Rug Pull eyeglass: Crypto Assets investors need to be vigilant about risks

In recent years, with the rise of Crypto Assets investment, related eyewash has also emerged one after another. Among them, Rug Pull has become a common scam method. According to statistics from data platforms, Rug Pull scams caused about $2.8 billion in losses in 2021, accounting for 37% of the total income from Crypto Assets scams that year. In April 2023, multiple Rug Pull incidents occurred again in the DeFi industry, resulting in investor losses exceeding $6.2 million, involving 32 projects.

BNBChain is the most severely affected public chain, with losses of about 4.5 million dollars, accounting for more than 73% of the total. Following that are Ethereum and Arbitrum, with losses of 1.05 million dollars and 182,000 dollars, respectively.

Definition and Types of Rug Pull

Rug Pull is a type of encryption eyewash, usually manifested as the project party suddenly withdrawing from the liquidity pool or exploiting vulnerabilities to abscond with investors' funds. It mainly includes three types:

1. Liquidity theft: Project parties withdraw all funds from the liquidity pool, causing the token value to drop to zero.

2. Restricted Sell Orders: The developer encodes the token to make themselves the only party able to sell. After the price rises, they sell off to make a profit, leaving behind worthless tokens.

3. Dumping: After developers promote vigorously, they quickly sell off a large number of tokens, causing the price to plummet.

Six Major Signs of Identifying Rug Pulls

1. Unknown or anonymous development team
2. Lack of liquidity lock
3. There are restrictions on sell orders
4. In the case of limited coin holders, the price skyrockets.
5. Suspicious high return promises
6. Unaudited by a third party

Additional Checks to Avoid Rug Pulls

In addition to paying attention to the above signs, investors should further check:

1. Is the contract code open source and has it undergone strict auditing?
2. Are there security guarantees and emergency measures?
3. Does the project team have the authority to transfer user funds?
4. Is the project authority highly centralized?
5. Is the token issuance consistent with the white paper?

Conduct Due Diligence

To avoid investment risks, investors should:

• Be cautious about project hype and do not follow blindly.
• Verify the background and track record of the project team
• Carefully read the project white paper and other materials
• Understand the details of the smart contract and confirm whether it has been audited by a reliable third party.

Conclusion

Rug Pull has become a serious problem in the Crypto Assets field, causing huge losses. Investors should remain vigilant, learn to identify risk signs, and conduct thorough research before investing. At the same time, all parties in the industry need to work together to strengthen regulation and enforcement, maintain market order, and protect investor rights. Only in this way can the healthy development of the Crypto Assets industry be promoted.