What is a rug pull in cryptocurrencies and how to detect it?

Imagine you are at a party where there is a fascinating game. Everyone is having fun and the prizes are enormous. You decide to participate, put your money in, and just when you are about to win… the organizer disappears with all the money. This is exactly the feeling we experience with the infamous “rug pulls” in the crypto world.

In the DeFi universe, where regulation is conspicuously absent, these scams are an everyday occurrence. A group of clever individuals creates hype around a project, attracting investors like flies to honey, and when the enthusiasm peaks, they sell everything and vanish. Investors are left stunned, with worthless tokens and empty wallets.

Warning signs you should know

I have fallen into some of these traps and I can tell you that learning to identify them is crucial. These are the red flags that I no longer ignore:

Anonymous or unknown developers: Who is behind the project? If they have no history in the industry or use false identities, run.

Lack of liquidity lock: If creators can withdraw all funds at will, you are in danger. A lock of 3-5 years is the minimum acceptable.

Restrictions for selling: Try buying a small amount and attempt to sell it immediately. If you can't, run away.

Suspicious price fluctuations: Sharp movements with few holders is a bad sign. Use block explorers to verify token distribution.

Unreal returns: When they promise three-digit APYs without logical explanation, it's probably a disguised Ponzi scheme.

No external audits: The lack of review by trusted third parties is concerning. Don't believe what the team says without verification.

Real cases that chilled my blood

OneCoin still seems fascinating to me because of its magnitude. Ruja Ignatova, the self-proclaimed “queen of cryptocurrencies,” set up a Ponzi scheme that stole billions before disappearing in 2017.

The Squid Game token was another disaster. Taking advantage of the series' popularity, they launched a P2E token that skyrocketed… until the developers sold everything and the price fell to zero.

AnubisDAO impacted me especially: they raised $60 million in hours and then vanished, deleting accounts and the website. The community was devastated.

How this scam works

It's like a vendor who sets up a spectacular stall in a market, takes pre-orders at inflated prices, and then disappears with the money. Scammers use various techniques: inserting malicious code into smart contracts, executing massive dumps that wreck the value, or restricting sales to everyone except themselves.

Legal Aspects

Although these frauds are illegal in most jurisdictions, the decentralized and anonymous nature of cryptocurrencies complicates prosecution. The EU has introduced MiCA to regulate the market, but victims still have limited options when they fall into these traps.

The next time you see a project promising the moon, remember: if it sounds too good to be true, it probably is. I learned the hard way, I hope you don't have to.