A Rug Pull is a scam tactic perpetrated against crypto traders and investors, that usually takes the shape of scammers setting up a brand new coin that promises instant gains or too-good-to-be-true scenarios.
Once the coin is made public, the scammers (criminals) drum up attention on social media and chat rooms, in hopes of enticing investors to buy the cryptocurrency of the project.
The fraud materializes when the founders of the coin disappear without notice, taking all investor funds with them.
Rug pulls tend to materialize on social media, starting on Twitter and then often moving to Discord discussions or Telegram chats.
Smart contract platforms like the Ethereum blockchain and Binance Smart Chain have become notorious for hosting scam coins that end in rug pulls because it’s fairly straightforward to create a new token on those blockchains.
New tokens can become public and live without any formal security audits of the code.
Rug pull targets tend not to have the technical understanding to audit the code themselves, making the possibility of falling for a rug pull high.
Rug pulls have resulted in billions of investor funds disappearing.
Rug pulls can also take additional forms, including:
- dumping,
- limiting sell orders,
- liquidity pool stealing
- backdoors
Two of the largest rugpulls in history include:
- Turkish cryptocurrency exchange Thodex, where scammers left with USD $2 billion of user deposits/balances.
- OneCoin, a Ponzi scheme that sold course materials and performed much like a multi-level marketing (MLM) scheme where participants are paid to recruit more users who eventually get paid to also recruit more users. The scheme raised USD $4 billion before the founders vanished with the funds.