Crypto users lose over $2 million after Kannagi Finance executes a rug pull

In yet another case of rug pull, leading yield aggregator Kannagi Finance reportedly rug-pulled, leading its users to suffer losses worth $2.13 million. Kannagi Finance is the revenue aggregator of ZkSync Era, which is an Ethereum-based Layer 2 network that offers zero-knowledge technology solutions. 

Following the incident, which was all over cryptocurrency news in India, the price of Kannagi Finance’s native token KANA also nosedived.

Kannagi Finance website expired

According to recent reports, Kannagi Finance’s website has “expired” and its official handles on various social media networks, including X, are currently inaccessible. On July 28, 2023, the total volume locked (TVL) on the platform plummeted to almost zero, pegging the collective losses of users at more than $2 million.

A rug pull is a common crypto scam where a crypto asset company or NFT developer promotes a token or asset to draw investors and then suddenly shuts operations. The name of the scam is derived from the phrase “pull the rug out of someone’s feet”, leaving the person high and dry and off-balance. 

They disappear with users’ funds, causing losses worth millions. It’s common for such companies to make their websites and social media handles inaccessible to users. In a recent report, blockchain security firm Beosin claimed that crypto users across the world lost around $45 million in rug pull incidents in May 2023.

Such exit scams have also prompted conversations on cryptocurrency tax in India and whether rules for how to invest in cryptocurrency in India should be strengthened further.

Smart contracts code remain “unverified”

The revenue aggregator is believed to have been audited on June 6, 2023, by leading audit agency SolidProof. The company is managed by the Make Network which has its headquarters in Germany. However, Kannagi Finance smart contracts code is closed-source and remains unverified. 

The rug pulls also impacted live cryptocurrency prices including the market performance of the Top 10 cryptocurrencies. Reporting the incident on July 29, 2023, Wu Blockchain stated that the zkSync Era protocol’s TVL was now zero and its contract code was unverified.

After the rug pull incident, SolidProof released a statement and said that it would be “thoroughly investigating” the situation. However, the audit agency also pointed out it did not vet the Vault contracts for the alleged rug pull. In the past, SolidProof has worked with leading platforms like UNCX, PinkSale, and Bitmart.

The rug pull incident might also spell out bad news for ZkSync Era which has been carving a niche for itself as a provider of Zk rollups. In the recent past, the platform has been making rapid strides and several new projects have been rolled out on it. Incidents like rug pulls tend to negatively impact user sentiment. In the past, such incidents have been believed to have sparked the withdrawal of funds by users. According to experts, ZkSync Era might be headed for the same fate as its TVL has also dropped in the wake of the rug pull.

Kannagi Finance was launched as a multi-strategy yield aggregator on the ZkSync mainnet. It gained popularity by offering aggregation services via yield generation, vault compounding, and lending while ensuring high returns at low fees or slippage. Its developers claimed that the platform offers its users the optimal yield by combining trading fee rewards with its multi-strategy vault system.

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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