How to distinguish fraud: everything about RAGPUL in DeFi

In the cryptocurrency sector, one of the most dangerous and widespread schemes of fraud is the rug pull. This practice occurs when project creators suddenly disappear, taking investors’ funds with them. Over the past year, rug pull incidents have resulted in losses of hundreds of millions of dollars, becoming a serious problem for the entire community.

What is behind the term “rug pull”?

Rug pull comes from the English phrase “pulling the rug” — literally “to pull the rug out from under someone’s feet.” This name accurately reflects the essence of the phenomenon: an unexpected and complete withdrawal by developers from the project, accompanied by the misappropriation of investors’ funds.

Unlike bankruptcy or a typical project collapse, a rug pull is a deliberate action. Creators can mask their intentions for months, building the appearance of legitimate development. But once enough funds are gathered, the team ceases communication and converts all assets for their own benefit.

Mechanisms used by scammers

Analysis of incidents shows several typical rug pull schemes:

Tokenomics manipulation

Developers issue a token with attractive promises of high returns. They actively promote the project, attracting retail investors. As capitalization grows, insiders sell their shares en masse. The token price crashes, leaving investors with losses.

Hidden vulnerabilities in the code

Another approach is embedding special functions or vulnerabilities into the smart contract that allow developers to withdraw funds unimpeded. Ordinary users do not notice such loopholes until the fraud is activated.

Loss statistics: the numbers speak for themselves

Data from analytical companies demonstrate a worrying trend:

These figures show exponential growth in both the frequency of attacks and the scale of damage. One of the most high-profile cases occurred in 2021, when the developers of a popular DeFi project disappeared just two weeks after launch, taking with them over 2 million dollars of investors’ funds.

Why are rug pulls so common in DeFi?

Decentralized finance has attracted scammers due to several features:

• Lack of centralized oversight — unlike traditional financial institutions, DeFi projects often develop without strict regulation
• Anonymity of developers — creators do not always reveal their identities, making it easier to flee after fraud
• Impossibility of transaction rollback — blockchain is immutable, and once transferred, funds cannot be recovered
• High promised returns — unjustified interest rates attract inexperienced investors seeking quick profits

How to protect yourself from rug pulls?

The community and analysts have developed several practical recommendations:

Check project transparency

Carefully examine the development team. If creators only use nicknames and are unwilling to reveal their identities — this is a red flag. Also, check the project’s social media for activity and reviews.

Analyze the smart contract code

Legitimate projects publish security audits from independent firms. If there is no audit or vulnerabilities are found in the contract, avoid such a project.

Be skeptical of miracle earnings

If a project promises monthly returns of 100% or more — this is almost always a scam. Real investments yield more modest results.

Impact on the ecosystem and the future

Rug pulls damage not only individual investors but also the reputation of the entire cryptocurrency sector. They reduce trust in legitimate DeFi projects that aim to introduce real innovations.

Community responses include developing new tools: identity verification systems, improved blockchain data analysis, voluntary security standards for developers. Some platforms implement stricter project verification processes before listing.

Conclusion

Rug pull remains a serious threat in the world of cryptocurrencies, but understanding the mechanisms behind this fraud helps investors make more informed decisions. The future of the sector depends on balancing innovation and security — on enabling new projects to emerge while having sufficient protective mechanisms for market participants.