Rug pull is a new type of scam which is now a part of a long history of investment schemes that make investors lose a lot, if not all, of their money.
Derived from the popular expression “pulling the rug out” happens when investors are enticed or attracted by developers to put resources (usually a lot of money) into a new cryptocurrency project only for them (the developers) to “pull out” prematurely, fleeing with the funds pooled for the endeavor.
This usually happens in the decentralized finance (DeFi) ecosystem, particularly in decentralized exchanges (DEXs).
More often than not, a rug pull can happen right after a project’s introduction. Sometimes, however, those behind the scam take their time, prolonging the agony of their unsuspecting victims.
In line with this matter, a newly released report claims almost 98% of all tokens listed on the reputable crypto exchange Uniswap are malicious and accessories for scams.
Uniswap As Conduit For Rug Pulls?
According to the findings of Catalan Researchers, 26,957 out of the 27,588 tagged tokens listed on the 2018-launched Uniswap are considered to be scams or rug pulls.
There are only 631 assets inside the exchange’s ecosystem that could be considered non-malicious and thus are safe, for now.
The study was conducted by direct interaction with the Ethereum blockchain from April 2020 to March 2021 in order to collect pertinent data.
The researchers also found that 24,870 of the malicious tokens were classified as rapid rug pulls, while the remaining 2,087 were without LP burn events.
Meanwhile, Unicrypt, a protocol operation on top of Uniswap designed to help prevent rug pull activities, was identified by those who conducted the study as the base for very same scam. Of 745 assets that were employing the protocol, 725 were considered to be malicious and 20 weren’t.
On the basis of all their findings, the Catalan Researchers, 97.7% of Uniswap-listed tokens were categorized as rug pulls, all of which are credited to Unicrypt.
Avoiding Being A Victim Of Rug Pulls
There are few things that a prospective investor for a cryptocurrency project can take into consideration to avoid being victimized by such scam.
The first one is picking of established products. One must keep in mind that a rug pull is likely to happen with a newly introduced project and less likely to happen to cryptocurrencies that have already been the subject of all sorts of scrutiny.
Another one to consider is having a working understanding of the product’s code as it integrity will determine the project’s fate, whether it will thrive or it will be eventually nosedive and be a failure.
This one is a bit tricky, as the blockchain arena is highly technical. Still, understanding this aspect of the venture will help in making more informed decisions.
Lastly, it is also imperative that a thorough research about the people involved in a certain project must be done before investing on it. This might be harder than it sounds, as the use of pseudo names in the crypto space is rampant.
Still, it will always be prudent to do everything that you can, especially now that reputable institutions like Uniswap can, in an instant, be a conduit for illicit activities.
Crypto total market cap at $961 billion on the daily chart | Featured image from Zipmex, Chart: TradingView.com
