The rapidly evolving cryptocurrency ecosystem, for all of its potential to expand access to finance, has created new opportunities for scammers, specifically rug pulls. In 2024, investors were defrauded by an astounding $3.4 billion in rug pulls—up 22% over last year. This increase is evidence of the growing sophistication and prevalence of these scams. They are dangerous to both savvy and novice investors.
Developers jumping ship and running away with investors funds. Yet these schemes have grown more complex and sophisticated, too. As rug pulls increase, it’s more important than ever to improve vigilance and awareness among the crypto community to protect investors. As these schemes grow in sophistication and scale, knowing how they work and what red flags to look for is increasingly important to defend one’s investments.
This article will look at the anatomy of rug pulls in 2024. Additionally, it analyzes the tactics, victims, and social media platforms most frequently associated with these fraudulent schemes. By examining the data and trends, the aim is to equip investors with the knowledge necessary to navigate the crypto space more safely. Understanding these trends and patterns is important for investors who want to put themselves in a better position to protect their assets from the unpredictable cryptocurrency market.
Retail Investors Hit Hardest
Retail investors, especially those who are new to the crypto market, are highly vulnerable to rug pulls. During 2024, 70% of rug pull victims were retail investors, and most of them invested less than $10,000. This demographic frequently does not have the experience or capital to do proper due diligence, which makes them easy prey for bad actors.
Those small investment amounts tell a different, but no less encouraging, story. Too many victims just as easily get sucked in by the come on of fast returns. That eagerness is what scammers pounce on. Through a veil of respectability, they design projects that look real, but would, if executed, fail after they’ve collected as many dollars as possible. The emotional toll on these investors is nothing short of catastrophic, further undermining faith in the crypto space and preventing wider acceptance.
The accessibility of decentralized finance (DeFi) platforms has inadvertently made it easier for scammers to launch and promote fraudulent projects. Social media is a huge vector for these scams, helping fuel their virality. Influencers and paid promoters regularly promote projects without any diligence. Educational and awareness campaigns will be necessary to arm retail investors with the knowledge they need to spot and avoid rug pulls.
The Anatomy of a Rug Pull
They’re occurring at a noticeably quick degree as rug pulls have turn into extra environment friendly. Indeed the average time has plummeted to a mere 12 days, down from 21 days in 2023. This blitzkrieg implementation makes it extremely difficult for investors to respond and pull out their investment before the project implodes. Fraudsters are becoming more sophisticated in their practices. They take the money and run before law enforcement or the public at large can thwart their efforts.
Unregulated, open DEXs such as Uniswap and PancakeSwap act as the hottest places for rug pulls. In reality, they represented 58% of all fraudulent activity in 2024. These platforms make it very easy for anyone to create and list a token, fundamentally avoiding the broader and more rigorous vetting processes of centralized exchanges. While DEXs offer greater accessibility and innovation, they provide a haven for malicious actors seeking to exploit unsuspecting investors.
Social media platforms, including Telegram, Twitter, and Discord, are instrumental in driving investor traffic to rug pull schemes, accounting for 80% of such traffic. Scammers use these platforms to create hype around their projects, often employing fake accounts and bots to amplify their message. Paid and organic influencer marketing is a go-to tactic to attract unsuspecting investors with the promises of unreasonably high returns. Real investors need to be exceedingly wary of any project that is selling itself on social media, and do their own due diligence before investing a dime.
Deceptive Tactics and Trends
As a result, AI-generated whitepapers and phony audits have quickly integrated themselves into rug pull scams. In 2024, 27% of rug pulls included these sharky checklist items, all created to look like they come from a credible project. AI-generated whitepapers are able to churn out documentation that sounds very plausible and compelling but is ultimately misleading, and fake audits offer false assurances of security and reliability.
Hard rug pulls, where liquidity is removed within seconds, made up 55% of all rug pulls in 2024. In the crowdfunding world, scams are most likely to hit in the first 7 days of a project’s life. In reality, this occurs 38% of the time, giving investors little time to react. The unexpected vanishing of money is proof of how cutthroat these scams can be. It highlights the importance of checking a project’s bona fides before you put any money down.
Soft rug pulls, where the project team exits slowly by either eroding the token’s value over time or draining funds from liquidity pools, accounted for 45%. Regularly, scammers do this using inflated roadmaps and non-existent collaborations or partnerships. In reality, an incomprehensible 62% of soft rug pulls in 2024 rely on these deceptive approaches. On average, soft rug pulls take place within an 8-month timeframe. For comparison, hard rug pulls happen in under a day. This artificially long timeline gives scammers more time to siphon money and continue the façade of project development.
Red Flags and Prevention
2 Pre-sale scams, in which the token is never listed on an exchange after launch, made up 30% of all rug pulls. Scammers love early adopters and quickly started creating fake cryptos. These folks have the dexterity to get into great projects with potential early on. Failing to ever list tokens on an exchange is a pretty good indicator of bad faith intent to defraud. This move prevents investors from being able to trade or sell their investments.
This means that misleading tokenomics, like hidden minting functions, are found in 36% of hard rug pull occurrences. These undocumented commands enable any user to mint new tokens without limitation. This flooding of the market further dilutes the value of existing holdings and lets them continue to drain liquidity. Investors need to take a deep look at a project’s tokenomics. Lastly, investors should be cautious of red flags that can indicate a potential upcoming rug pull.
Broken liquidity locking promises were present in 45% of the rug pulls over the past 12 months. Liquidity locking protects against developers making an exit scam by withdrawing all funds from the liquidity pool. This measure provides assurance to investors against the risk of rug pulls. Scammers are always coming up with new scams to get around these locks. They use vulnerabilities in buggy smart contracts or seize control of the locking process.
The Rise of NFT Rug Pulls
NFT rug pulls are a new emerging trend, already accounting for 14% of all rug pulls in 2024. These scammers will develop or advertise a new NFT collection and make promises for future utility or value. Once they raise money from investors, they leave the project in the dust. The NFT space is largely unregulated, which creates a unique breeding ground for these scams.
NFT rug pulls often employ sham social media accounts to trick would-be buyers. They increase buzz about the release through targeted ads. Scammers could additionally use AI art or AI-generated plagiarism to generate a shitload of NFTs fast. Investors must do their due diligence on the team behind an NFT project, searching for public records of experience and credibility.
Unfortunately, the relatively low barrier to entry within the NFT market creates an ideal environment for scammers to quickly launch fraudulent projects. Additionally, NFTs generally don’t have intrinsic value like other traditional investments, meaning these NFT investments are vulnerable to speculative bubbles and rug pulls. Investors need to avoid chasing projects that are selling dreams of unrealistic returns or don’t have a well-established infrastructure program and plan for continued advancement.
