If you’re an active person in Web3 you might have heard of the word “Rug Pull”. Now the question you might have is what is rug pull? so in this blog, we will discuss what Rug Pull is. some recent rug pulls, how to stay safe, and more.

What is Rug Pull?

A rug pull is a type of scam in which the creators of a DeFi or any Crypto project suddenly withdraw all the liquidity from the project, leaving investors with worthless tokens. This typically happens when the creators of the project have no intention of creating a legitimate product, and instead are looking to make a quick profit by tricking investors or token holders into putting money into their project.

Rug pulls are made possible by the decentralized nature of DeFi. Since DeFi projects are typically built on blockchain technology, they can be created by anyone, anywhere in the world, without any oversight or regulation. This means that anyone can create a DeFi project and market it as the next big thing, without having to prove that the project is legitimate or even functional and They can scam people.

Types of Rug Pull?

Well, there’s no clear answer to this but still, researchers have found some patterns in the last few famous Rug Pulls, and here is a list of Rug Pulls you should be aware of

1. Dumping It is a type of scam where developers or promoters of a particular token or cryptocurrency suddenly sell off their holdings, causing the price of the token to crash, leaving investors with worthless holdings. In a dumping rug pull, the creators of the token or cryptocurrency usually promote the asset heavily, often using false or misleading information to attract investors, and then suddenly sell off their holdings, causing the value of the asset to plummet. This leaves other investors holding worthless tokens or coins, while the creators of the scam walk away with the profits from their sales.
2. Liquidity stealing In this kind of rug pull a trader manipulates the price of a token or cryptocurrency by exploiting the liquidity of a particular liquidity pool. In DeFi, liquidity pools are used to provide liquidity for a particular token, and traders can trade against the pool. When a trader exploits the liquidity of a pool, they use a large order to manipulate the price of the token in their favor, causing the price to move in the direction they want. This manipulation can cause other traders to make bad trades or lose money.
3. Limiting sell orders Limiting sell orders is a practice in the financial markets where investors or traders place a limit on the price at which they are willing to sell an asset. This means that they will only sell the asset if the price reaches a certain level or higher, ensuring they receive a minimum price for their asset. In the context of cryptocurrency, DeFi, and Rug Pulls, limiting sell orders can help prevent market manipulation and protect investors from sudden price drops. By setting a limit on the price at which they are willing to sell their cryptocurrency, investors can avoid selling their assets at a lower price than they are willing to accept.

How to not fall in Rug Pull and stay safe?

There are a lot of ways to avoid Rug Pulls but some of the main key factors you should look at before investing in any projects are as follows

Research before Investing:

One should always research about the projects before investing in a new cryptocurrency or token, do your own research to understand the project, its development team, and its potential risks. Look for credible sources of information, such as the project’s white paper, the team’s credentials, and the community’s feedback. You can also look for their roadmap and future plans.

Check if its Audited:

You will notice, most of the rug pull projects don’t have them audited. Auditing in Web3 means finding manually in code that they don’t have any loopholes or vulnerabilities which either can be manipulated by developers or attackers. There are many famous smart contract auditing companies like CredShields and automated contracted auditing tools like SolidityScan which can easily help you find the best secure projects.

Avoid investing in new projects:

Although this one is not a proven one, most of the Rug pull scams are more common in new and unproven projects. It’s generally safer to invest in established and reputable projects with a track record of success.

Use trusted exchanges:

Choose a reputable cryptocurrency exchange with a strong reputation and a history of successful transactions. Avoid using unknown or untested exchanges, as they may be vulnerable to rug-pull scams.

Be cautious of hype:

Rug pulls scammers often rely on hype and FOMO (fear of missing out) to attract investors. Be cautious of overly aggressive marketing tactics and promises of huge returns.

Some famous Rug Pull scams

When we talk about rug pull and scams the first name that comes to mind is OneCoin.

OneCoin was a Ponzi scheme posing as a cryptocurrency. Launched by self-styled & so-called crypto queen Ruja Ignatova in 2014, the scam attracted millions of investors over a two-to-three-year period. Through flashy launches and catchy messaging, the glamorous Ruja convinced people in 175 countries to buy packages of educational materials and OneCoin tokens. She told people they were going to get rich and made them believe they were a part of something big. Sadly, the “something big” turned out to be a big scam.

Now there are plenty of more scams but some of the most famous scams are Defi100 Coin, Luna Yield, Thodex, and AnibusDAO.

Conclusion

In conclusion, Rug Pulls have become a serious concern for investors in the decentralised finance space, and it’s essential to stay vigilant and informed to avoid falling prey to these scams. As decentralised finance continues to grow and evolve, it’s likely that we’ll see new types of Rug Pulls emerging. However, by conducting thorough research, using trusted exchanges, and being cautious of hype, investors can minimize their risk and stay safe in the rapidly changing world of DeFi. Remember, prevention is always better than cure, and taking steps to protect yourself from Rug Pulls can help you avoid significant financial losses and protect your investments.