‘Soft rug’ syndrome is the latest scam on the DeFi scene, and it’s causing some serious concern on crypto money markets.
What is a soft rug?
It happens when developers suddenly dump their tokens and exit with the funds, leaving users empty-handed.
Remember the ‘rug pull’? This takes place when developers or insiders clean out liquidity from pools or vaults on decentralised exchanges. Then they vanish with the proceeds.
The soft rug is similar, but is even more worrying. In this instance, the project founder doesn’t even bother to take control of user assets, instead just dumping their own tokens and leaving the venture.
Developers can go to great lengths to hide what they’re doing. Many succeed in winning the trust and goodwill of users, ensuring they don’t know what’s happened until well after the fact.
Soft rugs in action
Two recent high-profile cases reveal the scam in action.
Founders of Polywhale Finance have been accused of pulling a soft rug. As Cointelegraph reported, the team is alleged to have sold their tokens during the latest drop in crypto market prices.
In a Reddit post, the Polygon-based yield farming project publicly announced it was going to stop work on the platform. It took two days for token holders to discover that the project’s treasury wallet had been emptied.
This caused a slump in value for Polywhale’s native token KRILL, which fell from a high of $7 to $0.17.
Yet it’s not always clear whether a soft rug’s been pulled, or whether project founders have legitimately withdrawn and handed in their tokens.
Founders of payment platform Swipe recently announced they were bailing from the project. This is quite a big deal, as Swipe is responsible for developing Venus, Binance Smart Chain’s third largest protocol.
The move was called out as a soft rug by Uniswap community member MonetSupply. Yet members of the new Venus community have denied it, insisting Swipe founders returned all the tokens they held.
New security measures are needed to increase user security and shore up confidence in crypto trading. In the meantime, the soft rug risk highlights the need to always research before investing in projects!