Rug Pull eyewash: How to Identify and Prevent Crypto Assets Investment Traps

In recent years, with the rise of Crypto Assets investment, fraudulent cases have also shown an upward trend. Among them, Rug Pull has become a common type of eyewash. According to statistics, the losses caused by Rug Pull scams reached as high as $2.8 billion in 2021, accounting for 37% of the total income from Crypto Assets fraud that year. In April 2023, the DeFi industry once again encountered a Rug Pull, resulting in losses of over $6.2 million, involving 32 projects.

Definition and Types of Rug Pull

Rug Pull is a type of Crypto Assets eyewash, primarily manifested by developers suddenly withdrawing from the liquidity pool or exploiting vulnerabilities to abscond with investors' funds. It mainly includes three types:

1. Liquidity theft: Developers withdraw all tokens from the liquidity pool, causing the value of investors' assets to drop to zero.

2. Restricted Sell Orders: Developers use code restrictions to make themselves the only party able to sell the tokens.

3. Dumping: Developers quickly sell off a large amount of tokens, driving down the price and leaving worthless tokens for other investors.

How to Identify Rug Pull Risks

Investors should be wary of the following signs:

1. Unknown or anonymous development team
2. Lack of liquidity locking
3. There are restrictions on sell orders
4. Token holders are limited but the price soars.
5. Suspicious high return promises
6. Lack of third-party auditing

Measures to Prevent Rug Pulls

To reduce the risk of encountering a Rug Pull, investors can take the following measures:

1. Confirm whether the project is open source and has undergone strict auditing.
2. Check for security guarantees and emergency measures
3. Assess whether the project permissions are overly centralized
4. Verify whether the token issuance situation is consistent with the white paper.
5. Track the token issuance address and time

The Importance of Due Diligence

Before investing in any crypto assets, it is crucial to conduct thorough due diligence:

1. Verify the background and track record of the project team.
2. Carefully read the project white paper and other related materials
3. Check if the smart contract has been audited by a trusted third party.
4. Be wary of excessive hype and marketing tactics that create a sense of urgency.

Conclusion

Rug Pull has become a major hidden danger in the Crypto Assets field, causing huge losses. Investors should raise their vigilance, learn to identify risk signals, and conduct thorough due diligence. At the same time, the entire industry needs to work together to establish a more complete regulatory and preventive mechanism to protect investors' interests and promote the healthy development of the Crypto Assets market.