‘Rug pulls’: Avoiding the cryptocurrency scam - ​What is 'rug pull' (2024)

FAQs

‘Rug pulls’: Avoiding the cryptocurrency scam - ​What is 'rug pull'? ›

A rug pull is a scam where a cryptocurrency or NFT developer hypes a project to attract investor money, only to suddenly shut down or disappear, taking investor assets with them.

What is a rug pull? A rug pull is a crypto scam in which fraudsters lie to the public to attract funding and quickly run off with investors' digital tokens. Developers behind rug pulls often promote their tokens on social media platforms to attract as many retail investors as possible.

In rug pulls, the liquidity behind the token has been taken, and this makes the token impossible to sell. However, although the token's price has bottomed out in pump and dumps, some liquidity may remain in the pools.

Is an NFT rug pull illegal? NFT rug pull is always unethical but only sometimes illegal. Hard rug pulls are always illegal while soft rug pulls, in most cases, are only unethical, meaning the bad actors do not violate any legal rules.

The biggest crypto rug pulls and scams of all time

OneCoin – $4 billion stolen: This Ponzi scheme began in 2014 and lured investors in by promising high return rates with little or no risk.

To create a rug pull scheme, malicious individuals create a worthless token and list it on a decentralized exchange (DEX), pairing it with a leading cryptocurrency such as Ether. They then conduct a marketing campaign to attract investors.

Rug pulls happen when developers create a token paired with standard cryptos like USDT, list the token on a DEX, and pull all the funds out after investors' buy-in. The common signs of identifying rug pulls include unlocked liquidity, irregular token allocation, and lack of audits.

The researchers found that "90% of tokens using locking contracts tend to become a rug pull or a malicious token eventually."

What is considered a rug pull? ›

A rug pull is a scam where a cryptocurrency or NFT developer hypes a project to attract investor money, only to suddenly shut down or disappear, taking investor assets with them. The name comes from the idiom “to pull the rug out” from under someone, leaving the victim off-balance and scrambling.

Hard rug pulls, which occur when a project's founder uses coding to maliciously use the project as a way to defraud investors, are completely illegal.

The three main types of rug pulls that occur in DeFi are as follows: liquidity theft, limiting selling orders, and dumping.

After meeting probable-cause and burden-of-proof requirements, law enforcement can get seizure warrants for any illicit funds that eventually land on compliant exchanges—and many funds eventually do.

“A rug pull, taken from the expression 'pulling the rug out,' is a common type of crypto scam where fraudulent developers lure investors into what appears to be a lucrative new project, then disappear with the funds, leaving the investors with a worthless asset,” explained Brittany Allen, a trust and safety architect ...

Holding period. If you've recently purchased crypto via card or ACH, your crypto may be subject to a holding period. During a holding period, you cannot withdraw from your cash (GBP, EUR, or USD) account, send funds to your DeFi Wallet, or send to an external wallet.

Bitcoin was the first digital asset to come into existence in the crypto space. In fact, for its early investors, BTC has been the most profitable cryptocurrency to invest in.

Once the price of the token peaks - the creators quickly sell off their supply of tokens, the price of the token plummets and investors are left with worthless tokens. It's also known as a pump-and-dump scheme.

How do I dispose of worthless cryptocurrency? ›

What are slow rug pulls? There is also a slow version of rug pulls in which a developer or team of developers builds a backdoor into the protocol codebase and uses it to drain funds over time and later cash them out. These back doors can be obvious, or they can be cleverly disguised.

Forms to claim your crypto losses

There are certain forms that you should use to report crypto losses on your taxes - you report your crypto losses with the Form 8949 and 1040 Schedule D. Each sale of crypto during the tax year is reported on the 8949.

One of the best ways to tell the difference between hand knotted and machine made rugs is to look at the back of the rug. In hand knotted rugs the weaving and the knots will be slightly uneven and not perfectly uniform. On the other hand, a machine made rug will look very uniform and perfectly even.

