A cryptographic rug pull is a scam where developers promote a new digital token and attract investments, then suddenly abandon the project, cash out their tokens, and leave investors with worthless assets, effectively pulling the rug out from under them. These fraudsters use social media to create hype, often manipulating the code so that users cannot sell their tokens, resulting in massive financial losses for investors and harming the reputation of the cryptocurrency market.
How Rug Pulls work:
Promotion: Developers create a new token, often using influencers, and promote it on social media (Twitter, Telegram) to create buzz and attract buyers. Sometimes, they hack a celebrity's social account to promote their token (that's what happened last week with CZ's wife's WeChat account).
1. Liquidity Pool: They create a "liquidity pool" on a decentralized exchange (DEX), allowing people to buy the token with other cryptocurrencies (like ETH or BNB).
2. Price Pump: As more and more investors buy, the token price skyrockets.
3. The Pull: The creators then sell their massive holdings or drain all liquidity from the pool, causing the price to instantly collapse to near zero.
4. Disappearance: Developers disappear, leaving investors unable to sell their tokens and with significant losses.
5. Types of Rug Pulls:
Liquidity Drain: Developers extract all valuable cryptocurrencies (like ETH) from the liquidity pool, leaving the token worthless.
1. Code Manipulation: They modify the token's code (for example, the approval function) to prevent users from selling their tokens, even as the developers cash out.
2. Warning signs:
Unrealistic promises or lack of a clear white paper.
1. Anonymous development team.
2. Low transaction volume or liquidity. 3. Extreme hype on social media with fake accounts.
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