Rug Pull
By CoinGecko | Updated on Aug 12, 2021
In the English lexicon, to pull the rug out (from under someone) means to to suddenly take away important support (from someone). In the context of crypto and Decentralized Finance (DeFi), having been rug pulled means to have liquidity removed from a Decentralized Exchange (DEX) liquidity pool. This results in a sell death spiral as other liquidity provider, holder and traders panic at the loss of available liquidity for trading. Once liquidity has been drained, token holders are usually left with illiquid assets which may not be tradeable anywhere else. It is worth noting that many projects have taken measures to alleviate rug pulling risks by committing certain level of liquidity in a way that can't be removed (ie, LP Token Burn, Liquidity Locking contract..etc). However, it does not fully eliminate rug pulling risks and market participants should conduct due diligence prior to trading.
Related Terms
Algorithmic Stablecoin
Algorithmic stablecoins are tokens pegged to a fiat currency which is usually the US dollar, purely through software and specific conditions.
Hash
A hash function is an output code (unique and alphanumeric) that we obtain from an input string,
State Channel
Secondary payment channel occuring off-chain
Non-Fungible Tokens (NFT)
They are collectible elements within the Ethereum blockchain under ERC-721, where each token refers to a single element with a certain value
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