Unveiling the Rug Pull eyeglass in the Crypto Assets industry

Rug Pull is one of the most common eyewash techniques in the Crypto Assets industry. Although many cases have been exposed, there are still a large number of undiscovered potential scams. According to data analysis, there are at least 188,000 suspected Rug Pull projects on major blockchains such as Ethereum and BNB Chain.

Distribution of Rug Pull Projects

According to the data, about 12% of BEP-20 tokens on the BNB Chain exhibit fraud characteristics, while about 8% of ERC-20 tokens on Ethereum show signs of fraud. At the same time, approximately $910 million worth of ETH related to fraud has been traded through centralized or regulated Crypto Assets exchanges. Another report indicates that in October, a total of 11 DeFi protocols were attacked, affecting Crypto Assets worth $718 million, setting a record for the highest monthly Crypto Assets loss this year.

Some large blockchain ecosystems have become primary targets for scammers and hackers due to their massive scale, constantly updated features, and expanding user base. To address this issue, some platforms have begun integrating real-time risk monitoring tools to timely detect and alert users to potential Rug Pulls and other frauds.

Common Tactics of Rug Pull Projects

Rug Pull is also known as "fraudulent tokens" or "DeFi scams". These types of projects often have carefully designed code in their smart contracts aimed at stealing funds from ordinary investors. The code design typically includes the following aspects:

1. Prohibit secondary market trading
2. Allow project developers to mint new tokens without restrictions.
3. Charge the buyer a 100% sales fee

These malicious scripts are hidden in the token contracts, and once unsuspecting investors make a purchase, they face significant risks. In most cases, Rug Pull tokens appear to be no different from other normal Crypto Assets and also adhere to the blockchain's fungible token standards, but the real problem lies within the source code of the smart contracts.

With the development of the Crypto Assets industry, fraudsters have gradually mastered the underlying technology, allowing them to make extensive modifications to smart contracts. They often embed malicious rules directly into smart contracts, not only granting themselves additional powers but also depriving buyers of their basic rights.

The execution process of a Rug Pull usually includes the following steps:

1. Deploy one or more tokens with vulnerabilities
2. Create a liquidity pool on the decentralized exchange (DEX)
3. Establish trading pairs for the new token with other well-known Crypto Assets
4. Artificially creating a large number of transactions to inflate the value of the token
5. Attract ordinary investors to participate

In addition, Rug Pull projects may also adopt the following methods to disguise their legitimacy:

1. Create fake websites and project roadmaps
2. Promote false partnerships
3. Advertise on social media

When enough investors buy the tokens, the fraudster will quickly sell off the tokens and exchange them for ETH, USDT, and other Crypto Assets. This large-scale sell-off will cause the token price to plummet to zero, completing the entire Rug Pull eyewash.

Common Rug Pull Token Fraud Types

Currently, there are three main types of Rug Pulls in the market:

1. Honeypot vulnerability: Prevents token buyers from reselling, only allowing developers to sell. As of October 25, 2022, there are approximately 96,008 token projects with such vulnerabilities.

2. Private Token Creation Function: Allows specific accounts to mint new tokens without restrictions. As of October 25, 2022, approximately 40,569 token projects have this feature.

3. Balance Modification Backdoor: Allows specific accounts to modify the balance of token holders.

These malicious functions can prevent investors from selling or withdrawing funds, while fraudsters can freely manipulate the token supply or price.

Conclusion

With the increasing number of eyecatch schemes, investors need to be particularly cautious when selecting crypto projects and comprehensively assess potential fraud risks. At the same time, regulatory agencies should intensify their efforts to protect consumer rights. Only in this way can the integrity, transparency, and standards of consumer protection in the market be promoted.