In 2021, SQUID, which imitated the popular TV series "Squid Game", plummeted from $2,861 to $0.0007 in 5 minutes, 40,000 investors' accounts were cleared. This fraudulent method, known as "Rug Pull", has become the number one security threat in the Web3 field by attracting funds through false advertising and suddenly withdrawing liquidity. According to the 2025 DappRadar report, losses caused by such scams increased by 180% year-on-year, with 92% concentrated in meme coins and DeFi protocols. Compliance platforms such as HashExchange Key have increased the block rate of suspicious projects to 94% through smart contract audits and on-chain monitoring.
Core principles and operating modes
The core of Rug Pull lies in utilizing the Automatic Market Maker (AMM) mechanism of decentralized exchanges (DEX). Scammers carry out attacks through the following steps:
- False liquidity injection : Creating token pools on platforms such as Uniswap, injecting small amounts of ETH and newly published tokens (such as SQUID), forming initial liquidity.
- Price manipulation and selling : By creating the illusion of trading volume through robot trading, the coin price is raised to tens or even tens of thousands of times. When retail investors buy in large quantities, the attacker calls the removeLiquidity function to instantly withdraw all ETH, causing the token price to zero.
- Money laundering : The use of Tornado Cash and other mixers to hide the flow of funds, and ultimately exchange the stolen money for stablecoins such as USDT and transfer it to overseas exchanges.
Some scams implant malicious logic through the code layer.
- Transaction restriction trap : writing onlyOwner permission in the contract allows developers to freeze user withdrawal function at any time. For example, a DeFi project suddenly closes the redemption channel and transfers the fund pool after the user deposits ETH.
- Unlimited issuance vulnerability : Set the mint function to a callable state, and developers can freely mint new coins for sale. In 2025, a meme coin project issued 1 billion tokens through this vulnerability, causing the coin price to plummet by 99%.
Scammers usually use the strategy of "hot bundling + FOMO marketing".
- Riding IP heat : Borrowing Labubu tide play, "desperate" movie and other popular culture publish tokens, using fan groups to quickly gather liquidity.
- False Endorsement : Forging partnerships with well-known institutions, such as falsely claiming official partnerships with Netflix or Binance, to gain trust.
- Community manipulation : Arranging "daycare" in Discord and Telegram groups to create the illusion of panic buying, while banning skeptical accounts.
II. Defense strategies and technical practices
HashKey Exchange collaborates with KPMG and Ernest & Young to establish a three-level audit system.
- Static code analysis : Use Slither tool to detect common vulnerabilities such as approve function abuse and reentry attacks, and fix latent risks before deployment.
- Dynamic behavior simulation : Use Echidna for fuzz test to simulate 100,000 trading scenarios and verify the stability of the contract under extreme pressure.
- Real-time monitoring and early warning : Deploy on-chain robots (Bot) to continuously track changes in the liquidity of the token pool, and immediately trigger an alarm when abnormal transfers occur at the developer address.
Building threat and risk assessment models through Machine Learning:
- Address Behavior Portrait : Analyze the transaction frequency, transfer amount distribution, and cross-chain interaction records of wallet addresses. For example, a project developer's address interacted with 12 mixer addresses within 3 days before the token launch, which was marked as high risk by the system.
- Liquidity Pool Health Monitoring : Calculate the "Price Impact" and automatically add a token pool to the blocklist when its trading slippage exceeds 30%. HashKey Exchange's monitoring system intercepted 17 projects attempting to manipulate prices through high slippage in Q3 2025.
HashKey Exchange implements a "triple insurance" mechanism.
- Cold wallet storage : 98% of user assets are stored in offline cold wallets, which prevent private key leakage through hardware security module (HSM) and multi-signature technology.
- Traceability of fund flow : Access Chainalysis' KYT (Know Your Transactions) system to track the on-chain fund path in real time. In 2025, when a fraudster transferred the stolen money to the Solana chain through a cross-chain bridge, the system locked the funds and froze the relevant accounts within 30 seconds.
- Developer identity authentication : The project party is required to submit a code audit report, KYC information and proof of funding source. Tokens that have not passed the audit are prohibited from being listed for trading.
III. User Risk Avoidance Guide
- Technical verification four-step method
- Check if the token contract is open source and verify the code logic through etherscan.io.
- Check the locking status of the liquidity pool and analyze the distribution of LP tokens using tools such as Dune Analytics.
- Confirm whether the official website domain name of the project is consistent with the social media account, and be wary of temporarily registered domain names (such as Labubu coin official website registration time of less than 72 hours in 2025).
- Verify team members' LinkedIn profiles and GitHub contribution records to avoid anonymizing the development team.
- Behavioral economics strategies
- Follow the "2% principle": a single investment should not exceed 2% of total assets, and be diversified in different public chains and asset classes.
- Use stop-loss tools (such as Trailing Stop) to automatically position squaring to prevent emotional holding. A user used this function to automatically sell Squid Coin 2 minutes before it plummeted, reducing losses by 90%.
- Regulatory Dynamic Tracking
Pay attention to policy changes in various countries, such as the Hong Kong Securities Supervision Commission's new regulations in 2025 requiring all virtual asset exchanges to access the anti-fraud database of HashKey Exchange to achieve real-time sharing of risk information.
The essence of a carpet scam is to use the anonymity of blockchain and the openness of DeFi protocols to commit fraud. HashKey Exchange reduces the impact of such risks by 85% through technical defense and compliance governance, while maintaining the vitality of Web3 innovation. Before participating in any encryption project, investors need to remember: DeFi without liquidity lock-in is essentially a digital twin of a Ponzi scheme.