If you are a regular DeFi user, you've probably heard of Rug Pull. Literally, "Rug Pull" means "pulling the rug out". But in the crypto industry, it refers to a type of crypto scam that occurs when a project team suddenly abandons their project and disappears with the investors' funds.
Rug Pull usually happens after substantial price spikes when the project attracts a large number of investors buying huge shares of the token. Such projects are created with the intent to "take investors' money" from the get-go. With extensive promotion attracting plenty of attention, the team lures investors to their liquidity pool, and pumps up the token price. When the liquidity in the pool reaches a certain level, the project developers will withdraw everything from the liquidity pool, causing price collapse, and leaving their investors with significant losses.
Here are two real Rug Pull scams：
1. TurtleDEX (Amount involved: $2.4 million)
Launched on Binance Smart Chain on March 15, 2021, TurtleDEX claimed it could provide online file storage with secure access. The team raised about 2.4 million dollars via the pre-sale round in just two hours, and attracted a huge number of investors just 5 days after the launch. However, afterwards all liquidity on both Apeswap and Pancakeswap was removed. According to transaction records on Etherscan, all tokens in the pool were swapped to ETH and sent to Binance exchange wallets. After the scam was confirmed, the owners deleted TurtleDex’s telegram and the Twitter page before the platform went offline.
2. Pokemoney Coin (Amount involved: $3.5 million)
Pokemoney, an NFT Metaverse game project launched on Binance Smart Chain, went through a Rug Pull on May 2021. The project token PMY (Pokemoney Coin) dropped down by 99.98% after 11,800 BNB had been pulled out of the project.
(Note: The above information is collected from online sources.)
- DO NOT invest in projects that you are not familiar with. Check the project’s website, social media and white paper to evaluate the legitimacy of the project. Also, consider the credibility of the founder and team members to find clues.
- Check the percentage of the liquidity pool that has been locked, and confirm whether the token price is reasonable. A lower lock-up percentage or greater price volatility in the short term usually means higher risks.
- Confirm whether the project has undergone a formal code audit process conducted by a reputable third party. (Though not a standard practice, an external audit conducted by a third party lowers the risks.)
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