Know Rug Pull, a Crypto Fraud Mode that Investors Need to Beware of

Illustration of crypto fraud (photo: Ajaib)

JAKARTA - Rug pull is one of the most dangerous fraud methods in the crypto world, where project developers suddenly disappear after withdrawing investor funds, leaving digital assets that are no longer valuable.

Usually, this type of fraud occurs on DeFi (Decentralized Finance) based projects or new tokens that do not have a clear credibility. However, Reku notes that not all rug pulls happen in the same way.

The most common types of rug pulls found are:

Liquidity Rug Pull

In this type, developers create a token, raise funds from the public, and provide initial liquidity on platforms such as DEX (decentralized exchange). After enough investor funds have entered, they withdraw all liquidity and make the token no longer sellable.

Indonesian: Limiting Sell Function

In this type, the developer inserts code in the smart contract that makes only them able to sell tokens. Investors can buy tokens, but cannot sell them back.

Dumping After Pumping

This usually happens when project teams or influencers promote a large token to raise prices (pump). After the price is high and many investors enter, they immediately sell a large number of tokens (dump), making the price plummet and harming other investors.

Although it is not always easy to recognize, Reku lists several danger signs that can be indicators that a project has the potential to perform a rug pull:

Developer team anonymity. If there is no clear information about who the team behind the project is, you should be suspicious. No smart contract audit. Un-audited projects are more prone to inserting malicious code. Unreasonable rewards or returns. Promises of high returns in a short time are often a trap. Tokens cannot be sold. If tokens can only be bought but cannot be sold on a DEX platform, it is a sign of great danger. Liquidity is locked too short or not locked at all. Liquidity that can be withdrawn at any time gives a great opportunity for a rug pull.