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Many people work hard to get their favorite airdrops in exchange for a good amount of tokens. Some manage to find the perfect bottom entries on tokens that pump very hard, but guess what? All this hard work disappears when a crypto rug pull happens!
In this article, we will discuss the type of attacks on cryptocurrencies, how you can stay safe from them, and the overall impact of attacks on the cryptocurrency world.
<h2 class="wp-block-heading" id="what-is-a-rug-pull-in-crypto“>What is a rug pull in crypto?
What happens when you are standing on a rug and suddenly someone throws it away? You fall, right? That's exactly what a crypto rug pull is!
It usually happens when the people who created the cryptocurrency token, also known as developers, leave the crypto project and keep investors' funds. This results in the price of the token plummeting and leaving investors with worthless tokens.
There are usually signs before a rug pull is about to occur in any crypto currency, but for that, it is important to know where and how exactly rug pulls occur.
Where and how do rug pulls occur?
Typically, a classic pull usually occurs in decentralized exchanges and nft projects due to the lack of regulation and the pseudonymity of cryptocurrency developers. This is because anyone can create a token, supply it with liquidity, and launch it on decentralized exchanges like Uniswap, Pancakeswap, and some degen platforms like pump.fun.
Now what happens is that scammers hide behind false identities in the absence of KYC and launch a token on decentralized platforms. Then, they market it on social media platforms like x, facebook, instagram, Telegram, Discord, and others.
Typically, scammers release meme coins when new investors easily get caught up in them; All this happens, of course, with the use of false associations with influencers and promises of high returns. Unfortunately, in the end, retailers' dream of going from rags to riches turns to dust when shady developers abruptly shut down the project and pocket the funds, leaving investors desperate and with no hope of recovery in the space. unregulated cryptocurrency market.
<h2 class="wp-block-heading" id="types-of-crypto-rug-pulls”>Types of crypto Rug Pullers
The typical cryptocurrency hack is what we described above, as it involves launching, marketing, and eventually shutting down the project, leaving investors with nothing. In the end it comes down to two categories, whether a project can make a hard rug or a soft rug, let's discover the key differences between them.
Hard Pull vs. Soft Pull
A hard pull requires a lot of effort and some technical knowledge about how a smart contract works. This is because a hard pull requires writing and entering malicious code into a project's smart contract, preventing users from withdrawing their tokens. He StableMagnet Carpet Puller is a classic example of brute force, as the project developers hid a backdoor in their smart contract that allowed them to perform this trick.
On the other hand, a soft pull is simply a way for project developers to sell their token holdings in batches without announcing it publicly. In this way, the token does not fall directly, but falls in stages, and then completely loses its value. Animoon nft Project is a great example of a soft ride where the developers got away with $6.3 million.
Examples of notable rug pulls
Stealing crypto tokens is not a small event as when it happens, especially for a large project, everyone in the crypto community starts talking about it. Here we will list some of the most notable issues in the cryptocurrency world so far in 2024 (at the time of writing):
Thodex (2021)
Thodex was a Turkish cryptocurrency exchange that was responsible for <a target="_blank" href="https://decrypt.co/68703/billion-dollar-rug-pull-turkish-bitcoin-exchange-goes-dark” target=”_blank” rel=”nofollow”>stealing more than $2 billion of its users. Its founder gave an excuse for maintenance and then kept the funds.
Squid Game Token (2021)
The Netflix series known as Squid Game was the main catalyst behind the popularity of this token as it skyrocketed to $2,800 in a short period. However, this massive price increase was short-lived as the anonymous developers of the project drained all liquidity from the project and the price fell to almost zero in a short time.
MOON (2022)
The cryptocurrency bear market brought a lot of bad news, but accepting the fall of the DeFi token LUNA was the most difficult. While the allegations against the owners of the LUNA project have not been proven, this crypto project is responsible for causing an estimated loss of $40 billion to the cryptocurrency market.
Financial technology (2023)
Last year, the promise of high returns attracted many users to Fintoch, which then disappeared with $31 million. All of this happened mainly with the help of fraudulent marketing and sponsorships, further proving that all that glitters is not gold.
