Luke Hartford was first tipped off to the new, rising cryptocurrency thanks to a reply guy. The tweet was nestled under a post by Carl Martin, a Swedish cryptocurrency analyst and YouTuber, on October 27. Martin was discussing the price of the Shiba Inu alt coin, which he believed could fall to zero.
It was there that Hartford, a structural engineer from Sydney, Australia, read a tip from a user by the name of @jonhree112 that alerted him to the latest cryptocurrency on the rise. Its price had increased 1,000 percent and was looking like it had headroom for 200 percent more. At the time, the price of each coin was 72 cents. “Better buy before $1.00,” wrote @jonhree112.
The coin was called Squid Game, based on—but not affiliated with—the runaway Netflix series of the same name. “The coin harnessed the zeitgeist for the Netflix series Squid Game by apparently offering obsessed gamers access to a play-to-earn game,” says Katherine Wooler, managing director at UK crypto wealth platform Dacxi. The project’s whitepaper, published on its now-defunct website, promised big things for investors—but sounded awfully like a Ponzi scheme. “The more people join, the larger [sic] reward pool will be,” it promised.
Hartford was an experienced crypto trader, having been involved in the world since 2017. He had seen the meteoric rise of Shiba Inu, an apparent joke meme coin that had enjoyed a 900 percent rise in under a month, muscling its way into the top 10 cryptocurrencies in the world in the process. And he saw the Squid Game coin capturing the zeitgeist in a similar way. He wanted to get in on the ground floor. So on October 28 he bought in.
Hartford wasn’t a rookie, so he looked at BscScan, which registers all transactions on the Binance platform, before investing. There were some comments from people warning the Squid Game coin could be a scam: Coming from nowhere, it seemed too good to be true, and it was likely to infringe on trademarks and so could end up coming to nothing. But Hartford ignored them. “I wanted to get in as soon as possible,” he says. He bought $300 worth of Squid Game coin when each was worth around 90 cents, sat back, and watched. First it crossed $1, earning him a 10 percent return on his investment. Then $2. Then $3. “I watched it keep going up that night, getting pretty excited that I’d doubled or tripled my money in a few hours,” he recalls. When Hartford woke up the next morning, the Squid Game coin had hit $5. His $300 had ballooned into more than $1,660. He was overjoyed.
But something weird was happening. On the morning of October 29, when he searched the $SQUID hashtag on Twitter, he saw people tweeting that they couldn’t sell their holdings. Others corrected those struggling to cash out, explaining they needed to buy marbles, which were obtained through a pay-to-play game organized by the project’s owners, in order to sell. Hartford paused for a moment. “I wasn’t sure at that stage if I’d been scammed or not,” he says.
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Whatever misgivings he had were quelled by the rising price of the coin: The Squid Game coin kept surging and drew the attention of major news outlets like the BBC, CNBC and others, who reported uncritically on its incredible rise. “Media coverage failed to point out that there was no official tie-in with the Netflix series, thus providing an unwarranted veneer of respectability,” says Wooller. “More responsible media coverage is required; those of us who work in the industry often despair at some of the mistruth, rumor, and downright drivel often published about crypto.”
Hartford decided to buy $50 in marbles on October 31 as an experiment to see if there was a way to get his money out. Hartford’s initial $300 investment was worth $200,000 as the Squid Game coin rose to $600 per token. It'd eventually rise to a peak of $2,861, which would make Hartford just short of $1 million. In theory. In reality, the whole thing was a scam. And Hartford was just one of its many victims.
Just after 1:38 pm UTC on November 1, $3.36 million that had been invested into Squid Game coin was yanked out of the project by its creators. The liquidity pool in the exchange disappeared in an instant, and within 10 minutes the coin was almost worthless, trading at one-third of a cent.
“Anyone can spin up a token and liquidity pool, so it is a common risk for new projects run by anons,” says Patrick McCorry, CEO of PISA Research and formerly an assistant professor in cryptocurrencies and security engineering at King’s College London.
Hartford realized it was too good to be true when he started reading more and more tweets about it. The fact that the chart never once moved downwards, instead constantly going up, was another giveaway. Yet he’s not angry about the uncritical coverage of the coin’s rise, nor about the $300 he lost. “To me, crypto is about a free market without regulation,” he says. “I don’t think people who want deregulation can complain when things like this happen. You live by the sword, you die by the sword. That’s crypto.”
The project’s owners did not respond to a request for comment sent to a support email contained within the white paper produced to promote their project. But the Squid Game coin scam isn’t the first time investors have realized they've been fleeced as coin creators abscond with their funds. One notable recent example among many saw the creator of SushiSwap, another highly touted token, disappear with $13 million in September 2020 in what investors feared was a “rug pull.” The creator ended up returning the coins after an outcry, but then disappeared soon afterward.
“Rug pulls happen when there are large holders of the coin who can freely trade it, and the market for that token is not deep or highly liquid,” says McCorry.
The way the Squid Games coin scam worked is simple, as far as crypto goes. It takes advantage of the liquidity pool that exists between the Squid tokens issued and commensurate tokens (BNB tokens) issued by Binance, the cryptocurrency exchange. The team behind the Squid Games coin issued their tokens and held the majority of the supply. That allowed them to transfer the value of the Squid Games coins into BNB tokens, which they then stole away. The theft is public, but the scammers used a mixing and tumbling service called Tornado Cash to try to obscure their tracks. “If you own so many tokens, then you can essentially just perform trades that take all BNB out of the pool,” says McCorry.
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Eight wallets out of the 43,455 addresses tied to Squid Games coins hold more than 1 percent of all tokens in circulation, according to BscScan. One such account, tagged by Ethereum analytics company Etherscan as an account that definitively pulled the rug out from under investors, held 5 percent of all the tokens. That same account transferred $3.36 million to another wallet. “The ability to rug pull just depends on how liquid the market is,” says McCorry. For instance, it depends on how many coins it would take to drain the market by snatching all the valuable coins for themselves.
The Squid Game scam almost certainly won’t be the last, says McCorry—especially if people buy in without doing their due diligence. But to really tackle the problem, regulation is required. “It needs to be global, comprehensive, and proportionate to what is now a $2.6 trillion industry,” says Wooller.
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