Shaurya is an analyst/editor for CoinDesk's markets team in Asia.
Wallets connected to developers of BNB Chain-based Teddy Doge sold over $4.5 million worth of its TEDDY tokens for other cryptocurrencies over the weekend, causing concerns among investors.
Wallets connected to Teddy Doge’s deployer contract exchanged TEDDY tokens for thousands of wrapped BNB, a BNB equivalent issued on Ethereum, from several accounts over the weekend, security firm PeckShield said on Monday.
“The deployer deployed the contract and transferred a large quantity of $Teddy to 0xdbe8ef79a1a7b57fbb73048192edf6427e8a5552, then pump and dump the price of $Teddy,” PeckShield said, terming the actions as a “soft rug pull.”
South Korean blockchain security firm Sooho also termed the project a "soft" rug pull. "Rather than cheating on the code, it seems that the distribution allocated to the manager's account was divided and sold in bulk," said Jisu Park, CEO of Sooho. "It's not a hack, it's a rug. But it's unclear whether they've abandoned the project, so we can call it a “'softrug.'”
Addresses connected to the project exchanged TEDDY for wrapped BNB, which in turn was exchanged for over 10,000 BNB and 2 million BUSD, PeckShield added. The converted funds were then sent to crypto exchange Binance.
This was possible as the rogue developers controlled the project's liquidity pools. Liquidity pools refer to the token pairs held by smart contracts on decentralized exchanges, such as PancakeSwap, with developers initially seeding both sides of a token pair.
In decentralized finance [DeFi], rug pulls are scams where the developers conduct legitimate work on a blockchain and then drain the liquidity pools from the project, essentially "pulling the rug" from under investors and causing a sharp fall in related tokens.
Meanwhile, project admins said on Teddy Doge’s Telegram channel that they were “not certain whether it is a bug in our cross-chain bridge or a leaked developer wallet.”
“Don't buy tokens for now. We have closed the cross-chain bridge and are in the process of fixing it,” the admins said, adding that TEDDY holders would soon be given DRAC, a new token, as the project was in the process of rebranding to Drac Network.
Teddy Doge, which offers token swap, non-fungible token [NFT] and cross-chain products, had raised hundreds of thousands of dollars in an initial token offering. NFTs are tokens which represent the ownership of a virtual or physical item and cross-chain refers to transactions in which data is sent from one blockchain to the other.
TEDDY prices fell 99.7% in the past 24 hours, CoinGecko data shows.
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Shaurya is an analyst/editor for CoinDesk's markets team in Asia.
Shaurya is an analyst/editor for CoinDesk's markets team in Asia.
A rug pull is a type of scam where developers abandon a project and take their investors' money.
What Is a Rug Pull?
A rug pull is a malicious maneuver in the cryptocurrency industry where crypto developers abandon a project and run away with investors’ funds. Rug pulls usually happen in the decentralized finance [DeFi] ecosystem, especially on decentralized exchanges [DEXs], where malicious individuals create a token and list it on a DEX, then pair it with a leading cryptocurrency like Ethereum.
Once a significant amount of unsuspecting investors swap their ETH for the listed token, the creators then withdraw everything from the liquidity pool, driving the coin's price to zero. The coin’s creators may even create a temporary hype around Telegram, Twitter, and other social media platforms and initially inject a substantial amount of liquidity into their pool to cultivate investor confidence.
Rug pulls thrive on DEXs because these types of exchanges allow users to list tokens for free and without audit, unlike in centralized cryptocurrency exchanges. Furthermore, creating tokens on open source blockchain protocols like Ethereum is easy and free. Malicious actors use these two factors to their advantage.
Note that decentralized exchanges such as Uniswap algorithmically determine the prices of tokens in a pool depending on the available balances. To ensure you don’t fall victim to a rug pull, check the liquidity in a pool. However, this is only the first step. You must also check if there is a lock on the token’s pool. Most reputable projects lock pooled liquidity for a certain period.
Another major characteristic of a possible rug pull is a coin skyrocketing in price within hours. For example, a rug pull coin can move from 0 to 50X within 24 hours. This trick is meant to drive FOMO that leads more people to invest in the token.
In order for a project to be deemed "unruggable," it means that there aren't a significant amount of tokens help by the development team. Without the signature large amount of team-held tokens that could be taken in a rug pull or exit scam, a project could be considered unruggable.
Another way to think about an unruggable project is if the team renounces ownership of any tokens, like tokens they would have acquired during a presale.