Rug Pull is a type of scam in the cryptocurrency space where a project's developers abandon it and disappear with the funds that investors have contributed.

From a Promise to a Vanishing Act

A Rug Pull gets its name from the phrase "pulling the rug out from under" investors' feet. It often occurs in projects that have a high level of hype and promise unrealistic returns, fueled by FOMO. The scammers create a new cryptocurrency or NFT project, often using a meme-coin as a cover, and aggressively market it to attract investors. They may use paid influencers to promote the project and create a false sense of legitimacy.

Once a significant amount of capital has been invested, the developers suddenly abandon the project, leaving the investors with worthless assets. There are a few common ways this happens: Liquidity Theft, where the developers drain the liquidity-pool, leaving investors unable to sell their assets; Restricted Selling, where the developers program the smart-contract to allow only their own addresses to sell the cryptocurrency; and Gradual Dumping, where the developers sell their own holdings over a period of time, which causes a steady decline in the price of the asset.

How to Avoid a Rug Pull

The best defense against a Rug Pull is to conduct your own thorough research. Look for red flags such as an anonymous or unknown team, a lack of a clear whitepaper or business plan, and unrealistic promises of high returns. A trustworthy project will have a clear roadmap and a transparent team.