In November 2025, a DeFi protocol on Arbitrum suffered a devastating rug pull, draining $2.4 million from liquidity providers. This case study details how our forensic team traced and recovered the majority of stolen funds.
The Incident
The protocol launched with typical DeFi promises: high APY yield farming with an innovative tokenomics model. Over six weeks, it attracted $2.4 million in total value locked. The anonymous developers then executed a pre-planned drain function, withdrawing all liquidity in a single transaction.
Our Investigation
Phase 1: On-Chain Analysis (Days 1-3)
Within hours of being engaged, our team mapped the initial drain transaction and identified the deployer wallet cluster. The funds moved through 47 intermediary wallets across Arbitrum, Ethereum mainnet, BSC, and Polygon.
Phase 2: Cross-Chain Tracing (Days 4-10)
Using proprietary tools and AnChain.AI, we traced funds through:
- •3 cross-chain bridges (Multichain, Stargate, Synapse)
- •2 mixing services attempting obfuscation
- •14 decentralized exchanges for token swaps
- •Multiple liquidity pools used for layering
Phase 3: Attribution & Evidence (Days 11-20)
Our analysis converged on two centralized exchanges where 72% of funds were deposited. We prepared court-admissible forensic reports documenting the complete fund flow with cryptographic proof.
Phase 4: Law Enforcement & Recovery (Days 21-45)
Working with DHS and the FBI's Internet Crime unit, we facilitated:
- •Emergency freeze requests to both exchanges
- •Subpoena preparation for KYC records
- •Seizure warrant documentation
Results
- •$1.73M frozen at two major exchanges within 3 weeks
- •$480K recovered through exchange cooperation programs
- •2 suspects identified through KYC records, leading to ongoing criminal investigation
- •Total recovery: $2.21M (92% of stolen funds)
Key Takeaways
- 1.Speed matters — engaging forensic experts within days dramatically improves recovery chances
- 2.Cross-chain tracing is complex but possible with the right tools
- 3.Centralized exchanges remain the most common off-ramp, creating recovery opportunities
- 4.Law enforcement partnerships accelerate the freeze and seizure process
Names and specific details have been modified to protect ongoing investigations. Contact us for a free case evaluation if you've been affected by a similar incident.
