What is a Rugpull?
Disclaimer: The article sheds light on fraudulent schemes that prevent the successful growth of Binance Smart Chain DeFi space and provides guidance to protect investors. It is not financial advice.
Kebab Finance aims to build a strong educated DeFi Community even though we are not responsible for your investment decisions.
After the successful launch of Binance Smart Chain on April 1st, 2019, interest in DeFi projects surged. The advent of liquidity mining led investors to obtain the liquidity pool tokens to stake or farm. Incapable of resisting the lure of high returns, investors pour their liquidity into pools designed to defraud them, in other words, investors end up rug pulled. So without further ado, let’s take a look at what the term rug pull is and the factors that lead to its development.
What is a rug pull?
In simple terms, a rug pull is synonymous with pulling the rug (out) from under (someone’s) feet by suddenly or unexpectedly removing or rescinding support to abruptly leave the person in an unmanageable situation.
What leads to a rug pull?
Given the decentralized nature of DeFi, scammers apply high yields as a strategy to attract investors and lure them into locking up their liquidity for quick returns. Now that your initial investment is in the pool, they rip it out from under you. Immediately after the total liquidity reaches the intended amount, the mint function is called to siphon all the tokens in the liquidity pool. These DeFi projects exploit the greed of new crypto-enthusiasts by exceeding the supply and ripping out the funds because the investors add liquidity by providing an equivalent amount of two tokens. It is unfortunate that fake tokens are being created out of thin air to defraud investors. We should not ignore the fact that most of these nefarious DeFi projects use similar strategies to exploit the greed of crypto-novices and high-yield chasers by setting up telegram groups to fuel their enthusiasm, prompting them to swap their hard-earned money for the minted coin. The result is a drained liquidity pool with worthless tokens. There are so many examples of this that are not worth mentioning.
Kebab Finance is building a high reputation for Binance Smart Chain (BSC) to help you avoid these bad actors and scams by taking the initiative to ensure a safer community and a sustainable DeFi space to keep your FUNDS SAFU.
So be careful when investing in a project that comes out of nowhere and promises high APY, is unaudited, and has a mint function. It is your responsibility to invest wisely and to protect your investment from fraudulent schemes.