DeFi protocol Kannagi Finance launched only a month ago, promising high yields for stablecoin deposits and lending. As such, the project gained a lot of hype in the zkSync community for bringing popular decentralized finance (DeFi) features to the Ethereum Layer 2 network scaling solution.
Before its launch, Kannagi Finance claimed to be different from other yield farming protocols and promised users the best yield and trading fee rewards with its KANA tokens. However, recent developments from Kannagi Finance point to what many might call a rug pull.
The Aftermath: Investor Losses Total $2 Million
The DeFi space moves fast, and Kannagi Finance was no exception. This zkSync-based revenue aggregator launched this year promising high yields with maximum returns with low fees/slippage. This attracted a number of investors and the total value locked (TVL) in Kannagi’s pools reached $2.22 million on July 24th.
However, data from DeFi TVL aggregator DefiLlama shows that Kannagi’s dev team has allegedly pulled over $2 million worth of user funds and disappeared into thin air. As of the time of writing, the total value locked in the decentralized yield aggregator has dropped from $2.13 million to $0.17.
Peckshield, a blockchain security company, also tweeted regarding the issue, as the project seems to have disappeared from social media.
#PeckShieldAlert #rugpull @zachxbt has reported that @Kannagi_Zksync on #zkSync has rugged for over ~$1M. @Kannagi_Zksync already deleted its social accounts/groups.
The scammer’s address: 0x95ec03b821f164ce55cbb26f23f591a9bd40d6c1 pic.twitter.com/5FdyO94XZs
— PeckShieldAlert (@PeckShieldAlert) July 29, 2023
Social media channels of Kannagi Finance, including Twitter and its website have all been deleted without prior warning.
Rug Pulls In DeFi
Rug pulls, or exit scams, are unfortunately all too common in the cryptocurrency space. Since September 2020, nearly two million investors have become victims of these scams. According to Chainalysis, over $2.8 billion worth of cryptocurrency was stolen in rug pulls throughout 2021 alone.
Total market cap sitting at $1.14 trillion | Source: Crypto Total Market Cap on Tradingview.com
A similar report by blockchain risk monitoring firm Solidus Labs, also showed that an average of 350 crypto scam tokens were developed per day in 2022.
Exploitations, in particular, seem to be rampant on zkSync Era in the past month. Earlier this week, another lending protocol on the Layer 2 solution called EraLend was exploited and $3.4 million worth of crypto was stolen. The hacker drained the funds in multiple USDC transactions and the lending protocol has since suspended all borrowing operations.
While crypto crimes have been down significantly in 2023, rug pulls like this serve as an important warning for the DeFi community. It highlights the risks of investing in unregulated DeFi platforms with anonymous founders.
Featured image from Bitcoin Depot, chart from Tradingview.com