Inventory of Rug Pull events in the encryption circle

The Chibi Finance project is suspected to have a Rug Pull, and the cryptocurrency worth 1 million US dollars was exhausted. The stolen funds have been exchanged for approximately 555 ETH and transferred to Tornado Cash after bridging from Arbitrum to Ethereum.

**What is Rug Pull? **

**Rug Pull is literally translated as "carpet pull". In fact, Rug Pull is a proprietary term in the encryption industry. ** Commonly used in DeFi (Decentralized Finance) and cryptocurrency communities. **Rug Pull refers to the deceitful and malicious behavior of a developer or individual related to a cryptocurrency project who suddenly abandons the project and utilizes funds invested by users or participants. Rug pulls often occur in projects that lack transparency and have holes in their smart contracts or governance structures. **Once a developer or insider is ready to exit, they resort to various tactics to drain project funding. This could involve exploiting a vulnerability in a smart contract, mass dumping tokens, or removing liquidity from a decentralized exchange, leaving investors or users with tokens worthless or unable to recover their investment.

**How does Rug Pull work? **

1. First to develop and promote, where the creators of the project develop and promote new cryptocurrencies or tokens, often with enticing promises or features to attract investors. For example, investing funds to invite KOLs and communities to stand for the project and promote the project.

2. Raw funds accumulate and investors start buying and investing in tokens, resulting in an increase in their value and liquidity. As more and more people got involved, the project gained momentum.

3. Prepare to run away. At a certain point, when the project has accumulated a large amount of funds, the token price rises rapidly, and the developers or insiders behind the project secretly plan to prepare to smash the market.

4. Rug Pull, developers and insiders prepare to exit, sell tokens on a large scale, use contract loopholes to withdraw from the pool, and eliminate liquidity.

5. Investors suffered heavy losses. Due to reasons such as developer crashes and withdrawal of liquidity, investors were left with worthless tokens, and developers disappeared from public view, leaving investors in a mess in the wind.

Taking stock of Rug Pull events in history

FairWin (2019): FairWin is a Ponzi scheme operating on the Ethereum blockchain. It promises high returns through a decentralized application (dApp) called the FairWin smart contract. However, the project's developers ended up taking investors' money, causing losses estimated in the millions of dollars.

**PlusToken (2019): **PlusToken is a cryptocurrency Ponzi scheme originating in China but affecting the world. It claims to offer high returns on investment and has attracted a large number of participants. However, in mid-2019, the operator of the scheme disappeared, taking an estimated $2 billion worth of cryptocurrency with him.

**YAM Finance (2020): **YAM Finance is a DeFi project built on the Ethereum blockchain. It aims to create a decentralized stablecoin and liquidity mining platform. However, shortly after launching, a coding flaw was discovered that made the project unsustainable. The value of the YAM token plummeted to zero, causing investors to suffer significant losses.

**Meerkat Finance (2021):**Meerkat Finance is a decentralized liquidity mining project on Binance Smart Chain (BSC). It claims to offer high returns through its vaults. However, within 48 hours of launching the project, the developer drained funds from the project, causing losses of around $31 million.

How Investors Can Avoid Rug Pull Events!

**1. Research Thoroughly research any project or investment opportunity before committing funds. **Learn about the team members, their backgrounds, and their previous projects. Examine transparency, community engagement, and a strong roadmap for project development.

**2. Assess the credibility and legitimacy of the project team. **Look for well-known and respected developers, advisors, and community members associated with the project. Lack of transparency about team members or their qualifications can be a red flag.

**3. Assess the community engagement of the project. **Active, transparent communication from the team is critical. Look for regular updates, responses to community issues, and engagement on social media platforms and community forums. Be wary of lack of community engagement or teams avoiding answering important questions.

**4. Check that the project has undergone a thorough smart contract audit by a reputable third-party audit firm. **This helps keep your code safe.

**5. Verify that the project’s liquidity is locked in a timed release contract or a reputable decentralized finance (DeFi) platform such as Uniswap or PancakeSwap. **Liquidity lock reduces the possibility of withdrawal.

**6. Look for projects that implement token vesting plans for team members and founders. **This means their tokens are released gradually over time, reducing the risk of sudden token dumps that could lead to price manipulation.

**7. Seek information from the broader crypto community. ** Find reviews, feedback, and discussions on social media platforms, cryptocurrency forums, and reputable cryptocurrency news sites.

**8. Don't put all your eggs in one basket. ** Diversify your investments across multiple projects and asset classes. This helps reduce investment risk.

**9. When investing in new or untested projects, start small. **This allows you to assess the credibility of the project before investing more money.

**10. If something seems too good to be true or raises doubts, trust your instincts and proceed with caution. **Do not invest in projects that make unrealistic promises or are overly hyped but have no substance.