A rug pull is a common scam in the cryptocurrency world, and it occurs when the developers of a project suddenly abandon it and disappear with investors’ money. It typically happens in decentralized finance (DeFi) or Initial Coin Offerings (ICO), where the creators launch a new cryptocurrency or token and make it look promising. Here’s how a rug pull generally works:
- Creation of the Token: Scammers launch a cryptocurrency or token, often with an exciting name or promise, to attract investors. They usually make it look legitimate by creating a website, social media accounts, and even fake endorsements.
- Building Hype: Through aggressive marketing tactics, including fake partnerships or exaggerated claims, they create a buzz around the token, encouraging people to buy in quickly.
- Pump and Dump: Once enough people invest and the token’s value rises, the developers sell off their own holdings. This sudden selling pushes the price of the token down, and the value crashes.
- The Exit: After the rug pull, the developers disappear, leaving the investors with worthless tokens and nothing to show for their investment.
Rug pulls are a major risk in the crypto world, so it’s important for investors to do thorough research, avoid FOMO (fear of missing out), and invest only in trusted and well-established projects.