A rug pull is when a person working on a cryptocurrency project abandons it and takes the investors’ money with them. This usually happens in the decentralized finance ecosystem, especially on decentralized exchanges, where someone creates a new token and lists it on a DEX, then pairs it with a popular cryptocurrency like Ethereum.
When a lot of people start investing in a token, the people who created the token may take all the money out of the “liquidity pool.” This can make the price of the token go down to nothing. The creators may also create a lot of hype around their project to get more people to invest, and they may initially put in a lot of money to make it look like it’s successful.
Rug pulls thrive on decentralized exchanges because they allow users to list tokens without an audit, unlike centralized cryptocurrency exchanges. Furthermore, creating Ethereum-based smart contracts is simple and free. These two aspects are exploited by malicious attackers.
Decentralized exchanges, such as Uniswap, automatically set the prices of tokens in a pool depending on how much of the token is available. You can check the liquidity of a pool to make sure you don’t get tricked. However, this is only the first step. You must also check if there is a lock on the token’s pool. Most reputable projects lock pooled liquidity for a certain period.
When a coin suddenly skyrockets in price within hours, this is called a ‘rug pull.’ This is done to create fear of missing out (FOMO) in order to get more people to invest in the token.
In order for a project to be deemed “unruggable,” it must not have a large number of tokens assisted by the development crew. A project may be considered unruggable if there aren’t enough team-held tokens available to pull off an exit scam or rug pull.
If the team relinquishes its ownership of any tokens, such as those it would have received during a presale, it’s considered an unruggable mission.
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