Rug pullls
Uncover the dark side of crypto: Learn how to spot and avoid the next rug pull before it's too late!
Last updated
Uncover the dark side of crypto: Learn how to spot and avoid the next rug pull before it's too late!
Last updated
A rug pull is a type of scam in the cryptocurrency and decentralized finance (DeFi) space where developers suddenly withdraw all funds from a project, leaving investors with worthless tokens.
The liquidity pool creator first provides liquidity for a token so that a token can be traded. And then, after other people or bots buy the token with a token that already has value (for example, with Wrapped Ethereum), he removes liquidity and runs away with tokens from the pool. The token is no longer tradable and becomes worthless. You left your Ethereum in the pool and now hold worthless tokens.
What is a common way for scammers to perform a rug pull?
Creating a New Token: The scammer creates a new token on the blockchain. Let's call this token "XYZ."
Providing Liquidity: The token's creator then provides liquidity to a decentralized exchange (DEX). They pair the new XYZ token with Wrapped Ethereum (WETH) in a liquidity pool. For example, they might add 1 WETH and a large number of XYZ tokens to the pool, making the token XYZ tradable.
Attracting Buyers: The creator then attracts buyers to purchase the XYZ token. This can be done through marketing, promises of future value, or even social media hype. But this can depend from token to token. He can target automated trading bots and make the token somehow more attractive to them.
Buyers Purchase Tokens: Buyers purchase XYZ tokens using their WETH. As buyers trade WETH for XYZ, the liquidity pool starts to fill up with more WETH.
Rug Pull Event: Once buyers have added enough WETH to the liquidity pool, the creator suddenly withdraws all the WETH from the pool.
Resulting Worthlessness: The Wrapped Ethereum token (WETH) retains its value. However, the XYZ tokens investors hold are now practically worthless because there's no WETH left in the pool to support any trades. Essentially, XYZ tokens have lost their market liquidity and value.
In serious projects, liquidity is often locked for a certain period to ensure buyers that the funds can't be quickly withdrawn. Liquidity can even be burned and thus never withdrawn. However, the creator does not lock or burn the liquidity for a rug pull to happen.
Let’s take an example of the token with the symbol $REDDIT on the Base chain (the token is not related to the actual Reddit). In the beginning, he provided 2.01 WETH, which at the time was worth $5315. Later, after 35 minutes, he pulled out 4.53 WETH worth $11991. It looks like he made $6676 in profit, but this is not necessarily true.
This is the 1-minute token graph:
The price graph looks suspicious because there is only an uptrend with no sell trades. It seems like the token creator artificially inflated the price to attract bots or traders by buying tokens using his other wallets, thus creating a fake uptrend and trading activity. We assume that most of the pulled WETH was from himself, who made less than $6676. Nevertheless, a rug pull was made.
These types of scams occur regularly, so we analyzed almost two months' worth of data between 2024-07-01 and 2024-08-20. The condition for this analysis was that the scammer made at least $100 in profit when doing a rug pull. The remaining amount in the pool after the rug pull is less than $100.
We analyzed the data on Arbitrum, Ethereum, BSC, and Base chains. We took all the detected rug pulls and measured the time difference between pool creation and a rug pull. We divided the data into three sets of percentiles: 99%, 95%, and 90%.
In simpler words, if we want to know the time difference from pool creation to rug pull, at which 95% of all rug pulls happen, then look at the 95% percentile on the graph.
On the Ethereum network, 9,095 rug pulls were detected:
99% occurred within 19,905 minutes (approximately 14 days).
95% occurred within 2,797 minutes (around 47 hours).
90% occurred within 1,257 minutes (roughly 21 hours).
The Base network experienced 98,100 rug pulls:
99% were detected within 183 minutes (about 3 hours).
95% occurred within 39 minutes (less than 1 hour).
90% also occurred within 39 minutes (less than 1 hour).
Arbitrum saw 135 rug pulls:
99% happened within 64,514 minutes (approximately 1,075 hours).
95% occurred within 28,698 minutes (around 478 hours).
90% took place within 9,995 minutes (about 167 hours).
On BSC, 430 rug pulls were detected:
99% occurred within 51,791 minutes (approximately 863 hours).
95% within 36,075 minutes (around 601 hours).
90% within 34,203 minutes (approximately 570 hours).
In summary, if you suspect a token is a rug pull on Ethereum, it will likely get the rug pulled within one day of the pool's creation.
Arbitrum and BSC have fewer rug pulls but face other types of scams, leading to perhaps inconclusive data.
The Base network is the most active for rug pulls among the analyzed blockchains, often within just a few hours.
Remember that these are just classical rug pulls and not all the other types of scams on the blockchain (like honeypots, covered in our previous posts). If you know how to avoid a rug pull, you may still be scammed by other means.
Here is a simple filter configuration on Ethereum you can use to avoid simple scams. The filter configuration requires at least 90% of liquidity locked or burned to be at least five days old, liquidity in the pool needs to be at least $50.000, smart contract code must be verified, and, for good measures, security score needs to be good or greater.
Another way is to look manually. Check if the token is either burned or locked for enough time (at least three months). In this example, 91.9 % of liquidity pool tokens have been locked at Team Finance Locker.
But again, THIS IS NOT ENOUGH. You need to perform also other security checks on the security tab:
And, of course, do your research.
