Whether you’re familiar with Crypto or not you may have heard the term “rug-pull”, this term was first used in the 1930s and pretty much means the same thing today.  To have the rug pulled out from beneath you means to be surprised with new unpleasant information, to have support withdrawn, or in a crypto sense, to be scammed.
What are “rug-pulls”?
Typically a rug pull consists of three phases:
- A facade is established, something to make the project appear credible from the outside. This could be an array of blockchain-related offerings, a new token, an NFT launch, a metaverse community, anything can be rug-pulled.
- After the facade has been established the founders go to work spreading the word about their new project, some get as far as getting celebrities and influencers to buy in and endorse them.
- The project is totally abandoned and the founders remove all liquidity. This is the moment a lot of us have experienced, we just invested money, assets, or possibly time into a project and it disappears. *poof* The twitter with “daily” roadmap updates? Gone. The website you minted on? Gone. The listing from Opensea? De-activated. It happens all too often.
So, that’s the typical life span of a rug-pull, now here are my tips on avoiding them:
- Invest in reputable, transparently backed projects. For example, this could be an NFT launch by your favorite IRL artist, TV series, or sports team.
- Truly believe in what you’re investing in, don’t buy in purely on hype.
- Look for projects that have actual utility, is this blockchain project solving a problem or pain point you’re familiar with and relate to?
- If you don’t fully understand what’s so great about the project don’t buy-in. Do extensive research and look for competing projects. What is it about this project that will make it successful?
- For NFTs specifically?
- If they promote heavily using retweet giveaways, promo for promo, or demand driving bot-filled Twitter pages, stay away.
- If the discord community isn’t active stay away.
- If the social media pages don’t have real community engagement, stay away. That means pages with 100k followers and 20 likes on their posts.
I’d also like to share a first-hand experience, I was rug-pulled in October 2021 by Rangers NFT. Before this time I had only heard of rug-pulls but never thought I would fall victim to one. I have been active in Crypto since 2016 when I first began investing in Bitcoin, but this was my first experience minting my own NFT. Until this day I had only purchased NFT’s second-hand on Opensea, Solsea, and other platforms. When everyone who was in the discord realized it had been deleted after we all minted we took to Twitter, this is where we realized their Twitter and the website were gone as well. Looking back I realize the warning signs were there, but I wasn’t aware they were warning signs. The biggest warning sign of all? The lack of community. While there was an active Discord community of maybe 100 people, it was driven purely on Nostalgia. We all loved Power Rangers and thought this had significant future potential with other nostalgic fans.
The NFT I minted:
The response on Twitter:
Additionally, to add to this piece I got advice from a fellow industry professional, Maren Altman.
I asked her two questions:
Have you ever been rug-pulled? If yes, can you share the details of the experience and how you would avoid it in the future?
“I have been rug pulled before, both in crypto in general and in NFT’s. I’ve been rugged far more times in crypto, given the ability to rip liquidity out from underneath projects is much easier for a project holding a treasury. It hasn’t happened many times, but I have had a handful of smallcap shitcoin trades end up being rugs that steal investor funds. I don’t like to call misleading or sketchy situations flat-out rug pulls because they aren’t exactly stealing funds directly. However, I have had issues with a dozen or so of what I’d call foul play projects in the space, where I’m unable to sell because of intentional lack of exit liquidity, or intentionally misleading claims in the roadmap that are never acted upon once the project is released.
In NFT’s I was very publicly rugged on a project named Sol Bears. I felt pretty stupid. I thought I’d finally buy the major rares of a collection and flip them for a huge profit. Instead, the project ended up being a cash grab with no utility, which was made clear when the project immediately announced they’d be raising more money to create another NFT project right after. The NFT prices crashed, and I had no buyers for my rare NFT’s I spend mid-five figures on. I now hold them as battle scars.
For both, experience has led me to only invest in things I have the passion to learn more about. I don’t care for most NFT’s, so I don’t invest or trade in them much. I just buy what I like. In DeFi, I do not enter projects promising huge returns if I cannot understand where those returns come from.
What advice would you give to those new to the blockchain world (NFT, Crypto, Defi, Metaverse, etc) to avoid being rug-pulled?
“Firstly, it will happen to everyone to varying degrees, whether it’s their own fault for falling for a clear scam, or it’s a large-scale exploit of a legitimate project (which I’ve never actually had happen to me). Mostly, don’t engage with financial decisions that you do not understand. Do not enter a DeFi protocol promising 888888% APY (unless you’re experienced in the space and aware it’s a scam and plan on exiting quickly) thinking it’s safe or legit. Do not send someone money in order to receive more back from them later. Stupid shit like that is the most common kind of rug, and it mostly will apply to new people into the space. Common sense will save you from 90%.” ~ Maren
The real question is… do these malicious individuals devise a plan to rug-pull from day one knowingly pulling in unsuspecting victims, or do they decide one day they no longer believe in the success of their project and just run with the money they’ve made so far? The answer to this question will vary from scam to scam. Regardless of the reason, my hope is that with this blog, those new to crypto can avoid being rug-pulled like many of us have been before.
I don’t my advice to be the only opinion you have though, so if you’re still curious about rug-pulls check out these resources:
DeFi ‘Rug Pull’ Scams Pulled In $2.8B This Year: Chainalysis: https://www.coindesk.com/markets/2021/12/17/defi-rug-pull-scams-pulled-in-28b-this-year-chainalysis/
Famous crypto rugpulls and how they happened, Reddit Thread:
 Maren Altman, written communication, March 2022