Rug Pull: A scamming game
What is 'Rug Pull'?
One of the major scams involving the crypto world is Rug Pull. The term ‘rug pull’ is derived from the phrase: “pulling the rug out” which means sudden withdrawal of remaining support from anybody unexpectedly. In crypto-world, ‘Rug Pull’ indicates a scam where the developer suddenly abandons his project and runs away selling all currencies. It makes the investors have some worthless currency and lose the investment.
How does 'Rug Pull' happen?
Generally, ‘Rug Pull’ follows a common pattern like developing a legit-looking cryptocurrency project first, then announcing a lucrative concept and enlisting the project and currency on the decentralized exchanges earlier. Finally, the developers pull out all funds removing the liquidity and letting off the project.
The scammers target Decentralized Exchanges (DEXs) which give space for the new tokens easily. Rug pull is dependent on Decentralized Finance (Defi) projects where the scammers create a liquidity pool and entice the investors holding the new tokens on the liquidity pool to generate high yields. When the token price rises, the scammers impede selling access of the investors using some codes and finally pull out the entire amount.
Simply, Rug Pull is nothing but a new format of exit scams. When the hype level of a project is very high and access to liquidity becomes available, then there are two options for scammers.
- The scammers may sell the tokens at a high price.
- They can go out through the back doors of smart contracts.
How to Recognize a Rug Pull?
However, Rug Pulls can be tough to identify. But there are some common signs by which Rug Pull may be recognized. Some of the signals are:
- A massive hype created on the different social media platforms may wave suddenly.
- The hype may be caused by the offers of impressive yields.
- Any celebrity or social media influential person may promote the newly launched project and currency that is called "shilling".
- Suspicious token distribution method, liquidity, and team members of the project.
- The smart contract must have a back door with a lack of transparency and verifiability as they may not share their codes and ignore security alerts.
- Anonymous team of founders and investors who hide their identities so that they cannot be traced after Rug Pulling.
- The project may not publish a whitepaper with specific long-term strategies and goals.
- The new tokens may be listed on Decentralized Exchanges (DEXs) only.
- A large market cap of the new tokens is owned by a few holders with a massive token amount in their wallets.
If you find these features on a new hype project, it doesn’t confirm the possibility of Rug Pull of that project. But it will ensure that proper judgment and caution are the best medicine.
~ Regards,
VEIGO (Community Mod)
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