How DeFi ‘Rug Pulls’ Are Becoming the Bane of the Industry

As crypto markets continue their retreat, DeFi tokens are getting hit particularly hard and investors are growing wary of a rising trend of rug pulls.
Published by
How DeFi ‘Rug Pulls’ Are Becoming the Bane of the Industry

As cryptocurrency markets continue their retreat, DeFi tokens are getting hit particularly hard and investors are growing wary of a rising trend of ‘rug pulls’.

In essence, a rug pull is similar to a pump and dump. Tokens are artificially inflated by hype and spurious liquidity, only to be sold off or dumped at a peak leaving the latecomers out of pocket.

This has left many DeFi tokens with chart patterns that resemble those that were seen by countless altcoins during the 2017/2018 ICO boom. Analysts have even joked that some charts look like Dubai’s iconic Burj Khalifa tower, which is effectively a huge spike in the sky.

Advertisement

Liquidating DeFi Rug Pulls

Popular analyst Josh Rager recently posted how he has just liquidated a large stash of these assets which are now worth a pittance.

Many of these DeFi clones are just tweaked smart contracts launched by anonymous entities with no backing or code audits. They’re driven by hype and tend to attract ‘degens’, or degenerate farmers, just seeking a quick buck.

Tokens are initially distributed or airdropped in greater numbers to early adopters who provide that liquidity boost at the start. As the hype mounts, more liquidity pours in and the laggards lose out when the tokens are sold at many times their original value. This entire process can happen within a few hours.

It is made possible by the nature of decentralized exchanges such as Uniswap which allow anybody to create any token and list it providing it has the equivalent liquidity in another token, usually ETH.

Rager joked that he could use the losses to count against capital gains for tax purposes this year.

Advertisement

DeFi Dumps in 2020

There have been a number of highly successful DeFi protocols this year which have seen their native tokens surge hundreds of percent. These are usually more established platforms with greater transparency and fully audited smart contracts.

On the flip side, there have been a number of copycats that simply didn’t make the grade and the premise that DeFi has already peaked. SushiSwap is probably the best example of this with its rocky start and pump and dump chart pattern. At the time of writing, SUSHI tokens were trading for $0.62, down over 94% from their peak.

Swerve is another example with SWRV prices down over 90%, and bZx protocol has seen its native token slide 92% since ATH following a series of security exploits. Nearly all DeFi tokens are in decline at the moment but many were just scams from the start, which is why it pays to always do your own research.

Advertisement

Share
Martin Young

Martin has been writing on cyber security and infotech for two decades. He has previous forex trading experience and has been covering the blockchain and crypto industry since 2017.

Published by
Why trust CoinGape: CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights to our readers. Our journalists and analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.

Recent Posts

  • 24/7 Cryptocurrency News

Breaking: Ripple Partners With Bahrain’s Fintech Bay in Push for RLUSD Adoption

Ripple has announced a new partnership with Bahrain’s Fintech Bay (BFB). This initiative seeks to…

October 9, 2025
  • Altcoin News

XRP News: Why Whales Sold 440M Coins in a Month Despite ETF Launch Buzz

In a major XRP news today, whales are betting against XRP ETF launch anticipation and…

October 9, 2025
  • 24/7 Cryptocurrency News

Just In: DeFi Dev Corp Launches Japan’s First Solana Treasury Company, SOL Price Reacts

DeFi Dev Corp has announced the creation of Japan’s first Solana Treasury firm in partnership…

October 9, 2025
  • 24/7 Cryptocurrency News

Pi Network Mainnet to Get Major Upgrade in Q4, Says Expert

Over the past month, the Pi Network testnet has been actively testing the Protocol v23…

October 9, 2025
  • 24/7 Cryptocurrency News

Bitwise Solana ETF to Launch This Week as It Amends Staking, Fees? Bloomberg Weighs In

Bitwise Solana ETF (BSOL) is likely gearing up for launch this week as the issuer…

October 9, 2025
  • 24/7 Cryptocurrency News

Canary Capital Trump Coin ETF Secures DTCC Listing as Expert Predicts Price Breakout

Canary Capital’s Trump Coin ETF has been listed on the Depository Trust & Clearing Corporation…

October 9, 2025