Overview
Rug pulls are a common scam in the DeFi space. They typically happen when developers create a new token, hype it up to attract investors, and then suddenly drain all the liquidity from the trading pool, leaving investors with worthless tokens.
Types of Rug Pulls
- Liquidity Stealing: Developers withdraw all the 'backing' assets (like ETH or BNB) from the DEX pool.
- Limiting Sell Orders: Developers code the smart contract so that only they can sell the token (a 'honeypot').
- Dumping: Developers suddenly sell their large allocation of tokens, crashing the price to zero.
Prevention
Look for projects with locked liquidity, audited smart contracts, and reputable teams.