Lessons banks can learn from the Squid Game crypto scam

What happens when an entertainment phenomenon meets an increasingly popular - but often misunderstood - payment method? We got a glimpse of this possibility when a cryptocurrency scam based on the popular Netflix hit series Squid Game was brought to light. Now it’s time for the financial services community to learn from the Squid Game crypto scam to protect new customers from this type of fraud.

The Squid Game Crypto Scam: What We Know So Far

If you’re not familiar with the Squid Game TV show…seriously? What rock have you been hiding under? 

All jokes aside, the South Korean program debuted in September and quickly became a worldwide hit. The story follows a group of people who agree to participate in a series of deadly children’s games where the stakes are life or death. Winners of the games get closer to winning an enormous cash prize while losers are eliminated one by one. 

The show’s speedy rise in popularity no doubt contributed to the October launch of the cryptocurrency SQUID. It sold out in less than “1 second,” according to its now-defunct whitepaper. As trading continued, its value surged by 2400% at one point. 

However, multiple published articles warned consumers that this particular coin was risky and raised several red flags. One of the most serious warnings was numerous reports that users were unable to sell their tokens. Another ominous warning was the grammatical errors on the coin’s site.

In the end, these warning signs proved to be true for SQUID cryptocurrency investors. The token appears to be a “rug pull” type of fraud in which the project owners took their investors’ money and disappeared. The coin’s value quickly dropped to zero while its website and social media footprint also vanished.

A report from Gizmodo puts the total investor losses from the scam at roughly $3.38 million. Binance, the crypto exchange that hosted the Squid Game project, is now investigating the incident and promised to share its findings with law enforcement in relevant regions.  

Squid Game Success + Cryptocurrency Curiosity = Recipe For Fraud Abuse

Looking back, it’s clear that fraudsters had all the right ingredients to pull off a successful and somewhat elaborate heist.

If this Squid Game crypto scam were a cooking recipe, it would look something like this: 

  1. Take one part pop culture – preferably a hit TV show that is an overnight, global success and generates plenty of buzz online – both in mainstream and social media.
  2. Combine it with another part cryptocurrency – an emerging form of payment that many people are still learning and unfamiliar with and are easy to deceive.
  3. Sprinkle in a sense of FOMO (fear of missing out) that encourages people wavering on investing to put their money into (what appears to be) a cool new trading project.
  4. Turn up the heat by driving up the coin’s value quickly, encouraging as many crypto investors (including many first-time investors) as possible to join in before the coin’s price becomes too high.
  5. Once you’ve reached your desired level of participation, switch everything off and leave the kitchen! Do not serve your final product to the investors – keep it all for yourself.
  6. Do not attempt to repeat the recipe until the next buzzworthy trend emerges!

What Can Banks Do to Stop the Next Crypto Scam?

It’s unfortunate that the Squid Game crypto scam will not be the last of its kind. As long as fraudsters continue to take advantage of people’s insecurities and capitalize on hot trends like a hit streaming show, bad actors will defraud people out of their money. The NFT market, for example, poses plenty of risks for customers to lose money to new types of scams.

But what can banks do to prevent customers from falling victim to such schemes? Some banks have blocked their customers from making transfers to crypto exchanges. However, if their customers are committed to making a trade, they will find ways to bypass these safeguards, such as transferring money to a different account or using a different service.

This essentially sums up the problem that these crypto scams pose for banks. Banks want to keep their customers financially secure, but most customers don’t want their banks to act as their nannies. It’s a tough line for banks to walk. And it’s made all the more challenging because the cryptocurrency market is a relatively new development that is still finding its footing.

Banks might not be able (or even want to) stop customers from trading in cryptocurrencies. Instead, banks can educate their customers about the crypto market and all the risks involved in engaging in trades in altcoins. These efforts will help customers understand the risks and perform their due diligence before engaging in uncertain crypto trades. Banks can also consider updating their risk strategies so that first-time cryptocurrency purchases are considered higher risk. When a customer makes their first crypto purchase, banks can intervene by pausing the transaction and warning about the risks of potential crypto schemes.

This is not the only scenario in which banks warn customers about risky transactions. Transfers related to romance scams, for example, often appear harmless on the surface. But banks can see information that their customers do not, such as how many inbound transfers a recipient gets. If banks suspect their customer is being targeted by a romance scam, they can warn the customer that their action is riskier than it appears. 

While banks don’t have to play the role of nannies, they should consider taking on the role of teachers. This is especially important as new payments and new fraud trends gain in popularity. The Squid Game crypto scam is just the latest example of fraudsters getting highly inventive to pull off a scam. It won’t be the last, and banks should prepare now. 

Let me repeat the instructions. The Squid Game crypto scam is just the latest example of fraudsters getting highly inventive to pull off a scam. It won’t be the last and banks should prepare now. 

The cashless era is here to stay. Download the Feedzai Q3 2021 Financial Crime Report to learn more.