Hello guys, today we will know what is a rug pull in crypto. A rug pull is a malicious manoeuvre in the cryptocurrency industry where crypto developers abandon a project and run away with investors’ funds otherwise known as a scam coin.
What Is a Rug Pull in Crypto? Explained
Rug pulls often happen in the defy ecosystem or decentralized finance, especially on decentralized exchanges where malicious individuals create a token and list it on a dex.
Then pair the scam coin with a leading cryptocurrency like Ethereum once a significant amount of unsuspecting investors swap their eth for their listed token.
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The creators then withdraw everything from the liquidity pool driving the coin’s price to zero.
Rug pulls can happen during or after an ico initial coin offering the scam coins promoters may even create temporary hype around it using telegram Twitter and other social media platforms to get attention.
They may also initially inject a substantial amount of liquidity into their pool to cultivate investor confidence.
Another major characteristic of a possible rug pull is a coin skyrocketing in price within hours.
For example, a rug pull coin can move from 0 to 50 times within 24 hours. This trick is meant to drive the FOMO fear of missing out which leads to more people investing in the token.
Rug pulls thrive on decentralized exchanges because unlike centralized cryptocurrency exchanges dexes allow users to list tokens free of charge and without audit.
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Furthermore creating tokens on open-source blockchain protocols like Ethereum is easy and free.
So be careful to make sure you don’t fall victim to scam coins make sure to research more about the coin.
And look for telltale signs of rug pulls signs like low liquidity pool low team credibility or unknown founders short lock-in periods extreme rewards few wallet holders ambiguous and unclear white papers enormous promotional spending and marketing.