Rug Pull Eyewash: The Invisible Threat in the Crypto Assets World

In recent years, with the surge in Crypto Assets investment, related fraudulent activities have also become increasingly rampant. Among them, Rug Pull has become one of the most common and harmful eyecatchers. Data shows that in 2021, losses caused by Rug Pull scams reached as high as $2.8 billion, accounting for 37% of the total revenue from Crypto Assets fraud that year. In April 2023, the DeFi industry faced another Rug Pull, resulting in over $6.2 million in losses for investors, involving 32 projects.

Definition and Types of Rug Pull

Rug Pull is a type of Crypto Assets eyewash, primarily manifested by developers suddenly withdrawing liquidity pools or using centralized powers and logical loopholes to abscond with investors' funds. This behavior usually occurs in the DeFi sector.

Rug Pull mainly includes three types:

1. Liquidity theft: Developers withdraw all coins from the liquidity pool, causing investors' assets to instantly become worthless.

2. Limit sell order: The developer uses code restrictions to make themselves the only party able to sell the tokens, waiting for the price to rise before selling for profit.

3. Dumping: Developers sell a large number of their held tokens in a short period of time, causing prices to plummet and making the tokens held by other investors worthless.

How to Identify and Avoid Rug Pulls

Investors should pay attention to the following aspects to reduce the risk of encountering a Rug Pull:

1. Development Team Background: An unknown or anonymous development team is often a dangerous signal.

2. Liquidity Lock: Check if the token has set a liquidity lock, and whether the locked proportion (TVL) is between 80%-100%.

3. Sell Order Restrictions: Try to purchase a small amount of tokens and sell them immediately to test for any sell order restrictions.

4. Token holder distribution: Be wary of sudden and large price fluctuations, especially when there are fewer token holders.

5. Rate of return: Be cautious of abnormally high rates of return, as this may be a characteristic of an eyewash.

6. External Audit: The lack of reputable third-party audits is a red flag.

In addition, investors should also:

• Check whether the project is open source and has undergone strict auditing.
• Pay attention to whether the project has security measures and emergency plans.
• Verify whether the project permissions are highly centralized.
• Verify whether the token distribution in the white paper is consistent with the actual situation.

The Importance of Due Diligence

Before investing in any Crypto Assets project, it is essential to conduct thorough due diligence. Investors should:

• Be cautious of project hype and FOMO psychology
• Verify the background and track record of the project team
• Carefully read the project white paper and other relevant materials
• Understand the project's smart contracts and ensure they have been audited by a reliable third party.

Conclusion

Rug Pull has become a major threat in the Crypto Assets field, causing huge losses. Investors need to stay vigilant and learn to identify potential fraud. Meanwhile, the entire industry also needs collective efforts from all parties to strengthen regulation and enforcement to create a safer investment environment. It is essential to conduct thorough research and seek professional advice before investing in any project. Only in this way can one better protect their asset security and avoid becoming a victim of a Rug Pull.