A total of $7.21B has been lost to hacks and rug pull in #DeFi
Here is everything you need to know about rug pull and its signs🧵
Rug pool is a common kind of crypto scam where developers or individuals intentionally manipulate the price of a token or coin in order to deceive investors and make sudden profit at their expense.
Rug pools often take place on DEXes where there are fewer regulatory safeguards in place to protect investors.
There are two forms of rug pool
▪️HARD RUG POOL
A hard rug pull is a form of rug pool in which the developers deliberately program the code of their token so that they can steal all of the invested funds.
It's as if they've built a trap door into the token's code that they can open at any time to take investor's funds.
▪️SOFT RUG POOL
A soft rug pull is a form of rug pool in which the developers abandon the project and take investors’ funds.
Types of Rug Pool
There are three main types of rug pool
▪️Liquidity stealing is a type of rug-pull where the token creator withdraws all the coins from the liquidity pool
This removes the value that investors added causing the price of the token to crash drastically
Liquidity stealing is common in Defi
Sometimes this is not done by the developer or team
It could be an attack or hack, the attacker would drain the liquidity in the liquidity pool, I will be sharing the solution to this at the end of the thread
▪️Limiting sell orders is a type of rug poll in which developers code the token in such a way that they would be the only party that could sell them
Developers wait for retail investors to buy into their new crypto using paired currencies. Paired currencies are two currencies that are used for trading. After there's enough positive price action, the developers sell their positions and leave a worthless token in their wake.
▪️Dumping is a type of rug pool where the token creator and team quickly sell their own large supply of the tokens, which will lead to the token crash in price and this also leaves the remaining investors with worthless tokens
Most times dumping is done after a massive promotion on social media
This cycle of a quick price spike followed by a rapid sell-off is known as a Pump-and-Dump Scheme.
▪️Signs and signals of a potential rug pool
1/Lack of transparency in project details/anonymous creator
Most of the time rug pulls are done by projects with unknown owners/anonymous developers because nobody will hold them accountable if anything goes left
Meanwhile, the owner of the first Crypto $BTC , Satoshi Nakamoto hid his identity
2/ Sudden skyrocket in token price
This can be a sign of pump before dump
Be cautious of sudden price spikes in new coins,
Especially if there is no liquidity locked. Small numbers of coin holders also indicate a higher risk of price manipulation.
3/ Limit on sell order
Always purchase a small amount of the token first.
A token creator can decide to restrict the selling ability of certain investors
Selling restrictions are hard to notice unless you buy the token
4/ No TVL
Investors should take TVL into consideration before investing
Without some liquidity-locked, The project creator could easily run off with the entire liquidity in the pool
Always DYOR before investing
