How to spot a rug pull in DeFi: 6 tips from Cointelegraph
In our latest in-depth video, Cointelegraph shares six key tips on how to increase one’s safety when investing in decentralized finance (DeFi) by identifying rug pulls — one of the most widespread types of crypto scams.
Booming growth coupled with a lack of oversight by traditional authorities has attracted an influx of fraudsters to the DeFi ecosystem. According to a recent report by CipherTrace, while overall fraudulent activity in crypto is decreasing, rug pull scams in DeFi have been on the rise in 2021.
In a typical rug pull, bad actors create a worthless token and list it on a decentralized exchange, where it starts trading in a liquidity pool. The scammer convinces investors to provide liquidity by staking a valuable token, such as Ether (ETH), which pushes the new token’s price up. At a certain point, the scammers “pull the rug,” taking all the Ether from the pool and leaving investors holding a worthless token.
With the help of two DeFi experts, Cointelegraph pointed out six practical tips to spot a rug pull and minimize the risk of getting scammed while investing in DeFi.