<h2 class="wp-block-heading" id="impact-of-rug-pulls-on-crypto-adoption”>Impact of Rug Pulling on Cryptocurrency Adoption
A cryptocurrency issue not only affects investors who lost their money but becomes a dark spot in the cryptocurrency world forever.
Unlike traditional markets that have existed for many decades, the cryptocurrency market has barely completed a decade. This means that major investors and institutions are still skeptical about cryptocurrencies and events involving rough usage of crypto tokens only increase strict entry rules, which means less liquidity for the crypto market as a whole.
However, in the end, this negative impact of regulations is short-lived as industry-wide regulations become more user-friendly and stricter, making such cryptocurrency runs a rare occurrence.
How to detect a rug pull?
While it may be difficult for everyone to spot a rug pull, by following the tips below you can save yourself from most rug pulls in the cryptocurrency world.
Token supply: Take a closer look at the project's token supply. If one or several wallets hold most of the supply, then avoid that project.
Unrealistic promises: High returns are a sign of early scams not only in cryptocurrencies but in all financial markets.
Security audits: Almost all crypto projects are audited by a third party, so make sure that the crypto project you want to invest in is properly audited by a reputable company.
Team information: Anonymous developers with no information online are a big red flag, and while some successful meme coins have anonymous owners, most tokens with anonymous owners have turned out to be scams in the end.
How to avoid carpet pulls?
Spotting a rug pull is the first half of the picture, but how can you avoid it? Here are some practical steps you can take:
Use blockchain explorers
Evaluate the smart contract and token transaction history using applications such as Etherscan or BscScan. Developers can alter transactions or create an infinite number of tokens through contracts with “mint” or “owner control” features, so be aware of these parameters and avoid those tokens.
Look for projects with explicit use cases
Reputable projects often provide original technological solutions or address pressing real-world problems. Avoid tokens that have no real use other than manipulating prices, as they can easily execute their users.
Conduct thorough research
Research the project in detail, taking note of its roadmap, whitepaper, and purpose of the token. Unclear objectives or lack of comprehensive documentation are often indicators of deception.
Read user reviews on sites like Telegram, twitter, and Reddit. A strong, active, and optimistic community is often a sign of success.
Stay up to date with scam patterns
Stay on top of typical cryptocurrency scams and their strategies. Websites like CoinGecko and CoinMarketcap offer tools to help you detect fraudulent schemes.
Resist Hype-Driven FOMO
Avoid making an investment based solely on celebrity endorsements or social media hype. Scammers frequently use influencers and bots to generate buzz about their companies.
Regulations and supervision
The rug pulls have drawn attention to the pressing need for regulatory oversight to safeguard investors and preserve confidence in the bitcoin markets. To reduce the anonymity that fraudsters take advantage of, many governments are enacting laws such as know-your-customer (KYC) procedures and anti-money laundering (AML) standards. Although it is still difficult to apply these rules to DeFi, they apply specifically to centralized platforms.
International initiatives aim to create cross-border regulations to combat cryptocurrency fraud, such as those led by the Financial Action Task Force (FATF). However, law enforcement remains a major issue, especially in DeFi ecosystems. A safer atmosphere for cryptocurrency adoption is being created through better investor education and open audit procedures, which are being developed as complementary tactics to regulatory activities.
What is a rug puller?
A rug pull occurs when the developers of a crypto project drain all liquidity from the project and abscond with investors' funds. Typically, investors do not have enough time to react to a rug pull, so it is advisable to do your research before investing in any crypto project. If something seems too good to be true in the world of cryptocurrencies, it probably is.
How do crypto rug pullers work?
crypto matting eliminates work by eliminating liquidity, manipulating the price of tokens, and not allowing investors to withdraw their investments from the crypto project. It is recommended to do your research before investing in any token, as both centralized and decentralized exchange tokens can be difficult in the volatile world of cryptocurrencies.
Is it illegal to throw out the crypto rug?
Yes, rug pulling is a form of fraud and is illegal everywhere. However, law enforcement authorities find it difficult to track down fraudulent developers due to their anonymity from the beginning. Therefore, it is recommended to only invest in reputable crypto projects that also have well-known founders with a good track record.
