MagnateFi Becomes Third Rug on Base: How to Stay Safe

Rugpulls are now a frequent occurrence on Base.

Two hackers sitting on a sofa hacking on their laptops in a rug shop.
Created by Kornelija Poderskytė from DailyCoin
  • Rugpulls are now a frequent occurrence on Base.
  • Magnate Finance is the latest project to rug investors.
  • This article offers tips to avoid exit scams.

Rugpulls have become a recurring occurrence on Base as the network’s rapid rise continues to attract bad actors. Following BALD and SwirlLend, the deployers of Magnate Finance, a lending project, have become the latest to pull one over investors.

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Worried about this trend? Relax, DailyCoin has you covered. In this article, we delve into the Magnate Finance scam and offer tips on protecting yourself from these kinds of exploits in the future.

What Happened with Magnate Finance?

On Friday, August 25, PeckShield reported that deployers of the Magnate Finance protocol had conducted an exit scam, draining the protocol of an estimated $6.5 million. 

According to the blockchain security firm, the scammers had performed the rugpull by manipulating the price of DAI and WETH on the protocol’s price oracle.

Following the exploit, the project’s developers have erased their social media presence, and their website is no longer accessible.

Prominent on-chain sleuth ZachXBT had warned of the exploit barely two hours before it was reported by PeckShield, revealing that the deployers of Magnate Finance were repeat exit scammers. The investigator linked the scammers to the Solfire rug, which cost investors $4.8 million in January 2022, and the Kokomo Finance rug, which cost about $5.5 million in March 2023.

How to Stay Safe from Rugpulls

Rugpulls occur when project developers suddenly abscond with user assets or dump their holdings on investors, driving the asset’s price into a death spiral. This scam is neither new in the crypto space nor unique to Base. However, rugpulls tend to thrive when there is a lot of hype and engagement, making protocols like Base a good breeding ground.

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Rugpull projects typically appear out of nowhere, with anonymous developers, low and unlocked liquidity, token supply concentrated with only a few wallets, and haphazard websites.

Here are some tips on how to avoid these scams:

  • Before investing in a new project, take the time to read the whitepaper. Rugpulls either have no whitepaper or have short, unclear whitepapers stuffed with buzzwords.
  • Use tools like Dex Screener to check the liquidity of the trading pair. Projects with low liquidity are typically more likely to rug. This potential significantly increases when this liquidity is unlocked, with developers having access to it at any point.
  • Use the token tracker tool offered by blockchain explorers like Etherscan to check out the concentration of token supply. It is typically a red flag if the top ten holders of the token hold over 20% of the supply.
  • Tools like Token Sniffer and Rug Doctor can analyze projects to reveal code vulnerabilities and other red flags.

On the Flipside

  • Rugpulls are not unique to Base and can occur on any blockchain.
  • Base still hosts prominent crypto projects like Aave, Compound, and Sushiswap that have established trust over the years.

Why This Matters

Rugpulls on Base have now cost investors nearly $27 million despite the network being launched just over two weeks ago. The frequency and cost of these scams underscore the need for investors to exercise caution in the crypto space.

Read this to learn more about the BALD rug pull:

SBF Linked to BALD Rugpull: $25M Liquidity Crunch On Base L2

Learn about Base’s decentralization plans:

Coinbase Commits to Neutrality as Base Reveals Decentralization Plans

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Okoya David

David Okoya is a crypto news reporter at DailyCoin based in Nigeria. He covers various topics related to the cryptocurrency industry, including exchanges, regulations, and price movements, and strives to bring fresh angles to breaking news. With experience as a freelance crypto news writer, David upholds the highest journalistic standards, telling complete stories and answering lingering questions whenever possible.