Common Tactics Used in Crypto Rug Pulls in 2024
Introduction
Rug pulls continue to be a significant threat in the cryptocurrency landscape, causing substantial financial losses and eroding trust in the market. In 2024, these scams have become more sophisticated, exploiting the decentralized nature of blockchain technology to deceive investors. This article explores the most common tactics used in crypto rug pulls this year, helping investors recognize and avoid these fraudulent schemes.
1. Liquidity Pulls
Liquidity pulls are the most prevalent form of rug pulls in 2024. In this tactic, the developers of a new token list it on a decentralized exchange (DEX) and pair it with a well-known cryptocurrency like Ethereum (ETH). They then hype the token through social media and other channels to attract investments. Once the token's value peaks, the developers withdraw all the ETH from the liquidity pool, leaving investors with worthless tokens.
"A fraudulent developer will list a new token on a DEX, paired with a well-known crypto like ETH. They'll hype the new token and attract more investment into the liquidity pool. Once the token reaches a new high, the developer will withdraw all the ETH from the liquidity pool, leaving the other investors high and dry" [1].
2. Dumping Rug Pulls
Dumping rug pulls involve the creators withholding a large portion of the token's circulating supply. As the token's price rises due to investor interest, the creators suddenly sell off their holdings, causing the token's value to plummet. This tactic is also known as a pump-and-dump scheme.
"A dumping rug pull occurs when the creators of the token withhold a large amount of the circulating supply. Once the price of the token peaks, the creators quickly sell off their supply of tokens, the price of the token plummets, and investors are left with worthless tokens" [1].
3. Limiting Sell Orders
Limiting sell orders is a more technical form of rug pull where the developers code the token so that only they can sell it. Investors can buy the token, but when they try to sell, they find that their transactions are blocked. Once the token reaches a peak price, the developers dump their tokens, and the remaining tokens become worthless.
"In this situation, the developer of the new token codes the tokens so they're the only party able to sell. Once the token reaches a peak, they'll dump their tokens and the remaining tokens become worthless" [1].
4. Flash Loan Attacks
Flash loan attacks exploit the mechanics of decentralized finance (DeFi) platforms. Attackers take out a flash loan, manipulate the token's price through various means, and then repay the loan within the same transaction. This manipulation often leads to significant price drops, allowing the attackers to profit at the expense of other investors.
5. Fake Partnerships and Endorsements
Scammers often create fake partnerships and endorsements to lend credibility to their projects. They may claim endorsements from well-known figures or partnerships with reputable companies to attract investors. Once enough funds are raised, the scammers disappear, leaving investors with worthless tokens.
6. Fake Airdrops and Giveaways
Fake airdrops and giveaways are used to lure investors into providing personal information or investing in a scam token. Scammers promise free tokens or rewards in exchange for small investments or personal details, which they then use to execute further fraudulent activities.
7. One-Day Rug Pulls
One-day rug pulls involve creating a token, generating hype, and then disappearing within 24 hours. These flash-in-the-pan tokens are designed to attract quick investments and then vanish, leaving investors with nothing.
"A particularly insidious form involves tokens that live for less than a day, often referred to as 1-day rug pulls. These flash-in-the-pan tokens are minted, hyped, and then disappear within 24 hours, leaving little more than a digital ghost town" [4].
8. Abandonware
In some cases, projects are abandoned when developers fail to meet key milestones or lose interest. This can lead to a sharp decline in the token's value as investors realize the project will not be completed.
Conclusion
Rug pulls remain a significant threat in the cryptocurrency market, with scammers employing various tactics to deceive investors. By understanding these common methods, investors can better protect themselves and make more informed decisions. Always conduct thorough research, be wary of projects with anonymous developers, and avoid investments that promise unrealistic returns. Staying vigilant is crucial in navigating the volatile and often risky world of cryptocurrency.
Citations:
[1] https://koinly.io/blog/crypto-rug-pulls-guide/
[2] https://ecos.am/blog/crypto-rug-pulls-what-are-they-how-to-avoid-them/
[3] https://cryptonews.com/cryptocurrency/rug-pull/
[4] https://bitquery.io/blog/crypto-rug-pulls-rise-fall-deep-dive
[5] https://www.coinbase.com/learn/tips-and-tutorials/what-is-a-rug-pull-and-how-to-avoid-it
[6] https://www.morpher.com/blog/crypto-rug-pulls
[7] https://www.securities.io/5-worst-rug-pulls-in-crypto/
[8] https://www.internationalaccountingbulletin.com/news/most-common-crypto-scams-in-2024-how-to-spot-them-and-protect-your-money/
