What Is a ‘Rug Pull’ and How Is It Executed in a DeFi Protocol?

A 'rug pull' is a malicious maneuver in which cryptocurrency developers suddenly drain all the liquidity from a decentralized exchange (DEX) pool. This typically happens after the token has been hyped and investors have deposited significant funds into the liquidity pool.

Once the funds are removed, the token's price plummets to near zero, leaving investors with worthless assets. It is a form of exit scam often facilitated by smart contract backdoors or lack of lock-up periods.