Chibi Finance Rug Pull; Calls for due diligence increase as crypto users lose over $1m

In a fraudulent action this week that has claimed over $1 million of customer funds, a DeFi project on Arbitrum network, Chibi Finance, has executed an exit scam on users and deleted their social media accounts and the official website.

As the cryptocurrency industry continues to grow, hacks, exploits and other forms of fraudulent activities have accompanied its expansion. Another fraudulent operation in the budding space that has seen a large number of victims is rug pulls.

Rug pulls or exit scams are crypto-native terms that refer to schemes where crypto founders launch lucrative projects, offer guaranteed returns on investment, let the project gather steam and attention and suddenly disappear with investors’ money, leaving users and investors with empty balances or worthless tokens.

This has been going on for a while but recently, the rate is becoming increasingly disturbing, with calls for more attention to be paid.

What was Chibi Finance

Chibi Finance runs on the Ethereum Layer 2 scaling protocol Arbitrum and the project styled itself as a yield-optimising protocol that allowed users to automatically rack up rewards after depositing their crypto tokens on the platform.

Chibi Finance, which was launched around April 2023 also touted several other features typically associated with yield farming. The platform had undergone its first audit on May 31 and had recently reported $500k in Total Value Locked (TVL), with ambitions to reach $1 million.

As recently as this Monday, Chibi Finance announced that its token had been listed on CoinGecko.

How did the Rug Pull happen?

Blockchain security firm CertiK confirmed that the developers behind Chibi Finance stole approximately $1 million worth of various tokens.

The scam was orchestrated using a malicious contract set up by the deployer of Chibi Finance. By establishing this malicious contract as the _gov address, the developers gained the ability to invoke the panic function. This function enabled them to trigger an emergency withdraw of funds to the exit scammer’s address.

Approximately 256,012.95 USDC, 94.67 WETH, 4.25520843 WBTC, 115,049 USDT, and 89,563.95 ARB were siphoned off from the project’s contracts and the stolen assets were subsequently swapped for 555 ETH, which were then bridged from the Arbitrum network to the Ethereum network.

The funds were ultimately laundered through Tornado Cash, a privacy-focused Ethereum mixing service frequently used to obscure transactional activity. As the immediate aftermath of the scam, the price of the CHIBI token plummeted, registering a staggering 98% drop.

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To compound the distressing developments, Chibi Finance also deactivated its Twitter account and took down its official website which makes it more difficult for the community to reach out and question them. This leaves no room for doubt about the fraudulent nature of the operation.

Reactions to Chibi Finance Rug Pull

A crypto influencer, “DeFi_Mochi” is facing a large share of the rug pull backlash. The crypto community, particularly those that lost money to Chibi Finance, have gone after him for writing a thread sponsored by Chibi Finance. It is claimed that the influencer received $2,000 in ETH for promoting the project.

Varying reactions have followed the unfortunate occurrence and Defi_Mochi continues to receive the backwash on social media. But the fact remains that it is investors’ responsibility to do detailed research before investing their funds.

Failure to do this is one the reasons why they are becoming frequent victims of rug pulls. Technext reported recently that users lost over $45 million to rug pulls in May.

Also, CertiK reported that over $14 million has been lost to scams on the Arbitrum network across 12 different instances in 2023 alone. This growing number of fraudulent activities underlines the need for greater vigilance and more stringent security measures in the DeFi space. 

On the flip side, it also serves as a cautionary tale, underscoring the pertinence of thorough due diligence and careful assessment of risk when investing in DeFi projects.