Rug pull

A rug pull in the crypto industry is the point at which a development team out of nowhere forsakes a project and sells or eliminates all its liquidity. The name comes from the phrase to pull the rug free from (somebody), significance to out of the blue pull out support.
Rug pulls are generally associated with Decentralized Finance (DeFi) projects which give liquidity to Decentralized Exchanges (DEXs). DeFi tokens of new projects generally aren't listed on Centralized Exchanges (CEXs), implying that a DEX is the main source of liquidity. Commonly, a DeFi project will make their token and give an amount as liquidity to a DEX. This might be put straight into a liquidity pool (paired with another token like ETH or BNB), or it could be sold in an Initial DEX Offering (IDO). In an IDO, investors will purchase the coin, and the proceeds will as a rule be locked for a certain period to guarantee a level of liquidity.
When promotion levels are high, and the project approaches their liquidity, the rug pullers have two options. They can either sell their tokens at a high price and eliminate all their liquidity or even use secondary passages in smart contracts to take investors' funds. Without adequate liquidity, investors struggle to sell their tokens or are forced to sell them at a low price. This is due to the Automated Market Maker (AMM) pricing mechanism that decides prices through the ratio of two coins in a liquidity pool.
Rug pulls are common in DeFi as tokens can be made effectively and afterward listed on DEXs with next to zero KYC or AML. Anybody can set up a liquidity pool, and, surprisingly, an IDO with fundamental due diligence checks actually has a high level of risk. Numerous crypto projects are anonymous, making it simple for a team or owner to rug pull without risking their identity.
Common rug pull signs remember a token price that rockets for a short amount of time with next to no protection on liquidity. On the off chance that the project owners can eliminate their funds immediately or shortly after the project's send off, there is an opportunity for a rug pull. There will probably likewise be a ton of investor publicity through Twitter, Telegram, and other social media platforms. To shield yourself from rug pulls, make a point to do persistent research on projects. This will incorporate taking a gander at the state of the product, its tokenomics, token distribution method, liquidity, and team. You can limit your risk by ensuring the above are essentially as transparent as could be expected and certain.