Rug pulls – what are they?
The term rug pull describes an increasingly common practice, one of the more popular cryptocurrency scams (scams). The creators of a cryptocurrency project suddenly and unexpectedly withdraw from the project, previously heavily promoted in campaigns and among influencers, to maximize investment volume.
What is a rug pull?
The rug pull scam involves developers depleting the liquidity pool of their cryptocurrency, thus leaving investors with worthless tokens (their value drops to zero) and no way to recover the lost funds. Another method of the rug pull scam is restricting sell orders – tokens are encoded by developers so that only they can sell them. Blockchain transactions are irreversible (due to the decentralized nature of the technology), making it extremely difficult or impossible to detect the perpetrators.
Rug pull meaning in crypto
As the popularity of decentralized finance grows, so does the risk of fraud. One of the more common ones is the so-called rug pull crypto.
What is a rug pull in crypto? It most often occurs in the DeFi ecosystem on decentralized cryptocurrency exchanges. Fraudsters create tokens and link them to other popular cryptocurrencies like Ethereum.
The biggest rug pull scam was the 2021 Squid Game project. At the time, the price of the SQUID token rose by 23 million percent in a week and fell by 100 percent – the worthless tokens could not be sold, so investors lost their funds. The people behind the scam have never been identified.
The potential rug pulls in the crypto industry – recognizing and protecting it
The rug pull scam is often found in new, previously unknown projects that do not undergo a security audit. Typical for fraud is the artificial pumping up of the price of tokens and unnatural increases in their value with a small number of holders. The best way to avoid being scammed is to research the project before investing and follow crypto tracking thoroughly. A rug pull check carried out in this way increases security and promotes profit multiplication.
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