Home What does “Rug Pull” mean and how to spot them?

What does “Rug Pull” mean and how to spot them?

5 min read

The term "rug pull" refers to the idea of abruptly removing the rug or support on which a person is lying, for example. And all at once! In the context of cryptocurrency, and especially DeFi, it describes manipulating the price of a cryptocurrency to ultimately withdraw liquidity, for instance. A rug pull can also refer to developers suddenly selling off all their tokens en masse.

So, when the pool on the exchange is emptied, well, investors try by all means to resell their tokens but it is already too late, there is no longer any liquidity, and they end up with tokens emptied of their substances... It's okay, the token is no longer worth anything... What a shame.

In fact, this is the fatal blow dealt by a malicious "entrepreneur" who would have created a token only with the intended purpose of running off with the money at the opportune moment.

So when is the right time?

The moment when you least expect it, of course!

What are rug pulls in DeFi?

This is when there is a craze for the token, this is when investors start locking up tokens in the hope of generating gains. And, there, bam! Rug Pull! The developer leaves with the cash register, without saying a word to you and leaving you with tokens that only have the name….An empty shell, you who thought you had found the jackpot…

You understand, the right time is the worst time for the investor.

Finally, the crypto world is evolving rapidly and at incredible speed. We quickly become overwhelmed and we are also all hit by FOMO or the fear of missing an opportunity.

As a result, we tend to rush for fear of missing the opportunity and we neglect to read the white paper carefully, we neglect to consider the fundamentals. We are influenced by the behavior of others, etc.

Similarly, one could say that this is also the downside of decentralization. Anyone can list a token on Uniswap tomorrow , for example. And that was the very symbol of freedom and the ultimate democratization of finance for everyone.

DeFi is full of scams

However, this also means that people with questionable ethics might list tokens with the intention of emptying pools when the time is right. DEXs are the perfect playground for these kinds of people.

And, it seems so simple that there will still be rug pulls… Besides, there are many of them, only the media cannot list them all. Not only because it gives bad press (that's the right word) to the crypto universe, but it's rather because there are so many good projects in parallel that we rather want to "advertise" for projects that provide real solutions.

We can give you a rather recent example with the "TRUAMPLE" which 4 hours later, made a nice rug pull leaving with 1800 ETH. You can imagine that investors thought they had found the goose that laid the golden eggs. And, believe me, there are plenty of rug pulls! Among the new tokens that you see appearing, tell yourself that 1/3 will end up in rug pull. And, if not tomorrow, it will be the day after tomorrow.

Now that you know what Rug Pull is, the real question to ask is how to avoid it.

How to avoid Rug Pull?

In fact, there are a lot of bogus projects out there right now that reek of corruption and have a real "rug pull" effect… Sometimes you can spot them a mile away, especially when they're clones of Uniswap or Pancakeswap protocols with dubious food token names , typically. Sometimes you even wonder how it's possible to miss them! And, of course, nothing new is brought to the table. No audit is published. That's the main red flag…

The other signal is a sudden huge increase! For a brand new project, a new token that takes a “20x” in 24 hours, it would be good to be wary….

Yes, you are right in thinking that it is too good to be true…

It is up to investors to be ever more careful and to fully understand the overall tokenomics of the project in which they want to invest.

Don't rush into things, don't succumb to FOMO, and above all, take the time to fully understand the real usefulness of the project and of crypto. I can't stress this enough.

Also be wary of projects with overly insistent or artificially created social networks. If we only talk to you about earnings and that alone, then take off, ok?

Make sure you also verify that liquidity is locked, as requested by the community with the Safemoon project , for example (because investors were becoming suspicious and feared a rug pull). You can check this on sites like Unicrypt, for example, to verify that the pool is indeed locked.

It is important, even crucial, to verify that liquidity is blocked, as requested by the community with the Safemoon project for example (because investors were starting to become suspicious and were afraid of a rug pull).

Always do your research before investing

And, as usual, consider the fundamentals and tokenomics ; honestly, that's the only thing that will save you from bogus projects. A good team with a solid background, a project with a real problem, a robust cryptocurrency with a good issuance structure.

DYOR we keep telling you (Do Your Own Research).

Choose cryptocurrencies that perform well in a sound fundamental analysis . In short, that's how you'll invest in a successful cryptocurrency.

There are truly tons of opportunities to be seized! Really, you just have to be discerning.

So, yes, you're not going to make +50% in 1 day but you will certainly make it in a few months and even if it's a few years (for a larger amount and who knows, becoming a crypto-millionaire ?), it's always better to have the certainty of having a portfolio that is gaining value, and that you can sleep soundly….

Come on, take care of yourself and your wallet 😉