What is Carpet Pulling in Crypto Meaning and Examples

What is Carpet Pulling in Crypto Meaning and Examples
Currently, the crypto industry continues to actively grow. Many crypto projects are being launched and developed around the world, which will be a major form of investment now or in the near future.

More and more users are investing in such projects because they see new projects as an ideal opportunity for profit. But it's not that simple. With cryptocurrency investments, risks and losses exist. An inexperienced cryptocurrency investor may lose funds. Therefore, to avoid such an outcome, it is necessary to understand the issue in detail.

The world of decentralized finance is the most vulnerable to attack and fraud. Lack of experience and knowledge can lead a future investor to unimaginable losses. Among the most serious risks in the DeFi world is rug pulling. This article will teach you about this scam, how to detect it and most importantly, how to avoid it.

What is Carpet Pulling?

Rug pulling is a type of scam that targets investors in the cryptocurrency market. The name speaks for itself. Rug pulling specifically refers to a sudden act of loss of liquidity, resulting in a massive sell-off by liquidity providers or investors looking to save their money. In this dead-end scam, the liquidity pool of the decentralized exchange or DEX is drained and token holders are unable to sell their tokens back.

Simply put, a rug-pull crypto is a situation where the owners or developers of a project abandon it and the investors run away with their money. Rug pulling scams are well disguised by active advertising that attracts a significant influx of investors. As a rule, the project then uses excuses such as the presence of bugs in the software, which gives the project owners time to fix these bugs. Finally, they simply leave the invested money and disappear from the project. And the investors of this project will not see and receive back their investment.

Most of these rug-pulling scam projects work according to a specific scheme. For example, a DeFi project is launched that issues the project token. Developers connect this token with other well-known cryptocurrencies such as ETH, USDT, and others.

The project then allows users to exchange their crypto assets for the project's new native jet, allowing investors to gain higher rewards and benefits from that token.

Finally, in the opinion of the project owners, when the number of investors reaches its peak, they abandon the project and disappear with the investors' money. As a result, only deceived users and an empty project remain.
Carpet Pulling Examples,

Unfortunately, the victim of the rug-pulling scam often finds himself only at the final stage, when the fraud has already occurred and the investor is left with nothing.

Here are three clear examples of cases where investors were left without their money:

thodex
THODEX exchange closed access to user accounts at the end of April 2021 without any notification. According to the exchange, the decision to restrict access was due to the “partnership offer” received. Its founder escaped with $2 billion, according to preliminary reports. As a result, more than 390,000 users lost their money.

Founder Finance
Component Finance has joined the ranks of decentralized financial (DeFi) projects that have gone rogue and stolen $10.8 million from users by replacing real “smart contracts” with malicious ones.

Fundalik Finance
Meerkat Finance was an offshoot of another DeFi Smart Chain protocol from Binance, Alpaka Finance (ALPACA). The project offered “income farming” services in MKAT-BNB pools, steaks and other passive income tools. On the Telegram channel, the project team announced that Meerkat Finance's infrastructure was hacked and all funds were stolen. As a result, $31 million disappeared without a trace from the accounts of project users. During the investigation, it was determined that the private key was made available to third parties. Probably, the project owners themselves decided to get rich quickly at the expense of investors.

Avoiding Rug Pulling in Crypto,
As with any crypto tapestry, there are ways to identify such projects and protect your investment before it's too late.

Check Project Liquidity
In this quick and easy way you can determine whether the project is worth trusting. The higher the liquidity figures, the more reliable the project. However, this is not enough; You should also find out who is behind the project.

Project Owners
It is necessary to be responsible for investigating the background of the owners of the products. You should not blindly follow new developers emerging in the market; There is no information about them. Before investing in a project, we need to know who the founders are, who supports this project, the background of these people, and whether there are any problems with other projects that this or that person has.

Price Fluctuation
Unexpected fluctuations in the price of cryptocurrency. Of course, a price increase is a good sign for investors, but in projects of this category, a sharp increase in the price of a new coin is not a good sign. Such a rise is called a “jump money.” ” Therefore, if you notice a sudden increase on the same day, it may be a trap to attract investors

High Awards
Investors should be wary of high rewards. Unfortunately, many DeFi protocols often start offering investors high rewards in their pools when they launch their projects as they enter the game.

At this point, you shouldn't think that if a project offers amazing rewards, you shouldn't invest in it. Because they need more liquidity to run their scam.

conclusion,

Cryptocurrency fraud leads to unimaginable losses that no one can escape. There are scammers with financing in almost every industry, so you should not blindly trust any project. Even the most experienced crypto expert can fall into this trap by letting their guard down. Therefore, before investing, research a new project and remember the main signs of such scams.