Analyzing Rug Pull: A Deep Dive into Decentralized Finance eyewash Patterns

Rug Pull is one of the most common eyewash methods in the cryptocurrency industry. Despite many cases being uncovered, there are still a large number of undiscovered scams lurking in the market. According to industry data, there are at least 188,000 potential Rug Pull scams on mainstream blockchains such as Ethereum and BNB Chain.

Distribution of Rug Pull Projects on Various Blockchains

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 show signs of eyewash. At the same time, approximately $910 million worth of ETH related to eyewash has been processed through centralized or regulated cryptocurrency exchanges. Additionally, October of this year set a record for the highest monthly loss in crypto assets, with 11 DeFi protocols being attacked, affecting crypto assets valued at $718 million.

Some large cryptocurrency trading platforms have become primary targets for scammers and hackers due to their vast user base and the continuous launch of new features. These platforms have recognized the prevalence of smart contract scams and have begun integrating risk monitoring tools to detect and notify users of potential risk projects in real-time, including Rug Pull and other eyewash.

Common Tactics of Rug Pull Projects

Rug Pull, also known as "fraud token" or "Decentralized Finance scam", usually embeds specific code in smart contracts to steal funds from retail investors. These codes are generally designed to:

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

These scripts are hidden within the tokens, and once unsuspecting investors purchase them, they face immense risks. Most Rug Pull tokens appear to be just like other cryptocurrencies and follow the homogenization token standards of the blockchain, but the issues are actually hidden in the source code of the smart contracts.

With the development of the cryptocurrency industry, fraudsters have gradually mastered the underlying technology, allowing them to make extensive modifications to smart contracts. They often hard-code malicious rules into smart contracts, not only granting themselves additional powers but also depriving buyers of their basic rights.

Rug Pull projects typically create liquidity pools on decentralized exchanges (DEX), pairing their tokens with other "legitimate" cryptocurrencies. Subsequently, they artificially generate a large volume of trades to inflate the token value and attract retail investors.

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

1. Create eyewash websites and project roadmaps
2. Promote false partnerships and display fake information about well-known developers.
3. Advertising on social media

When enough users purchase the tokens, the fraudsters will quickly sell off the tokens and exchange them for other cryptocurrencies on the DEX. This large-scale sell-off in a short period of time will cause the token price to plummet to zero, completing the entire Rug Pull plan.

Rug Pull Token Fraud Type Analysis

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

1. Honeypot Vulnerability
2. Custom Token Feature
3. Balance Modification Backdoor

Honeypot vulnerabilities usually prevent token buyers from reselling, allowing only developers to sell the held cryptocurrencies. Ordinary investors may encounter transaction failure prompts when trading. Honeypot scams often drive up token prices in the short term, attracting more unsuspecting users to buy. As of October 25, 2022, there are approximately 96,008 token projects in the market with honeypot vulnerabilities.

The private token creation feature is another common method, where fraudsters grant specific accounts the permission to mint new tokens. When these accounts use hidden functions to mint large amounts of tokens and sell them off, it causes a significant drop in the value of tokens held by other holders. As of October 25, 2022, there are approximately 40,569 token projects that have the private token creation feature.

The balance modification backdoor is similar to the private token creation feature, allowing specific accounts to modify the balance of token holders. When these accounts set the holder's balance to zero, the holder will be unable to sell or withdraw funds, while the fraudsters can operate freely.

Conclusion

With the increasing number of cryptocurrency eyewash, investors need to be particularly cautious when selecting crypto projects, assessing potential fraud risks. At the same time, regulatory agencies should strengthen their efforts to combat fraud, protect consumer rights, and enhance market integrity, transparency, and consumer protection standards. Only in this way can a good environment be created for the healthy development of the cryptocurrency industry.