Lecture Notes: Rug Pulls: Your Complete Guide

Introduction to Rug Pulls

• Definition: A rug pull is a scam where creators of a crypto token hype and pump the token's value, then abandon the project, taking investors' funds.
• Types:
  • Dumping: Creators sell their tokens at peak value, causing price collapse.
  • Liquidity pulls: Creators drain liquidity from dex, leaving worthless tokens.
  • Limiting sell orders: Creators control token sales, manipulating token value.

Identifying Rug Pulls

• Common Signs:
  • Rapid emergence of the project.
  • Lack of clear whitepaper or roadmap.
  • Extensive marketing and celebrity promotions.
  • Low liquidity.
  • Anonymous developers.
  • Sudden skyrocketing values.
  • Unrealistic promised yields.
  • Grand claims from new NFT projects.

Infamous Rug Pulls

• Bitconnect: Promised high returns, crashed after regulatory attention.
• Squid Game: Investors couldn't sell, founders disappeared.
• Bored Bunny NFT: Celebrity promotions, dev wallet manipulation.
• Frosties: Quick sale followed by exit, creators were arrested.
• Luna Yield: Disguised as legitimate, funds vanished after IDO.

Legal Status of Rug Pulls

• Hard Rug Pulls: Malicious and illegal.
• Soft Rug Pulls: Unethical but not always illegal.

Steps if Involved in a Rug Pull

• Connect with the community for legal advice.
• Contact involved platforms for possible recovery.
• Sell tokens quickly if possible to minimize loss.

Tax Implications of Rug Pulls

• Capital Loss:
  • Not considered theft; tokens still owned.
  • To claim loss, sell or trade worthless tokens.
  • Loss offsets gains for tax reduction.
  • If unsellable, send to a burn wallet to claim loss.

Using Koinly for Crypto Tax

• Features:
  • Sync wallets and exchanges for a complete transaction history.
  • Calculate capital gains, losses, and crypto income.
  • Free tax summary with optional paid detailed reports.

Summary

• Rug pulls exploit investor trust, leading to significant financial loss.
• Key indicators include lack of transparency and unrealistic promises.
• Legal implications vary; reclaiming losses requires strategic action.
• Koinly can assist in managing and understanding tax implications.