Rug Pull
A rug pull is a type of fraud in which developers, often within the world of cryptocurrency or DeFi, create a token, heavily market said token, and then turn around and suddenly abandon the project or drain the liquidity from the project, leaving investors with worthless assets. It is an especially prevalent scam when dealing with any new projects that are not very transparent or regulated.
The rug pull tends to happen on DEXs, where developers can easily create tokens with very little oversight. Most rug pulls start with a token creation and an aggressive marketing campaign to entice investors through sometimes fraudulent promises of high returns or influencers' endorsements. Once the token value rises as a result of investor interest, the developers either remove the liquidity they provided, making it impossible for investors to sell their tokens, or sell off their large holdings and cause the token's price to crash. This leaves the investors with huge losses while the developers make away with the profits.
In the main, there are two types of rug pulls: liquidity pull, whereby developers siphon liquidity from a DEX, and token dumping, whereby they offload large amounts of pre-mined tokens and watch the price tank. Rug pulls underline the importance of caution, deep research in case one intends to commit to a new cryptocurrency project since these scams play on speculation in the crypto market and its unregulated environment.
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VEIGO (Community Mod)
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