Unveiling Rug Pull eyewash: Analysis of Potential Risks in the Decentralized Finance Domain

Rug Pull is one of the most common types of eyewash in the cryptocurrency industry. According to statistics, there are at least 188,000 potential Rug Pull scam projects on mainstream blockchains such as Ethereum and BNB Chain.

Distribution of Rug Pull Projects on Various Public Chains

Data shows that approximately 12% of BEP-20 tokens on the BNB Chain exhibit eyewash characteristics, while about 8% of ERC-20 tokens on Ethereum also show signs of fraud. Additionally, around $910 million in ETH related to fraud was traded through centralized exchanges. Data from blockchain analysis firms also indicates that a total of 11 DeFi protocols were attacked in October 2022, resulting in a loss of $718 million in crypto assets, setting a record for the highest monthly loss that year.

As one of the largest trading platforms in the blockchain ecosystem, a certain trading platform continuously launches new features and expands its user base, which may be the main reason why scammers and hackers target it. The platform seems to have realized the prevalence of smart contract scams on its network and has currently integrated risk monitoring tools to detect risks in real-time and promptly alert users.

Common Tricks of Rug Pull Projects

Rug Pull projects often embed malicious code in smart contracts to siphon off investors' funds. The main tactics include:

1. Prohibit secondary market trading
2. Allow the project party to issue tokens at will
3. Charge the buyer a 100% sales fee

These malicious scripts are often hidden in token contracts, and once investors purchase them, they face huge risks. Most Rug Pull tokens appear to be no different from normal tokens on the surface and also follow the blockchain's token standards, but the real issues are hidden in the smart contract source code.

Fraudsters usually create liquidity pools on decentralized exchanges after deploying tokens, pairing the tokens with other mainstream cryptocurrencies. They then inflate the token's value by manufacturing false trading volumes to attract retail investors.

In addition, Rug Pull projects may also disguise their legitimacy in the following ways:

• Create fake websites and develop roadmaps
• Claiming false partnerships
• Advertise on social media

When enough users purchase the tokens, the project team will conduct a large-scale sell-off and exchange them for other cryptocurrencies, causing the token price to plummet to zero.

Main Types of Rug Pull Eyewash

Currently, there are three main types of Rug Pull in the market:

1. Honey Pot Vulnerability: Prevents ordinary investors from selling tokens, only developers can sell. A typical case is the Squid Game Token(SQUID) eyewash, which used a popular film and television IP to attract investors, ultimately absconding with $3.36 million. As of October 25, 2022, there are approximately 96,008 token projects in the market that have honey pot vulnerabilities.

2. Private Token Creation Function: Allows project parties to arbitrarily issue tokens. As of October 25, 2022, there are approximately 40,569 token projects with such issues.

3. Balance Modification Backdoor: Allows project parties to modify user token balances, even to zero.

Conclusion

Cryptocurrency eyewash is becoming increasingly rampant, and many scams remain undiscovered. Investors need to carefully assess the fraud risks when choosing projects. Regulatory agencies should strengthen their efforts to enhance market integrity, transparency, and investor protection levels. Only in this way can the healthy development of the cryptocurrency industry be promoted.