Wherein we Staple the Rug to the Floor

What’s a Rugpull?

Here’s the scenario: A new ShitCoinJr (SCJ) just popped onto the DeFi map, and is attracting attention. The premine holders put large portions of ETH and their premined SCJ into AMM liquidity provision, along with ETH. Users can now trade between ETH and SCJ with little slippage. Hooray!

Hype increases, and new users trade ETH for SCJ via the liquidity pool. This increases the price of SCJ, but more significantly, the amount of ETH in the pool increases while SCJ is drained.

Then disaster strikes: the original premine holders, who are now the major liquidity providers, remove their liquidity, reclaiming all the ETH (a lot more now) and SCJ (a lot less now) from the pool. The liquidity that the users depended on has been removed “from under their feet” (hence “rugpull”), and they can no longer exit without tanking the price. …

Logan Brutsche

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