Analyzing the Rug Pull eyecandy in the Crypto Assets Field

In the Crypto Assets industry, Rug Pull is a common form of eyewash. Despite many cases being exposed, there are still a large number of undiscovered scams. Data shows that there are at least 188,000 potential Rug Pull scam projects on major blockchains such as Ethereum and BNB Chain.

Distribution of Rug Pull Projects on Different Blockchains

Data shows that approximately 12% of BEP-20 tokens on the BNB Chain exhibit fraudulent characteristics, while about 8% of ERC-20 tokens on Ethereum show signs of fraud. Additionally, approximately $910 million in fraud-related ETH was processed through centralized or regulated Crypto Assets exchanges. Furthermore, blockchain analysis indicates that in October, 11 DeFi protocols were attacked, affecting $718 million in crypto assets, marking the highest monthly record of crypto losses so far this year.

As one of the largest Crypto Assets trading platforms in the blockchain ecosystem, a well-known trading platform's continuously expanding features and user base may be a primary target for scammers and hackers. 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 notify users of potential risk projects.

Common Tactics of Rug Pull Projects

Rug Pull projects, also known as "fraud tokens" or "DeFi eyewash", typically involve carefully designed code in smart contracts to siphon off funds from retail investors. The design goals of this code usually include:

1. Prohibit secondary sales
2. Allow project developers to freely mint new coins
3. Charge the buyer a 100% sales fee

The project team hides these scripts within the tokens, and once unsuspecting retail investors purchase them, they face huge risks. In most cases, Rug Pull tokens appear to be the same as other Crypto Assets and comply with the standard for homogeneous tokens on the blockchain, but the real problem is hidden in the source code of the smart contract.

As the Crypto Assets industry matures, fraudsters have also mastered the underlying technology, allowing them to make significant modifications to smart contracts. They often embed malicious rules in a hard-coded manner within smart contracts, not only granting themselves extra power but also depriving buyers of basic rights.

The launch of a Rug Pull project typically involves the following steps:

1. Deploy one or more tokens with vulnerabilities
2. Create a liquidity pool on a decentralized exchange
3. Establish trading pairs between tokens and other "legitimate" Crypto Assets
4. Artificially creating large-scale trading volume to exaggerate the value of the token
5. Attract retail investors

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

• Create fake websites and project development roadmaps
• Promote false partnerships
• Advertise on social media

When enough users purchase the tokens, the fraudsters will quickly sell the tokens and exchange them for other Crypto Assets, causing the token price to plummet to zero.

Rug Pull is a major type of eyewash in the crypto assets.

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

1. Hidden Deployment of Honeypot Vulnerabilities
2. Hidden private token creation function
3. Hidden balance modification backdoor

Honeypot vulnerabilities typically prevent token buyers from reselling, allowing only developers to sell the Crypto Assets they hold. As of October 25, 2022, there are approximately 96,008 token projects in the market that harbor honeypot vulnerabilities.

The private token creation feature allows specific accounts to mint new tokens using hidden functionalities. As of October 25, 2022, there are approximately 40,569 token projects in the market that have the private token creation feature.

The balance modification backdoor allows specific accounts to modify the balance of token holders, which may prevent holders from selling or withdrawing.

Conclusion

With the increasing number of crypto eyewashes, investors need to carefully assess fraud risks when choosing crypto assets. At the same time, regulatory agencies should strengthen their crackdown efforts to protect consumer interests and enhance market integrity, transparency, and consumer protection standards.