EXPLAINER: What Are Rug Pull Scams and Tips on How to Avoid Them

The Rise of Rug Pulls

According to the Chainalysis 2022 Crypto Crime Report, Rug Pulls have emerged as the go-to scam of the DeFi ecosystem accounting for 37% of all cryptocurrency scam revenue in 2021, versus just 1% in 2020. 

“Rug pulls refer to cases in which developers build out what appear to be legitimate cryptocurrency projects – meaning they do more than simply set up wallets to receive cryptocurrency for, say, fraudulent investing opportunities – before taking investors’ money and disappearing.”

– Chainalysis

The rug pulls took in more than $2.8 billion worth of cryptocurrency from victims in 2021.


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Chainalysis research reveals that rug pulls are most commonly seen in DeFi whereby investors buy tokens that seem to be on their way up before the developers drain the funds from wallets.

Africa did not feature heavily when it comes to crypto crime in 2021, but in 2020, Africa witnessed several high profile rug pull scams including the largest in the world.

The Cajee brothers from South Africa reportedly made away with over $3.6 billion from investors in 2021.

Globally, the biggest rug pull of the year involved Thodex, a large Turkish centralized exchange whose CEO disappeared soon after the exchange halted users’ ability to withdraw funds, amounting to the loss of over $2 billion of user funds.

So, how do you avoid this type of scam that is becoming more common?

Here are three tips to look out for:

  • Always read the whitepaper – Whitepapers are crucial documents that communicate the team’s philosophy
  • Be skeptical of guaranteed returns – If it sounds too good to be true, it probably is, especially if the project is listed on a less well-known exchange
  • Choose a cold wallet – Storing your assets in a cold wallet will guard against some of the fraudulent tactics you read earlier

On the whole, when operating in the crypto space, being a new space, you want to keeb abreast with the latest news, information, and education to stay protected.


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