How to Rug Pull and Get Away With It
DISCLAIMER: We do not under any circumstance condone such behavior. We believe it not only to be morally wrong but also blatantly illegal. This article is our attempt to raise awareness about these types of scams and hopefully save the readers’ money.
Rug Pull
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. — https://www.coingecko.com/en/glossary/rug-pulled
Are you a successful influencer or have friends that are? Have you got some spare cash? That’s great! It’s all you need for your next Rug Pull. Don’t believe me? There are thousands of people willing to testify for the case I’m about to make.
Phase 1 — The Idea
You’re a decent person. You’re working hard day and night to achieve your dreams. You want to build the next big thing and earn some money out of it. Unfortunately, every one of your ideas falls short for one reason or another, most of them out of your control. It must be frustrating. You’re thinking “I worked so hard and got nothing in return. I deserve at least something. Why should all those unscrupulous scammers get millions whereas me, a stand-up person, got nothing?”.
You’ve seen it done again and again with no repercussions. If people are willing to take some risk investing it’s not your fault, is it? And a plan forms.
Phase 2 — The Team
What does baby powder and financial advice have in common? The same influencer talking about them.
You quickly figure out you’re gonna need some people around you to push this new Token. Preferably, people with marketing and/or sales knowledge. But not professionals. A professional wouldn’t associate his image with an unknown, unreleased, unverified, unregulated piece of product even if your intentions were mountain water pure. Not to mention, you don’t have a legal entity to back this project up, like an LLC, nor want/need one. A legitimate business is regulated and subject to income tax. Enter the Influencers. They know everything about hype and are exactly what you need.
Disclaimer: We absolutely have nothing against influencers and/or hype. As in any area, there are good intended people and bad intended people; well informed people and badly informed people.
So you reach out to some influencers with a background of promoting anything and everything on their platform for a price, regardless of quality, and pitch them the project. It would be in your advantage to hide your identity (including your internet fingerprint). You bring them aboard as “brand ambassadors” but at this point they are more or less co-founders. Their job is to build up the hype around the project and raise awareness.
We will explore the concept of “hype” later in this article.
Phase 3 — The Code
Afraid of this step? You needn’t be. There are many ways to do this phase if you are absolutely not tech savvy. But you’re working on a crypto project. You must have some minimal technological knowledge. That’s all you need.
The easiest option would be to use a token generator because you need 0 knowledge, all you have to do is to tick a few checkboxes, set a name, symbol and maximum supply and you are all set. Almost all applications will allow you to deploy smart contracts to any popular blockchain (e.g., Ethereum, BSC, Polygon, Huobi, xDAI, etc.) but the most popular and cheap is BSC.
The most difficult part will be to connect MetaMask to your browser and sign the transaction, but luckily there are thousands of tutorials on YouTube. The only downside is that it will cost a bit more than the Gas Fee but the demand is so high that there is a lot of competition.
Here is a short list of the token generation applications that can be used:
- https://cointool.app/createToken
- https://www.createmytoken.com/token-builder/
- https://tokenmint.io/app/#/token
After the deployment is complete, the contracts will get automatically verified on etherscan/bscscan after about a day or two. Most scanners have a feature that verifies smart contracts based on similarity and the blockchains are so flooded by contracts deployed with this kind of token generation that its almost impossible yours won’t be verified.
If you find spending around 1.5 BNB too much for the token generation, there’s even a better alternative, find a token that you like, copy the contract code and follow this tutorial to deploy: How to Make a Crypto Token with 0 Tech Skills. This way will bring the cost down to a few cents on BSC and a few dollars on Ethereum Blockchain. It also comes with a bonus, you could even use https://ascii.today/ to create some cool text for the header of the source code, it will make you look like a pro.
Note: If you copy a contract that has features like liquidity redistribution or whitelisting by the admin, don’t forget to replace the addresses from the contract code to your addresses.
Phase 4— The Promises
This is where you need to build up the hype. You employ the help of your newly appointed “brand ambassadors”. You launch the website and the social media accounts. Maybe buy some “followers” to boost trust in your brand and while you’re at it, use some bots to invite people to your Telegram group. You state bold claims in your roadmap. Essentially, you make the project look pretty, professional (or the opposite according to your strategy) and most important, you make it look like it has a very bright future. It can be a groundbreaking technology which you will release after 6 months or a proprietary exchange with smaller fees. You can even claim it will change the world through charity. All that matters is how good it looks. Oh, don’t forget to add mind-blowing supply numbers (because large numbers are confusing) and, of course, a large percentage of burned tokens. We explained here how token burning helps this play.
There are and will be projects that will hold up to those claims but for the sake of this article, we will consider the promises above as hollow.
Hype is defined as “extravagant or intensive publicity or promotion”. Marketing strategies in the modern era of the information age increasingly revolve around hype.[…] Hype has emerged as a marketing strategy due to the proliferation of social media. — Wikipedia, https://en.wikipedia.org/wiki/Hype_(marketing)
There is nothing wrong about hype. It is a very successful marketing strategy. As you can see in the graphic above, the hype curve looks like a time response of a second order system. The peak is called an overshoot and is the highest point the hype will reach. After that, the system will regulate itself to normality (true value).
This graphic is true for countless examples in theory and real life. For example, it can represent the joy of buying that watch you’ve been saving your whole life for. You’re so excited at first; it’s the best thing that ever happened to you, but after a while, this excitement fades to a stable level. You still take pleasure in owning that watch but it’s not euphoria anymore. So you see, everything inside and around us can be considered a system.
Keep those two graphics in mind because we’re gonna need them in the next phase.
Phase 5 — The Launch and Disappearing Act
Everything is ready. You line up your team and coordinate the launch. As soon as your token hits the blockchain, you and your co-founders burn the previously stated amount of tokens and begin to buy up large amounts of your own tokens in multiple wallets, using a random pattern. Immediately after that, you launch all the social media materials to encourage other people to buy. If done well, it should bring heavy volumes in the first few hours and those volumes would serve to pump the hype for the next few days. Now, do you remember the two graphics we talked about earlier? Just as soon as you identify the peak (at this point, you should have at least x50 your investment), you and your co-founders sell almost all your tokens but save at least a wallet/co-founder intact. At this point, the investors will experience massive panic as the price of the token approaches 0. This is when you disappear.
Phase 6— The Blame
A few days have passed after the dump. It’s time to try to save face. As your influencer partners deny any knowledge of the scheme, you post on the official channels about a sad but “true” reality: your project has been hacked. No-one will believe you but that’s not the point. The seed of doubt has been planted. In time, people won’t know what to believe 100%. As you were anonymous to begin with, you should be able to disappear without much problem. Also, don’t buy a Lambo. It will draw attention.
If you successfully followed the steps above you’ve managed to empty the pockets of kids, students, single parents and people already in debt and if you’re lucky enough, maybe Mark Cuban. Not only that, but you also cast a dark shadow over all crypto world, lowering the credibility even for good projects.
You’re rich now. Good for you, little man.