In-Depth Analysis of the DeFi Eyewash: Decoding the Rug Pull Trap

Rug Pull is one of the most common eyewash methods in the cryptocurrency industry. Although many cases have been exposed, there are still a large number of potential scams that have not come to light. According to statistics, there are at least 188,000 suspected Rug Pull projects on mainstream blockchains such as Ethereum and BNB Chain.

Distribution of Rug Pull projects across different blockchains

Data shows that about 12% of BEP-20 tokens on the BNB Chain exhibit fraud characteristics, while 8% of ERC-20 tokens on Ethereum show suspicious signs. Notably, approximately $910 million in ETH related to fraud has been processed through regulated cryptocurrency exchanges. Another report indicated that in October alone, 11 DeFi protocols were attacked, affecting crypto assets worth $718 million, setting the highest monthly loss record so far this year.

Some large blockchain ecosystems, due to their scale and ever-expanding functionality, often become the preferred targets for scammers and hackers. These platforms have recognized the prevalence of smart contract scams and have begun to take measures, such as integrating real-time risk monitoring tools, to promptly alert users to potential risk projects.

Common Techniques of Rug Pull Projects

Rug Pull projects typically achieve their fraudulent objectives by carefully designing code within smart contracts. The main goals of this code include:

1. Prohibit secondary market trading
2. Allow project developers to mint new tokens without restriction.
3. Charge buyers high transaction fees

These malicious scripts are hidden in the underlying code of the tokens, and once investors purchase them, they face significant risks. Most Rug Pull tokens appear to be no different from other legitimate cryptocurrencies and even adhere to the blockchain's token standards, but the real issues are concealed in the source code of the smart contracts.

With the development of the cryptocurrency industry, fraudsters have gradually mastered the underlying technology and are capable of deep modifications to smart contracts. They often hard-code malicious rules into the contracts, granting themselves additional powers while depriving buyers of their basic rights.

The typical operation process of a Rug Pull includes:

1. Deploy tokens with vulnerabilities
2. Create a liquidity pool on a decentralized exchange
3. Artificially creating trading volume to inflate token value
4. Attract retail investors to enter the market
5. Quickly sell tokens and cash out.

In addition, Rug Pull projects may also take the following measures to increase their surface credibility:

• Create fake websites and develop roadmaps
• Promote false partnerships
• Advertising promotion on social media

The Main Fraud Type of Rug Pull Tokens

Currently, there are three main types of Rug Pull in the market:

1. Honey pot vulnerability: Prevents ordinary investors from selling tokens, only allowing developers to trade. As of the end of October 2022, approximately 96,008 token projects in the market have this type of vulnerability.

2. Unauthorized Minting Function: Specific accounts are authorized to mint new tokens without restrictions. As of the end of October 2022, about 40,569 token projects carry this risk.

3. Balance modification backdoor: allows specific accounts to modify the token balance of other holders, even setting it to zero.

The ultimate goal of these fraud schemes is to allow the project party to quickly cash out and leave behind a mess.

Conclusion

With the increasing prevalence of crypto eyewash, investors need to be especially cautious when selecting projects and thoroughly assess potential fraud risks. At the same time, regulatory authorities should intensify their efforts to combat these issues, protect consumer rights, and enhance the integrity and transparency of the market. Only in this way can a favorable environment be created for the healthy development of the cryptocurrency industry.