Will Rug Pulls Ever Cease In Crypto?
You could have a rough sense of what a ‘Rug Pull’ entails if you consider the term itself. Imagine if you were standing on a rug or carpet and it suddenly shifted out of your way. Cryptocurrency rug pulling is a theft method in which the creators of a crypto project take all of the liquidity from their project, making the coin useless and leaving investors’ hearts broken to million pieces.
It’s a mystery to me. Using a decentralized exchange, the fraudsters establish their own digital currency called a token. Anyone may generate tokens and list them on the exchange without going through KYC because of the exchange’s decentralized nature. As a result, in the Decentralized Finance ecosystem, it is common for people to pull the rug out from under others.
After the token is listed, they use social media hype to make big promises about what their project can do. Unwary investors put their faith in them and begin investing. Once the fraudsters have amassed sufficient funds, they drain the liquidity pools and bring the value of the crypto asset to an all-time low. As a result, investors have had their money stolen from them.
There must be an amount of the currency held in a liquidity pool in order for investors to purchase and sell a cryptocurrency. In most documented rug pulls, the scam token and a legal cryptocurrency, like Ether, were used to form a liquidity pool.