How losing $3.6 million on Hypervault revealed the true dangers of rug pulls in DeFi

Major DeFi Scams and Their Lessons

The decentralized finance ecosystem is facing a rising wave of crimes. The recent incident with Hypervault, where developers embezzled $3.6 million of user funds, demonstrated how vulnerable this space is to large-scale rug pulls. This event is not isolated — it was preceded by other high-profile cases: MetaYield Farm lost $290 million, and Mantra suffered losses of $5.5 billion. Such statistics point to a systemic problem requiring in-depth analysis.

Anatomy of a Rug Pull on Hypervault

A rug pull is a targeted scheme where project creators withdraw liquidity and investor assets, leaving them with essentially worthless tokens. Hypervault executed this scheme with a classic sequence of actions:

Attraction Phase: The project offered an incredibly high annual yield (APR) of 90% on HYPE tokens, which should have immediately raised suspicion among experienced market participants.

Theft Phase: About $3.6 million was drained from the protocol and transferred from the Hyperliquid blockchain to Ethereum.

Concealment Phase: The stolen funds were sent through a transaction mixing tool, making recovery nearly impossible.

Disappearance Phase: The Hypervault website and all social media accounts were deleted, clearly indicating a premeditated operation.

Fake Audits as a Deception Tool

One of the most cynical aspects of the Hypervault scheme is false claims of security audits. The project claimed that its smart contracts were verified by reputable companies Spearbit, Pashov, and Code4rena. Investigations revealed these claims to be completely false — no audits were conducted. This underscores the critical importance of third-party verification in the DeFi ecosystem and the danger of manipulating investor trust.

Red Flags That Cannot Be Ignored

Rug pulls typically signal themselves with numerous warning signs:

Unrealistic returns (especially over 50% annually) — a sure sign of risk. In Hypervault’s case, the 90% APR offer should have triggered immediate suspicion.

Lack of independent code review — if a project hasn’t undergone audits by recognized security firms, it’s a serious risk.

Lack of transparency about the development team — anonymous or hidden creators are often criminals.

No track record or reputation — new projects with grand promises require increased skepticism.

Early warnings from vigilant community members are often ignored. User HypingBull raised questions about discrepancies in Hypervault’s statements, but these voices went unheard.

The Role of Unverified Code in Crimes

Smart contracts without thorough security checks create an ideal environment for malicious actors. Hypervault exploited this loophole by leveraging the absence of independent verification to embed theft mechanisms directly into the protocol code. This highlights that audits are not a luxury but a necessity for any DeFi project claiming to be serious.

Privacy Tools and Crimes

Crypto mixers like Tornado Cash have helped criminals hide traces of stolen funds. While such tools have legitimate uses, their regular use in criminal schemes attracts regulatory attention and calls for increased oversight. The balance between privacy and security is becoming an increasingly contentious issue in the industry.

Wave Effect: Hyperliquid and Loss of Trust

The Hypervault incident caused significant damage to the reputation of the Hyperliquid ecosystem. Previously, (in March 2025), this same ecosystem lost $13.5 million due to token manipulation. Each new incident undermines investor confidence and freezes capital flow into the ecosystem.

Practical Protection Checklist for Investors

Before investing in a DeFi project, verify:

1. Audit Quality: The project should have public audit reports from reputable firms. Request links and report numbers.

2. Team Identification: Developers should be known and have a clear track record in the industry.

3. Code Analysis: Study how transparently the team shares information about the protocol mechanics.

4. Community Engagement: Active and critical community members often spot issues early.

5. Reasonable Capital Distribution: Never invest all funds in a single project, especially new ones.

6. Realistic APY Analysis: If the returns seem mathematically impossible, they probably are.

Restoring Systemic Reliability in DeFi

The Hypervault incident and rug pull exposed deep structural problems in DeFi. Addressing these requires a comprehensive approach: mandatory public audits, standardization of security checks, stricter disclosure requirements about the team, and active regulatory involvement. Only then can the ecosystem regain trust and create an environment where innovation is protected from criminal activity.