What Is Rug Pull In Crypto?


✍️ 7 October, 2022 - 18:52 👤 Editor: Jakub Motyka

  • The digital market is full of innovative crypto ideas that can mean excellent investment opportunities.
  • Despite this, many projects can become scams and it is important to know more about each one.
  • Here we tell you what rugpulls are in the world of cryptocurrencies and why it is important that you be careful when investing.

In the digital universe there are hundreds of new projects, however, many of these may be scams that use the rug pull or rugpull model. Cryptocurrencies offer hundreds of new financial opportunities, on the other hand, it also offers new methods of scamming people who are unaware of this universe. Consequently, if you are not attentive to certain conditions or characteristics behind each coin, it is possible that you lose your investment.

Decentralized Finance or DeFi is a model that, despite having a lot of security, has some scammers behind its projects. Both due to ignorance and misinformation, many small investors risk falling into some fraud. The rug pull is one of the most common, which is why we will tell you what it is and how to identify it.

What Is A Rug Pull Or Rugpull?

Known as “rug pull”, the rugpull is a very common scam model in DeFi projects. In general terms, this scam occurs when there is a massive loss of liquidity behind a project, all of a sudden. This happens when the developers of a project launch a token and attract investors to increase its value. Once their mission is accomplished, they suddenly withdraw the backup funds from said digital currency. On the other hand, it can also happen due to a sell-off by a liquidity provider or a large investor, such as a whale.

Simply put, a rug pull occurs when owners, developers or large investors of a token leave and abandon its development. Generally, the owners or developers of each project are behind these scams and they are the ones who keep the investors' money. Once this is done, some try to camouflage what happened with the tokens with excuses, however, many run away with the money without explanation. Finally, there are slow rug pulls, where developers distribute large amounts of coins in wallets over several months, making them very difficult to detect.

How To Avoid Falling For This Type Of Scam?

Before investing in any new project, it is important that you verify the liquidity fund, who the founders are, if there are large fluctuations and if they are supported. Currently, large companies tend to support the promising projects, giving support and financial backing. Finally, any project that promises something too good to be true is probably a scam.

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