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Rug Pull

    In the context of crypto and decentralized finance (DeFi), “rug pull” is a term to describe when a liquidity provider removes their funds from a decentralized exchange (DEX) liquidity pool, essentially meaning there is no more liquidity left in the market. When liquidity providers, token holders, and traders panic at the loss of available liquidity for trading, it results in a sell-death spiral. Once liquidity drains, token holders may have remaining illiquid assets that they may not be trade anywhere else. Several projects have taken measures to alleviate risks associated with rug pulling, including committing a certain level of liquidity that cannot be removed (i.e., LP Token Burn, Liquidity Locking contract), but this does not eliminate potential risks. For this reason, market participants should conduct due diligence before trading.