UQUID EXPLORE: What Is Rug Pull And How It Works

 WHAT IS RUG PULL?

Rug Pull is a term that refers to the act of withdrawing all investors' capital and running away. This action usually occurs on decentralized platforms when a certain token is drained of liquidity and is no longer valid for exchange, causing great damage to the investors who bought the token before.

HOW RUG PULL WORKS

Currently, creating a token is no longer too difficult and complicated on some decentralized ecosystems like Ethereum (ETH) and Binance Smart Chain (BSC), but for that token to be valuable it must have a liquidity pool. for user. Therefore, staking to increase liquidity and value for tokens is also an important factor.

In simple terms, the token pool plus the liquidity pool equals the total value of the token. As the liquidity pool is increased from staking, the value of the token pool will also increase.

The way Rug Pull works in the crypto market can be understood that when large investors withdraw capital from the liquidity pool, it will reduce the value of the token, then other investors have a fear of continuing. Their continued withdrawal causes the value of the token to fall further and gradually lost liquidity. The worst case is that the liquidity pool can't liquidate users and the token value is zero.

A good example is the Rug Pull on SushiSwap, the SUSHI token increases in value rapidly and someone withdraws a large amount of $14 million worth of liquidity causing the value of SUSHI to plummet. Making this token costs about $9 token down to about $1 in less than a week.