May 19 2021
DeFi 101

Don’t Get Rug Pulled!

Don't Get Rug Pulled!

2 min read

Ever played the game “pull the rug out” as a kid? It’s the game where players pull the rug from under objects and if any object falls, no point is given. Fun wasn’t it? Except in crypto, it’s no fun, If you get rug pulled, you could lose all of your life’s investment! That’s right, you could lose it all. That’s why you gotta trade with caution and be aware of certain red flags.

<text-h2>How can I get rug pulled in crypto?<text-h2>

Rug pull in crypto or DeFi is when crypto developers pull out support, DEX liquidity pool or abandon a project suddenly, carting away investors’ funds in a flash. This is a typical exit scam that happens in the DeFi space especially with DEXs. You invest into a DEX liquidity pool and suddenly the project is abandoned or liquidity is removed. This sends you in a panic overdrive trying to salvage whatever you have left.

Rug pulling mostly occurs in DEXs because of the ease in creating tokens and starting liquidity pools. These scammers list their tokens on a decentralized AMM liquidity pool, and pair it with a major crypto like ETH or BNB as an example. Everything looks legit at the beginning — they invest a good amount in the DEX liquidity and run juicy social media posts to attract liquidity providers. Once investors lock their tokens into the liquidity pool, the scammers withdraw all of it from the liquidity pool and boom, leaving liquidity providers with nothing but their own tears! That’s all your investment gone in a heartbeat.

Unfortunately, there are too many examples of rug pulling in the market today. A DEX protocol recently rug pulled its investors with $2.5 million stolen. One also happened in Turkey where a crypto exchange suddenly halted its trading activities costing investors close to $10 billion dollars in investments. Late last year, $10.8 million in investors’ funds was stolen due to hidden backdoors in the project’s smart contracts

<text-h2>How not to get rug pulled<text-h2>

This cannot be overemphasized, always do your own research about the coins or token before swapping. Find out if the project is legit, the team behind it, the history, use-cases, etc. Are they backed by reputable investors or partners? There’s no overdo to this, it’s your funds, staying cautious is not bad at all.

Another tip, watch out for fake liquidity pools that are not officially recognized by the project team. Anyone can start liquidity pools on platforms like Uniswap, so make sure the smart contract ID of the pool matches what the project representatives have publicly confirmed.

Finally, only provide liquidity amounts you’re comfortable with. After all, DeFi is still the wild’ wild’ west.

Latest posts