- Rug pull scams are common in the DeFi market
- Rug pulls scams can be avoided by educating the investors to identify them.
The rug pull is a scam where the project developers abandon the project by quickly withdrawing all their funds and leaving investors with no or very less money. This is a very popular practice in the crypto world. Rug pulls especially occur in decentralized finance, as in DeFi, there is no regulatory body that protects investors from any such malicious activities.
Due to this, rug pulls are common. Hence, investors investing in DeFi need to be extra cautious about such scams as they need to identify such scams by themselves. And if they are unable to identify them, they can suffer heavy losses. Still, there is no regulatory body that can identify these potential scams and protect these scams.
Investors must know all the ways how they can avoid these scams. It is very necessary for investors. If the investor becomes educated, then the scammers will also not be able to scam the investors.
Types of rug pull
The rug pulls have two main types: hard rug pull and soft rug pull. Hard rug pulls happen suddenly without any signs of it happening.
- Liquidity pool rug pulls
These pools are pools in which many investors invest their crypto assets in the hope of returns. These liquidity pools provide loans for those who want money for investments and take some interest from them to incentivize the investors. In easy terms, they are like banks for cryptocurrencies. But sometimes, the developers of these liquidity pools develop the pools in such a way that they write a code that allows them to transfer all the funds in their crypto wallet.
- Limiting sell orders
This is when the developers write codes that limit the user’s ability to take money out of trading platforms. The developers do this by making changes in the smart contracts. In these conditions, the user’s ability to sell their assets is paralyzed and they can only buy them. After this, developers take all the funds out of the project, leaving the investors with no money.
- Dumping
Everyone must have heard about pump-and-dump scams in which the developers first quickly buy the tokens and gain a large portion of the supply. This creates the illusion that the project is very successful and attracts the interest of all the investors who are not aware of it. Invests the money in such projects in large amounts. Once the developers gain huge capital, they just dump the project by extracting all the investor’s money and leaving the Coin or token worthless.
Popular rug pulls
The SQUID token rug pull is very popular, in which investors have lost millions. This token was inspired by the popular Netflix web series Squid Games.
One Coin was a Bulgaria-based company, which even developed a good portfolio to attract investors, and many investors also invested in their project. This was one of the biggest rug-pull scams in history. The scale of this rug pull can be assumed from the fact that investors lost $4 Billion in this rug pull. Some even lost their life savings in this scam.