There are two approaches to differentiating between coins and tokens. Coins are native to their blockchains. Tokens are created on existing blockchains. The functionalities of coins and tokens often overlap.

to suddenly take away important support from someone: The school pulled the rug out from under the city soccer league when they asked them to pay for using their field.

Check the Project's Trading Volume

The trading volume of an NFT collection is another good indicator of whether the project is legit or a possible rug pull. If many users are trading NFTs from that collection, that's usually a good sign, as it points to a strong active community and high liquidity.

Solanart acknowledged the rug pull, pointing out that Civic had verified the project. It has come to our attention that the BDAC mint was a rug, we want to inform the community that we are deleting the collection from @SolanartNFT grid.

Beat or shake your rugs once a month. Clean Under Your Rug. When you remove your area rug from your home, be sure to clean the floor underneath the rug. Dirt that's left unattended will just get right back in your clean rug.

To take out and optimize your gains, sell 5-10% at a time, depending on how big your holdings are in that particular crypto. If the coin has gained more than 30% since you bought it, consider selling a small percentage every week.

How much is totally rug pull? ›

About Totally A Rug Pull

Totally A Rug Pull's price today is US$0.0000002406, with a 24-hour trading volume of $94.

Choose a size that either completely covers the walkway or leaves the floor exposed where people need to pass by. Then decide how far beyond the furniture the rug should extend. A common way to size a rug is to ensure that it reaches underneath all four feet of all the furniture.

Basically, measuring for carpet is just a matter of measuring the length and width of the room, then multiplying them together to get the square footage. If your bedroom is 10 by 15 feet, you'll need 150 square feet of carpet for that room.

The name comes from the phrase to pull the rug out from under (someone), meaning to withdraw support unexpectedly. Rug pulls are most associated with Decentralized Finance (DeFi) projects which provide liquidity to Decentralized Exchanges (DEXs).

Wool is one of the most commonly used fibers for rugs and also one of the most durable. It's a good choice for a high-traffic area like a living room or dining room because it's resilient, yet it's still incredibly soft and comfortable.

In terms of popularity in modern interior design, in 2023, organic designs are going to rule the roost. Jute, bamboo, sisal, and other natural fibers will take over interiors, thereby creating a calming, relaxed vibe. No matter their colors or patterns, the rugs will drive schemes to feel current and relaxed.

Hand Hooked Rugs. Hand hooked rugs go through the same process as hand tufted rugs. Hand-tufted rugs, however, have a cut pile surface, while a hand hooked rug has a loop pile surface giving the surface a rounded look. Often both hand-tufting and hand-hooking techniques are used together on one rug.

The IRS can track cryptocurrency transactions through several methods, including the use of subpoenas, blockchain analysis, and third-party reporting by cryptocurrency exchanges.

1099-K & 1099-B

If you receive a Form 1099-K or Form 1099-B from a crypto exchange, without any doubt, the IRS knows that you have reportable crypto currency transactions.

Do I have to tell the government that I bought crypto? ›

You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.

It also reveals that a staggeringly high percentage of Ethereum and Binance Smart Chain tokens are programmed to steal from investors. 8% of Ethereum ERC-20 tokens are designed to pull the rug; 12% of Binance Smart Chain BEP-20 tokens are as well.

The $34,000,000 Clark Sickle Leaf carpet

The most valuable rug in all of history, this carpet is said to be the epitome of the 'vase' technique. It is an incredibly rare design made in the early 17th century.

If you sell cryptocurrency for a profit, you're taxed on the difference between your purchase price and the proceeds of the sale. Note that this doesn't only mean selling crypto for cash; it also includes exchanging one crypto directly for another and using crypto to pay for goods or services.

Similar to a “pump and dump” scheme, a “rug pull” is a malicious act in which crypto developers lure in early investors and then abandon the project by either (1) taking off with the project funds or (2) selling off their pre-mined holdings, with the intention of draining all funds from investors.

In this study, they define “an exit scam or rug pull as a criminal scheme involving a project being drained of its funds by one or more team members, after having used aggressive marketing and hype building to dupe investors.”