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The unregulated nature of the crypto space has spawned a wide range of scams, one of which is the rug pull scam. Rug pulls are a type of crypto scam where project developers attract investors with the promises of huge returns on a lucrative new crypto or NFT project, only to abandon the initiative abruptly, disappearing with the investors’ funds in thin air.

This nefarious scheme has seen an alarming rise in recent years, resulting in staggering financial losses for unsuspecting investors. 

This nefarious tactic has seen an alarming rise in recent years, resulting in staggering financial losses for unsuspecting victims. Chainalysis reports that in 2021, rug pulls accounted for a staggering $2.8 billion, or 37% of all cryptocurrency scam revenue that year.

As blockchain technology and digital assets see increased growth and mainstream adoption, expanding the NFT market and decentralized finance (DeFi) ecosystems, malicious actors are becoming more active in exploiting vulnerabilities and defrauding investors through rug pulls.

Rug pull scams can have devastating consequences. Stories about individuals losing their life savings to rug pulls, leaving them with worthless assets and shattered dreams. The anonymity and lack of regulation in the crypto space only exacerbate the risks, making it crucial for potential investors to exercise extreme caution and conduct thorough research before investing their hard-earned money.

In this article, we’ll delve into the intricacies of rug-pull crypto scams, dissecting their methods, exploring some real-world cases, and providing actionable steps to safeguard your investments.

What is a Rug Pull Crypto Scam?

What is a Rug Pull Crypto Scam?

At their very core, rug-pull crypto scams are devious schemes orchestrated by dishonest project developers in the cryptocurrency and NFT space. Their methods involve luring in unsuspecting investors through aggressive marketing campaigns, hyping up a new crypto project or NFT collection with elaborate promises of lucrative returns or exclusive benefits.

Once they gather a substantial amount of investor funds, the rug pull scam unfolds in one of two ways: a hard rug pull or a soft rug pull.

Hard Rug Pulls: Malicious from the Start

In a hard rug pull, the project developers initiate the project with malicious intent, deliberately coding nefarious backdoors into the project’s smart contracts. These backdoors enable bad actors to exploit the system and steal investors’ funds at an opportune moment. Once the rug pull is executed, the developers disappear with the stolen funds, leaving their victims with worthless assets.

Soft Rug Pulls: The Long Con

Soft rug pulls, on the other hand, are more insidious and play out over an extended period. In these scams, the project developers initially present a facade of legitimacy, allowing the project to gain traction and attract a dedicated community of investors.

However, after gathering significant investor money, the core development team starts executing their exit strategy. This often involves rapidly selling off their own share of the project’s tokens or NFTs, causing a massive price crash and rendering the assets virtually worthless.

Regardless of the method, both types of rug pulls result in investor losses.

Notable Rug Pull Incidents

The crypto world has witnessed many high-profile rug-pull scams, each with a trail of devastation and lost investor funds in its wake. Some of the most notorious rug pull incidents include:

    • Theodex (2021): In one of crypto's largest rug pulls, Turkish exchange Thodex abruptly shut down its operations in April 2021, trapping an estimated $2-10 billion from 391,000 investors. Days before the shutdown, Theodex offered 150 Dogecoin to every new signup, luring in new funds.
    • Frosties NFT (2022): Another case that garnered significant attention was Frosties, an NFT project that raised $1.1 million from investors and abruptly shut down, transferring the funds to the founders’ personal wallets. The U.S. Department of Justice charged the founders of the Frosties NFT project with conspiracy to commit wire fraud and money laundering.
    • Evolved Apes NFT (2021): An anonymous team of developers known as Evil Ape came up with a falsely advertised NFT collection called the Evolved Apes. This bogus NFT project consisted of 10,000 avatars that were supposed to be part of a fighting game. However, the game was never developed, the founders took off with $2.7 million of investors’ money, while the NFTs can still be found in circulation on OpenSea, an NFT marketplace.
    • AnubisDAO (2021): Another huge rug pull scheme was the AnubisDAO project, defrauding investors of about $60 million. The developers proposed a decentralized currency backed by a collection of assets. After receiving overwhelmingly positive support from investors, the developers drained $60 million from the liquidity pool just 20 hours into the launch, disappearing without a trace.

DeFi100 Rug Pull

    • DeFi100 (2020): The DeFi100 project was one of the most audacious rug pulls in the decentralized finance (DeFi) space. It was launched in 2020 with promises of being an audited, community-driven DeFi incubator fund. DeFi100 managed to raise over $32 million from investors. However, just hours after the token generation event (TGE) ended, the anonymous developers drained the liquidity pool of all funds, leaving a tasteless message for the investors.

Later investigations found that the developers attempted to transfer the stolen Ethereum to the Tornado cash mixer. Despite claiming robust smart contract audits, DeFi100’s code contained backdoors allowing rug pull theft.

The Anatomy of Rug Pull Crypto Scams