The term “rug pull” evokes slapstick hijinks from Saturday morning cartoons, but for cryptocurrency investors, rug pulls are anything but comic relief. Read on to learn what crypto rug pulls are, how they work, and how you can identify and avoid them. Users can protect themselves against these rug pulls by checking the liquidity in the pool of a token they are buying, and making sure the liquidity is locked for a certain period. A healthy dose of skepticism is useful when sorting through crypto hype.
What Is a Rug Pull?
- In a prime example of a liquidity pooling scheme, AnubisDAO’s anonymous developers defrauded investors of about $60 million.
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- Thus, rug pulls are mostly the result of insufficient users’ awareness about cybersecurity.
- DeFi trading platforms require a collection of crypto tokens in order to facilitate actions such as trades, exchanges or loans, which are successfully secured via smart contracts.
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For those with coding and blockchain experience, look into the project specs. Crypto scams are big business, with an estimated $25 billion lost to cryptocurrency and NFT scams so far, and no signs of slowing. And with over $2.8 billion lost to rug pulls in 2021 and more than 280 rug pulls executed in 2022 alone, there’s no shortage of examples to pull from. Gauging by the impact of investment fraud, rug pulls are quite common. Over the course of 2021, scammers rug pulled a total of $2.8 billion, or $7 million per day, according to blockchain analysis firm Chainalysis. While crypto rug pulls have always been a spectacle in the industry, some scams left a mark in the industry.
After receiving an outpouring of investor support, the developers drained the AnubisDAO liquidity pool 20 hours into the sale. A rug pull is a term for a scam in the crypto space where traders are left hanging with worthless assets. A cybersecurity expert with more than a dozen years’ experience combating e-commerce marketplace fraud, Allen explained how rug pull schemes have migrated to Web3, acclimating to decentralized finance platforms.
Liquidity stealing
Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. A rug pull is a term originating in the cryptocurrency and decentralised finance (DeFi) world. Squid Game Token was a scam cryptocurrency created in 2021, inspired by the popular Netflix series “Squid Game.” However, the token was a rug pull.
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They claim their token meets almost all users’ demands and can multiply their investments by 10, 100, 1,000, or even more X. When the scam token price goes up, more money are injected into the product until the pool becomes so big that developers suddenly decide to steal all this fortune. The core development team gives investors a false sense of security while they quietly shut down. Hard rug pulls are always illegal while soft rug pulls, in most cases, are only unethical, meaning the bad actors do not violate any legal rules. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or what’s the difference between wickr pro and wickr me by you clicking on certain links posted on our site.
Crypto rug pulls remain a significant threat in the crypto space, preying on unsuspecting investors and causing substantial financial losses. Crypto rug pulls can also occur when the project’s owners manipulate the value of a particular token or coin to deceive investors and subsequently siphon off their investments. AniMoon case that took place in June 2022 is an example of a soft rug pull. The project positioned itself as a play-to-earn game featuring 9,999 programmatically generated Animoon NFTs. It claimed that Pokemon-derivative NFTs were produced in partnership with TopDeck, official Pokemon partners.
With widespread fraud in the crypto world, extra scrutiny is called for before you invest your money. Ethan Nguyen and Andre Llacuna made the news in 2022 when they were charged with conspiring to commit wire fraud and money laundering in one 4 reasons i could buy argo blockchain shares but will i of the first rug pull crackdowns in the U.S. The duo had created an NFT project called Frosties, which they advertised as coming with rewards, giveaways and exclusive opportunities. Hours after selling around $1.1 million of Frosties, Nguyen and Llacuna shut down the project and absconded with investor funds. In a prime example of a liquidity pooling scheme, AnubisDAO’s anonymous developers defrauded investors of about $60 million. The developers, who had no website or white paper, proposed a decentralized currency backed by a basket of assets.
Thus, rug pulls are mostly the result of insufficient users’ awareness about cybersecurity. Do not let scammers easily steal your users’ money, help them stay away from suspicious projects. The team behind Teddy Doge even announced the launch of a new $DRAC token that would be given in airdrops to affected investors. Most rug pulls come from new projects that might seem like exciting investments.
Charlton Haupt went “all in” on crypto in 2017 after reading Bitcoin’s white paper, quickly progressing from an investor to a trader shortly thereafter. Now serving as CEO to his own Web3 startup, Bad Astro Society, an NFT project paving a path to launch its 10,000 members into space, Haupt humbly looks back on his early crypto career fumbles as essential learning curves. While both a rug pull and a failed why you shouldnt underestimate litecoin project arrive at the same destination, the routes are decidedly different. Despite a team’s best enterprising efforts, many projects fail without dishonest intervention.