Rug Pull

In the decentralized finance (DeFi) ecosystem, rug pulls have become a prevalent fraudulent practice. Scammers create new tokens, decentralized exchanges (DEXs), or non-fungible token (NFT) projects, enticing investors with promises of high returns and innovative features. Once a significant amount of investment is secured, the developers drain the liquidity or funds, causing the asset's value to plummet and leaving investors unable to sell or recover their money.

Common Types of Rug Pulls:

• Liquidity Theft – Developers create a token and pair it with a legitimate cryptocurrency (e.g., ETH) on a DEX. After investors trade their assets for the new token, the developers remove all liquidity, making it impossible to trade back.
• Limiting Sell Orders – Scammers code the token's smart contract to allow only certain addresses to sell. Investors can buy the token but cannot sell it, leading to losses when the price crashes.
• Pump and Dump Schemes – Developers heavily promote a token to inflate its price artificially. Once the price peaks, they sell off their large holdings, causing the price to collapse.

🏛 Example 1: Squid Game (SQUID) Token

Inspired by the popular Netflix series, the SQUID token saw its price soar due to media hype and investor interest. However, the token's developers pulled the rug by draining liquidity, causing the token's value to drop to zero and leaving investors with worthless tokens.

🏛 Example 2: $LIBRA Meme Coin

In February 2025, Argentine President Javier Milei promoted the $LIBRA meme coin, leading to a rapid increase in its value. Shortly after, the coin's value collapsed, and allegations arose that it was a rug pull scam, resulting in significant financial losses for investors.

📚 References

1. Coinbase - What is a rug pull and how to avoid it?
2. CoinDesk - Crypto Rug Pulls: What Are They & How to Avoid Them
3. Securities.io - 5 "Worst" Rug-Pulls in Crypto

⚠️ Controversies & Misconceptions

• "Rug pulls only happen in obscure projects." – False. Even projects that appear legitimate or are endorsed by public figures can be susceptible to rug pulls.
• "Smart contract audits guarantee safety from rug pulls." – Not necessarily. While audits can identify vulnerabilities, they may not detect malicious intent or code designed to facilitate a rug pull.

🚀 Conclusion

Rug pulls are a significant risk in the cryptocurrency and DeFi sectors, often resulting in substantial financial losses for unsuspecting investors. It's crucial to conduct thorough research, be cautious of projects promising unrealistic returns, and remain vigilant for red flags such as anonymous developers, unaudited code, and restricted sell functionalities. Engaging with well-established projects and communities can help mitigate the risk of falling victim to such scams.

Related Terms

• NFT (Non-Fungible Token)

  An NFT is a unique digital asset verified on the blockchain, representing ownership of a specific item or piece of content, such as art, music, videos, or virtual goods. Unlike cryptocurrencies like Bitcoin or Ethereum, NFTs are non-fungible, meaning each token is distinct and cannot be exchanged on a one-to-one basis with another.

• DEX (Decentralized Exchange)

  A decentralized exchange (DEX) is a platform that facilitates peer-to-peer trading of cryptocurrencies without a central authority. DEXs operate through smart contracts and decentralized liquidity pools, allowing users to trade assets without intermediaries.

• Ethereum 2.0 (Eth2)

  Ethereum 2.0 (Eth2) is a major upgrade to the Ethereum network that introduces Proof-of-Stake (PoS) consensus and scalability improvements to enhance security, efficiency, and transaction throughput.