- What is Rugpull
- This is due to these two precise reasons:
- How Rugpull Happens
- How to identify projects that can rugpull
Popular Nigerian Comedian Chukwuebuka Amuzie has been receiving backlash from a large number of crypto analysts and enthusiasts concerning his supposed charity token, which lost liquidity moments after launch.
Chukwuemeka Amuzie, popularly known by his skit name ‘BrainJotter,’ has been trending on the internet as a result of his supposed “rugged” project. The $JOTA coin is the first Charity token on the Ton Blockchain, introduced by Brain Jotter on the 31st of August and eventually launched on the 1st of September. The coin reportedly lost liquidity and dumped a few hours after launch.
This event has taken a toll on BrainJotter’s reputation, leaving the X crypto community with various unanswered questions. Noteworthy is the fact that this is one among other crypto projects introduced by Nigerian celebrities that happen to ‘rugpull.’
$DAVIDO is one such project, launched on the Solana Blockchain by David Adeleke, a popular Nigerian musician known by the stage name “Davido.” While $JOTA lasted for a few hours, $DAVIDO lasted three days before its rugpull.
What is Rugpull
Rugpull is a term in the Web3 space that refers to a situation where the developers of a particular project abandon their project and the community after a substantial amount of unsuspecting investors invest in their project.
Rugpull often happens in the DeFi space, especially on DEXs (Decentralized Exchanges).
This is due to these two precise reasons:
1. Crypto tokens can be created with much ease on DEXs; hence, anyone can literally create a token on DEXs.
2. Creating a token on DEXs is easy because tokens do not need to be audited before launch, unlike on CEXs (Centralized Exchanges), where tokens are scrutinized and painstakingly audited before they are listed.
How Rugpull Happens
Initially, a token is created on a decentralized exchange like Uniswap, Pancakeswap, or Ston.fi, etc., and then the developers will create liquidity by injecting some money into the project.
Once this is achieved, developers will go ahead to hype their project and encourage individuals to invest in it by holding or trading. They will employ various means to create awareness by involving influencers, celebrities, and creating communities on X, Telegram, and Discord.
Consequently, people become swayed by empty promises of 50x, 100x, 200x profits and whatnot, thus, buying the project’s tokens in a bid to hold it or trade it in the DEX. Most unsuspecting investors may also invest heavily in these projects.
When the developers or creators of these projects realize a certain amount of profit, they pull their resources (money) out, leaving the project and causing the coin to dip until it eventually loses all its value.
How to identify projects that can rugpull
It’s very important to equip oneself with the right information to avoid falling for these disheartening crypto scams. So what must one do in DeFi to ensure they play it safe in the space?
Firstly, we should ensure the project has enough funds locked up for the provision of liquidity for a period of years.
Secondly, we shouldn’t go into projects promising short-term unrealistic profits and get-rich-quick schemes.
Additionally, refer to past experiences and events before investing in any project, as some individuals did not invest in the $JOTA project following their experience with $DAVIDO.
In all, do your due diligence before investing in any project.
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