RUG PULL OF THE PROJECT
The Rug Pull scam is a form of cryptographic fraud in which developers leave the project they created after previously collecting funds from investors. By simultaneously selling large quantities of assets in projects, so that the value of assets owned by other investors becomes worthless.
It usually occurs in tokens within decentralized exchange (DEX) based on the liquidity pool stored in DEX. However, they can also hide rug traction as a DeFi project. In a rough draw, scammers claiming to be developers often design a promising project that attracts a large number of users.
Later, this project spread to the community and increased the value of the asset by attracting a large number of investors. When the price rises to a point that is considered satisfactory to these scammers, it destroys the price of these assets by selling all their assets at the same time and harms all investors who have invested their funds.
SAMPLE PROJECTS WITH RUG PULL
Squid Game Tokens
It is one of the most popular crypto assets since the beginning of October 2021. Meme coin is based on the popular Netflix series Squid Game, although the series is not directly related in any legal way. Since the spread of the information, the price of the SQUID token has suddenly increased drastically as many people have seen the promotion through various social media. Between October 26 and November 1, the price of the Squid coin increased by more than 23 million percent, from a few cents to $2,861.80. This increase was followed by a huge drop in price to $0.003, and everyone said that the Squid coin was just a rug pull.
The SQUID developers allegedly abandoned the project and made about $3.3 million by selling their tokens. After some research, it was found that the technical review of the Squid game project was full of amateur errors, such as basic grammatical errors. Currently, Coinmarketcap has placed a warning on the SQUID page on its website to let users know about the potential scam.
Thodex
In April 2021, Thodex, a crypto exchange with nearly 400,000 users from Turkey, was accused of committing an exit scam. In this rug pull case, the CEO of Thodex allegedly took $2 billion in user funds with him while fleeing Turkey to Albania. Users claim they can’t access their funds. Currently, most of the Thodex team has been detained by the Turkish police, and the CEO of Thodex has been placed on Interpol’s wanted list.
Compounder Finance (CP3R)
In early November 2020, Compounder Finance, a DeFi project, received $10.8 million from its users. The price of CP3R fell by 98.8% within 24 hours and completely depreciated shortly after the scam.
The Compounder development team managed to steal $5,066 million in DAI, $4.8 million ETH (8,080 ETH), $745,000 in Wrapped BTC (39 WBTC) and the rest as COMP, UNI-V2 and CP3R DeFi tokens. This Rug Pull was planned from the beginning of the project because all the money was received through the code in the smart contract, which was deliberately written by the development team.
The Compounder development team allegedly deliberately entered a code into a smart contract that allowed them to receive all the funds raised. When they think the profit is enough, they plan to withdraw all the funds. This terrible incident proves how carefully it is always important to research and plan before investing in a project.
How to Determine and Prevent Rug Pull?
Rug Pull is a fraudulent manipulation method that does not use hacking and other stealth methods. This manipulation takes place publicly, which makes it more difficult to detect than other scams.
We must conduct due diligence and research before immediately purchasing an asset. This is important to be able to distinguish between promising crypto assets and rug pull projects. Here are some things we can analyze to identify projects with Rug Pull potential:
- Researching the team behind the project
- Analyzing trade and on-chain data
- Avoiding FOMO and reading the news
RESULT
Rug Pull is a form of fraud in cryptocurrency in which developers abandon their projects after raising funds from investors. The developers then simultaneously sell their assets in the project in large quantities, rendering other investors’ assets worthless.
An example of a Rug Pull case is Squid Game Tokens, whose price increased by more than 23 million percent in early November 2021, from just one cent to $2,861.80. To avoid a rug pull project, we need to be very careful and collect as much data as possible before investing in a new project.
