While there are multiple types of scams in the crypto world (e.g. ponzi schemes, pump-and-dumps), a new form gaining notoriety is the “rug pull”.
Rug pulls (aka “rugs”) occur when a founder creates a project with the intent to abandon it and run off with the investor’s funds. Critics argue that the hype around the space, lack of investor protections, ability for founders to remain anonymous and self-custody of funds provide an ideal breeding ground for these types of scams.
Indeed, rugs cost investors billions and accounted for 36% of the total crypto scams in 2021 (up from 1% in 2020). They have infected nearly every vertical including DAOs, DeFi, NFTs and cryptocurrencies.
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