In the world of digital currency, it is crucial to stay informed on the types of malicious activity. One of the most common examples of crypto fraud is a rug pull – read ahead to find out what exactly this term means!
What Is A Rug Pull?
A rug pull is a scam in the cryptocurrency industry, during which a fraudulent developer attracts investors to a project and then abandons it, leaving buyers with a worthless asset. It gets its name from the expression “pulling the rug out,” which means to betray, expose, or leave someone defenseless.
What You Need To Know About A Rug Pull
A rug pull definition typically entails three main types of fraudulent activity:
- Liquidity stealing. This happens when a token issuer withdraws all the coins from the liquidity pool. It removes all the value that was put into the currency by investors and drives its price down to zero. Such liquidity pulls usually occur in DeFi environments.
- Limiting sell orders. It is a subtle rug pull method when fraudulent developers defraud investors by coding the tokens in a way that no one but the creator is able to sell them.
- Dumping. This rug pull type occurs when developers quickly sell their large supply of assets. Such actions drive the coin’s price down, leaving investors with worthless tokens. Dumping often happens after large promotion campaigns on social media.
Rug pulls can be either “hard” or “soft.” A hard rug pull, such as liquidity stealing, occurs when developers code malicious backdoors into their tokens. Soft rug pulls refer to incidents when token creators ensure that their crypto assets devalue quickly, like in the case of dumping.
While hard rug pulls are always illegal, it is not always the case with soft rug pulls, which can be unethical yet not criminal. Like most fraudulent activities in the crypto industry, both types of rug pulls can be difficult to track and prosecute.
