Cryptocurrency industry has recently entered a recovery phase, with many assets benefiting from Bitcoin's surge towards $52,000. However, the crypto space continues to be plagued by a phenomenon known as "rug-pull," which essentially means pulling the rug out from under someone. This expression, peculiar to the crypto world, identifies fraudulent actions and begs the question of its origin.
Essentially, rug pulls occur when a project creator withdraws most or all of the liquidity, including investor deposits, leaving token holders with worthless tokens. There are two types of rug pulls: slow and hard.
Unlike a hard rug pull, where the development team absconds with project funds, a slow rug pull happens when a team fails to deliver valuable products for token holders. Consequently, developers gradually drain the treasury by distributing high salaries to team members, leaving token holders with valueless tokens. As observed by Tyler Pearson, a researcher at the University of Canada, hackers plundered cryptocurrencies for $1.7 billion in 2023, with the third-largest loss of $126 million suffered by the Multichain protocol in July due to compromised project private keys.
The term "rug pull" is so recent that it's absent from the American Merriam-Webster dictionary and the Oxford English Dictionary. However, the latter includes the expression "to pull the rug from under someone," meaning to suddenly or unexpectedly withdraw support, leading to disappointment or betrayal. The earliest appearance of this expression dates back to 1928 in the Democrat and Leader newspaper of Iowa, where it was used in a political context. The term gained popularity in the crypto world to describe fraudulent schemes where anonymous founders deceive people into investing in a crypto project that is later abandoned.
The term "rug pull" has also become synonymous with a sudden turn of events or a surprising ending. Its first use in the context familiar to crypto enthusiasts was in a New York Times article in 2022, describing the disappearance of funds in a rug pull by the AnubisDAO crypto collective. The metaphorical origin of this term is unclear, but it likely stems from the association of rugs with warmth and comfort. Over centuries, rugs have been associated with security, as evidenced by phrases from the 17th and 18th centuries. However, the verb "to pull" has long meant to violently tear or snatch something away, suggesting a sudden withdrawal of support or a false sense of security.
In essence, the term "rug pull" encompasses a range of meanings, including a false sense of security, sudden withdrawal of support, dashed expectations, and betrayal.