A crypto rug pull is a scam where developers hype a new digital token, attract investments
and then suddenly abandon the project, cashing out their tokens and leaving investors with worthless assets, essentially pulling the rug out from under them. These fraudsters use social media to build hype, often manipulating code so users can't sell their tokens, resulting in massive financial losses for investors and damaging the crypto market's reputation.
How Rug Pulls Work:
- Promotion: Developers create a new token, often using influencers, and promote it heavily on social media (Twitter, Telegram) to create hype and attract buyers.
- Liquidity Pool: They create a "liquidity pool" on a decentralized exchange (DEX), allowing people to buy the token with other cryptocurrencies (like ETH).
- Price Pump: As more investors buy in, the token's price skyrockets.
- The Pull: The creators then sell off their massive holdings or drain all liquidity from the pool, causing the price to crash to near zero instantly.
- Disappearance: The developers vanish, leaving investors unable to sell their tokens and with significant losses.
Types of Rug Pulls:
- Liquidity Drain: Developers pull all the valuable crypto (like ETH) from the liquidity pool, leaving the token worthless.
- Code Manipulation: They alter the token's code (e.g., the approve function) to prevent users from selling their tokens, even as the developers cash out.
Warning Signs:
- Unrealistic promises or lack of a clear whitepaper.
- Anonymous development team.
- Low trading volume or liquidity.
- Extreme social media hype with fake accounts.
