What Is a Rug Pull?

Rug pull is a condition that occurs when a developer abandons a project and takes investors' money with them.

Get to know Rug Pull

Rug pull is a bad move in the cryptocurrency world where a developer abandons a project and takes investor funds with them.

This happens frequently in decentralized finance (DeFi) , especially on decentralized exchanges (DEXs) . Bad guys create a token , list it on a DEX, and combine it with top cryptocurrencies like Ethereum.

They use DEXs because they can list tokens for free and without checks, in contrast to centralized exchanges . Additionally, creating tokens on blockchain platforms like Ethereum is easy and free. They exploit this to their advantage.

Some Signs of a Rug Pull Project

Decentralized exchanges like Uniswap set token prices based on available balance. To avoid rug pulls, check the liquidity in a pool.

Also, see if the token pool is locked. Leading projects usually lock liquidity in pools for a certain period of time.

Another sign of a possible rug pull is a sudden spike in the coin price within hours, such as going from 0 to 50X in 24 hours. This aims to create FOMO and attract more investors.

In general, experiencing a rug pull means developers are promoting new projects intensively, often through crypto influencers, with promises of high profits. They list their tokens on decentralized exchanges such as Uniswap or Pancakeswap.

After many investors exchange with the token, the creator withdraws all funds from the liquidity pool, making the coin price drop to zero. They may create hype on social media initially and inject liquidity into their pool to gain investors' trust.

Rug pull can occur immediately after project launch or over time.

What is Rug Pull NFT?

NFT rug pulls are similar to regular rug pulls but with non-fungible tokens (NFTs). This often involves NFT collections, such as profile picture collections (PFP).

Developers promote NFT collections intensively, usually through social media and influencers. Many collections require users to be whitelisted in order to print, so they appear exclusive.

Interesting "Carpet" 

After launch, when users mint the collection, developers can disappear with the funds, executing an NFT rug pull. They may also wait for the NFT price to rise before taking all the funds.

What Does a Project That Can't Be Rug-pulled Mean?

The "unrug pulled" project does not have a significant amount of tokens held by the development team. Without a lot of tokens held by a team that can be taken in a rug pull or exit scheme, a project can be considered unrug pulled.

Another way to understand a project that cannot be pulled apart is if the team relinquishes ownership of all tokens, such as those acquired during pre-release sales

Conclusion

Rug pull is a deceptive tactic where a developer abandons a project and makes off with investors' money, common in both cryptocurrency and NFT markets. Understanding the signs of a possible rug pull and investing in projects with transparent ownership structures can help reduce the risk of falling victim to such scams.

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DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.