What Is a “Rug Pull” in Cryptocurrency Lingo?
In cryptocurrency/blockchain/NFT jargon, a “rug pull” is when creators set up a project, lure in early investors, and then abscond with the funds without delivering the goods. Typically, they happen more on decentralized exchanges. Frequently, the perpetrators will generate false hype on platforms like Telegram and Twitter. Some may initially inject a sizable amount of money into the liquidity pool to engender investor confidence.
Case Study: Solana NFT Rug Pull
Recently, a rug pull scam rocked the Solana exchange. A new company called Iconics — which represented itself as a father and son team — promised to produce a collection of very cool-looking 3D NFTs depicting famous bust sculptures.
The collection was scheduled to launch on September 30, 2021, with 2,000 available NFTs, and presale opportunities were available. But minting day came, and instead of state-of-the-art NFTs, expectant buyers got 20 random emojis. In short order, participants realized that the Iconics Discord chat had been disabled, and its Twitter account was deleted.
Potential Warning Signs of a Crypto Rug Pull
Were there warning signs for the Iconics rug pull? Yes and no.
Iconics’ website used the .fleek top-level domain, an odd choice for a legitimate operation. It’s not a deal-breaker, but looking back, this may have served as a red flag. Moreover, the NFT startup didn’t appear to be building a team, and according to online chatter, the company principals didn’t follow through with giveaways, used auto-approved transactions, and didn’t reveal themselves.
Notably, Iconics was only on decentralized exchanges that list tokens, free of charge, without audits. Typically, legitimate ventures will spend resources to burnish their reputations and earn public trust. If a coin shoots up in value for no reason in 24 hours, that may also be a red flag — not always, but sometimes. Also, check the token pool’s lock status. If there is one, it’s a good sign; most reputable endeavors lock liquidity for a certain period.
Consult With a Cryptocurrency Lawyer
The Kelly Law Firm is a pioneer in the blockchain and crypto legal space. We handle smart contract terms, NFT matters, intellectual property issues, and registration governance. We also represent businesses and individuals entangled in crypto and blockchain litigation. Get in touch today to begin the conversation.
