Recent news has again drawn attention to the world of cryptocurrency as fraudsters exploit unwitting investors looking for the next astronomically high returning altcoin. The most recent coins in question are CryptoEats, a supposed food delivery company where customers can pay using cryptocurrency, and the Squid Game coin SQUID that has capitalised on the recent success of a TV show by the same name.
While the coins are ostensibly different, the method of the fraud is the same: a “rug pull”, which is a term well-known in the crypto world. Around $3 billion was lost as a result of “rug pulling” in 2021.
These recent frauds highlight not only how errant developers can exploit exposed investors, but also how investors may be leaving themselves open to such ploys. In this article, we explore what a rug pull is, what red flags investors ought to be alert to, and how – if such an investment goes wrong – investors can seek to obtain compensation.
What is a “rug pull”?
The term “rug pull” refers to unknowing investors “having the rug pulled from underneath them” by the creators or developers of a cryptocurrency. This can take a number of forms, but the most common type of rug pull is the liquidity scam, which most commonly takes place on decentralised exchanges (DEXs). These are run by consensus with numerous machines working together as one network, rather than on a centralised exchange (CEX), which is privately owned by one central party.
On a DEX,…
