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
Order Book
An electronic list of all buy and sell orders in an exchange
Virtual AMM (vAMM)
The vAMM functions similarly like an AMM but does not contain an actual asset pool.
Halving
Event that serves to reduce in half the reward of the Proof-of-Work miners that operate in the blockchain network.
Ponzi Scheme
A Ponzi scheme is also referred to as pyramid scheme, and typically takes the form of an investment scheme which pays existing investors with funds collected from new investors.
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