Rug Pull
By CoinGecko | Updated on Aug 12, 2021
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.
Related Terms
Zero Confirmation Transaction
Another name for "unconfirmed transaction"
Proof of Work (PoW)
A consensus algorithm in which a block is validated via mathematical hashing
EIP (Ethereum Improvement Proposal)
Refers to improvement proposals for Ethereum, used to introduce features or any updates on the Ethereum network.
InterPlanetary File System (IPFS)
The InterPlanetary File System (IPFS) is a peer-to-peer network and distributed file system protocol for storing and transferring data.
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