What is a Rug Pull in Crypto (And How to Avoid One)
What is a “Rug Pull” and How Does It Affect Crypto Markets?
A “Rug Pull” is like a mini-crash in the crypto markets. It’s sudden and unexpected. When this happens, many investors are left scratching their heads wondering why it happened. A rug pull will inevitably lead to some unfortunate consequences but if you can avoid them, then these events can be relatively harmless.
One of the most common causes of a rug pull is when there is an event that triggers fear in investors and causes them to sell off their assets in order to take profits before they get too far down the line.
The market pulls back due to some news or event that makes people feel uneasy about investing in cryptocurrency.
If it sounds too good to be true, chances are it is not true.
The best way to avoid this type of scams is by learning about similar scams and then making sure that your personal data has not been compromised.
Crypto rug pull is a term that refers to the phenomenon of cryptocurrency investors losing money on initial investments due to unexpected price fluctuations.
While it may seem like a small risk, crypto rug pulling can be avoided if you stay up-to-date and educate yourself about your investments and strategies.
The rug pull is a term that describes when someone, usually an individual, pulls the rug out from under the feet of people who are mostly unaware of what’s happening.
A crypto rug pull can be easily avoided by following these general steps:
raised USD 90m in a funding round that valued it at USD 800m. The company plans to use the proceeds to develop new offerings, including yield-generating products and asset management solutions for institutional clients.
A selection of this week’s more interesting vulnerability disclosures and cyber security news. For a daily selection see our twitter feed at #ionCube24. What a start to 2022…. I happened to be on Twitter New Year’s Day and spotted a flurry of tweets about MS Exchange.
Digging deeper it looks like a lot were firefighting a serious bug:
- Microsoft releases emergency fix for Exchange year 2022 bug
Similar appears to have happened to a couple of car’s systems, though they claim its not the same issue and will self correct in August. Bizarre:
- Honda, Acura cars hit by Y2K22 bug that rolls back clocks to 2002
Yet another dodgy crypto currency platform…
- Crypto platform ARBIX flagged as a rugpull, transfers $10 million
I personally feel feel for these poor souls. Lots of research lost and a backup system rendered dead.
This phenomenon has been seen across all cryptocurrencies and has affected major markets across the globe.
When it comes to the defi markets, the rug pulling has been responsible for $110 million in losses as of August 2021.
Types of rug pulls
A liquidity scam is a type of fraud where the perpetrators sell securities on the promise of liquidity and then fail to deliver, leaving investors stranded with worthless shares.
Liquidity scams are crypto-related and usually present themselves in the form of airdrops or initial coin offerings (ICOs) that advertise that certain cryptocurrencies will be listed on a specific exchange.
Privileged functionalities appear in the identified smart contracts.
The team is looking into it.
DO NOT interact with the project! pic.twitter.com/MhxN92jZH8
— CertiK Security Leaderboard (@certikorg) January 4, 2022
The operators of Arbix also moved $10 million in funds deposited by users to “unverified pools,” where they were converted to Ethereum.
The scammers then transferred the Ethereum to Tornado.cash, which acts as a mixer to make it harder to trace the funds.
“Tornado Cash improves transaction privacy by breaking the on-chain link between source and destination addresses. It uses a smart contract that accepts ETH deposits that can be withdrawn by a different address,” explains Tornado.cash’s frequently asked questions page.
“To preserve privacy a relayer can be used to withdraw to an address with no ETH balance.
This happen because decentralized networks are essentially unreliable, entities like CertiK try to evaluate them through audits that scan a token’s smart contracts for signs of privacy problems, fraud, vulnerabilities etc.
In Arbix’s case, CertiK’s conducted an audit on 19th November 2021, the findings of which had initially been reasons for users to trust on Arbix Finance.
However, CertiK tweeted that Arbix is now classified as rugpull only after the token’s smart contract was detected minting 10 million ARBIX to addresses under the owner’s control and then dumping them for Ethereum.
Arbix operator also transferred $10 million in funds deposited by users to “unverified pools” where such funds converted to Ethereum.
A large number means that they have more control over the market cost of the token, which could be a worry of a potential rug pull. Note, however, that there are relatively few holders of these tokens, which means there is not a decentralisation of the token, again a red flag
- Check the history of the developers
Check out if they have any past developments what did they create, how did they do? What are their credentials, a lot of times these rug pulls are small low cap coins, which have been hyped.
- Take a look at the project’s code carefully
All decent projects, the source code can easily be found.
But research is an important tool. Look at the people behind the cryptocurrency. What experience do they have? What other projects have they been involved in? Read the crypto’s whitepaper to understand what problem it plans to solve and how it will do it. Think about how many people the crypto might reach and what real-world value it has.
It’s also good to look on sites like Token Sniffer or Coinopsy to see if the coin is flagged there.
Most of all, try not to see crypto as a get-rich-quick scheme. Invest for the long term and think about projects that have real staying power.
- The security concern is what holds institutional investors back from investing in crypto and digital assets, found a survey, as Bloomberg reported. 79% of the respondents see asset custody as the key consideration whether to invest in this space. The report was commissioned by Nickel Digital Asset Management, and involved interviews with 50 wealth managers and 50 institutional investors – who collectively manage around USD 108.4bn – across the US, the UK, Germany, France, and the United Arab Emirates.
- Legendary hedge fund manager Ray Dalio stated in an interview with The Investors Podcast that he agrees with fellow billionaire Bill Miller’s suggestion that 1%–2% is the right allocation for bitcoin (BTC).
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Here’s where SQUID checked a lot of boxes.
SMBs) to new countries in Latin America, the company added.
- An official from the Thai Finance Ministry stated that profits from crypto trading are now subject to a 15% capital gains tax, Bangkok Post reported. The ministry recommends investors identify their income from cryptocurrencies when filing tax this year to avoid legal penalties.
- The Central Bank of Bahrainannounced the completion of a test with Onyx by banking giant’s JPMorgan’s JPM Coin System, which allowed aluminum smelter Aluminium Bahrain (ALBA) to initiate real-time payments to their US-based counterparties.
- The top request users made of Airbnb CEO Brian Chesky was to enable cryptocurrency payments on the platform.