing platforms like Tornado Cash to convert stolen tokens into other cryptocurrencies before victims realize what has happened. “The prolific use of threat actors engaging with NFTs further underscores the need for effective sanctions screening of NFT platforms,” ​​Elliptic wrote.

Web3 companies have launched tools and features to curb fraudulent activity in the growing industry. In May, Chainalysis said it is expanding its fraud detection service to include NFTs and other crypto assets after raising $170 million.

Animoca Brands, The Sandbox, Decentraland, Dapper Labs and others also joined forces to launch the Open Metaverse Alliance, which will work on other goals, including taking action to reduce NFT fraud in the industry.

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