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
cc0 NFT
A cc0 NFT is a piece of digital content where the IP rights have been relinquished.
Venture Capital
capital (funds) that is invested in a company that needs a substantial pool of funds to initiate.
Delegated Proof-of-Stake (dPOS)
A consensus mechanism where selected members of a network are voted as delegates to validate transactions and produce blocks on a blockchain.
Mining Pool
Combination of resources of several miners to obtain a higher mining power and thus achieve greater rewards for the opening of blocks.
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