What is a Rugpull?
A rugpull is not a new term in trading circles, with the term’s popularity rising as the number of these scams started spreading across the crypto world. Namely, it entails management of the project pulling out the user’s capital and abandoning the project, in essence pulling the rug underneath users and investors.
“As all of you will be aware, there has been unprecedented volatility in Foreign Exchange and Cryptocurrency markets in recent times. Freeway has therefore decided to diversify its asset base to manage exposure to future market fluctuations and volatility, ensuring the long-term sustainability and profitability of the Freeway Ecosystem.”
Who is FatMan?
Twitter influencer FatMan also known as FatMan Terra, gained notoriety by being the brains of the investigative journalism that exposed the implosion of the LUNC token and UST, Terra’s algorithmic stablecoin, that almost brought down the entire crypto space.
Terra-UST implosion extinguished $41 billion from the crypto markets, with FatMan exposing the major points. On October 22, FatMan implored users to be weary with their funds on the Freeway platform. The next day, Freeway halted withdrawals, which according to FatMan is a major sign of rugpull, especially after information on team members has been deleted from the Freeway website.
How to Recognize a Rugpull?
While rugpulls are often difficult to see in advance, there are some signs that users can look for that should raise suspicion about a given project. A blockchain security company CertiK offers certification after looking through a project’s code, whitepaper, and other details, publicly disclosing their findings and suggesting remedies for the projects to be deemed safe.
While a CertiK audit does not guarantee that a project is not a rugpull, some other signs that users can look for themselves include, but are not limited to:
- False disclosures on the project website
- Shady legal structure
- No, or unrelated crypto experience by the project team
- Unclear monetization strategy
- Unrealistic returns
Implication of Rugpulls on Crypto
Moreover, extreme market volatility, the collapse of large coins, and the implosions of exchanges and services indicate that the crypto space has room to grow and that there are still trust issues in the market.
The Luna – Terra collapse indicated that a pegged (backed by something) coin, which was actually not pegged to anything and was doomed to fail, actually failed. The gambling mentality is still prevalent in some projects and parts of the market, which is not an ideal way of building long-term trust in crypto. Crypto is meant to change the world, not by rugpulls and transferring wealth from the unsuspecting public into the hands of the few.
Hopefully, the future will bring fewer rugpulls and more innovative, life-changing crypto projects.