Rugpulls! An Increasing Danger Within Cryptocurrency
Rugpulls! An Increasing Danger Within Cryptocurrency
Rugpulls! An Increasing Danger Within Cryptocurrency
Rugpull. A word that sends shivers down the spine of cryptocurrency investors worldwide; a quick search engine or Twitter hashtag search will tell a revealing story. They are on the rise, and seemingly lurking around every corner, especially within the BINANCE Smart Chain (BSC) network.
What is a Rugpull?
Simply put, a Rugpull is an event where the liquidity of an asset is suddenly taken away by the cryptocurrency developers, leaving the remaining holders with cryptocurrency that is essentially worthless as the liquidity pool in which to trade it has been taken away; the price drops sharply and irreversibly, and investors’ funds are lost. The term Rugpull comes from the metaphorical rug being pulled from under an investor’s feet.
How does a Rugpull happen?
There are several ways in which developers can perform a Rugpull; From the simple act of distributing an abundance of tokens to their personal control and selling these to drain the liquidity, to creating an elaborate ‘backdoor’ in the coding of the cryptocurrency itself.
Typical red flags would be an unlocked Liquidity Pool, large token movements outside of an exchange and a lack of a smart contract audit being performed.
How much is being lost through Rugpulls?
Respected Cryptocurrency research companyChainalysisreported that in 2021 Rugpulls accounted for 37% of all revenue taken by scammers, coming in at a eye-watering $2.8 Billion.
In the standout and most widely reported Rugpull of 2021 Squid Game) fleeced innocent investors of over $3 Million.
When reporting about Cryptocurrency and the rise of scams occurring, it can be easy to become numb to the true scale of the numbers being reported, but it is clear to see that Rugpulls are a blight on the Cryptocurrency ecosystem; decimating trust and creating an aura of illegitimacy around even the most secure and honest projects.
Creating a basic Cryptocurrency token is relatively easy and very cheap. A browse on Fivver.com will show an abundance of ‘Developers’ shilling their wares for as little as ?12. This low barrier to entry, along with the potential funds a malicious fraudster could walk away with, will mean that Rugpulls are unfortunately here to stay. Through increased education, thorough due diligence and improving DYOR tools such as Verify Lens, investors will be armed with the tools to spot these potential Rugpulls; Avoiding investment and starving the scammers of funds will be the only way to fight back in a decentralised and increasingly shady Cryptospace.
