David Schwartz has shed new light on what makes up crypto rug pulls in the market.
David Schwartz, Ripple Labs’ Chief Technology Officer, recently sparked a conversation about the true meaning of rug pulls. In an X post, Schwartz shared his thoughts on the controversial topic, setting up a discussion among his followers.
Crypto rug pulls remains one of the significant issues that has plagued the blockchain and crypto space. Many high-profile cases have shown how serious the issue is. The Ripple CTO post highlights how important it is for Web3 founders to understand the context and control occurence.
Ripple CTO and the New Take on Crypto Rug Pulls
In crypto, a “rug pull” happens when project founders or developers abandon their venture, often after securing significant funds from investors. This act leaves backers with worthless tokens or an incomplete project, sometimes shattering trust in the crypto ecosystem.
These scams have surfaced in various high-profile cases, highlighting the vulnerabilities of decentralized finance (DeFi) and the need for accountability. However, Schwartz pointed out that not all project failures should be called rug pulls.
In his post, he addressed the misuse and overextension of the term. He argued that a rug pull occurs when key players in a project sell large amounts of tokens faster than investors reasonably expected.
I see a lot of people using the term "rug" in contexts where I wouldn't use the term. Here's what I understand constitutes a "rug":
1) When the founders, devs, or very major players in a token or project sell larger amounts or sell more quickly than people were reasonably led to…
— David "JoelKatz" Schwartz (@JoelKatz) January 20, 2025
Such notable players may include founders, developers, or major stakeholders. This move often feels like a betrayal to those who believe in the project’s long-term goals. A rug pull can also occur when the team drastically reduces their involvement or abandons the project before delivering on their promises.
This premature exit leaves investors stranded, with no roadmap or development, breaking their trust in the project. A situation like this was reported by Coinspeaker last February when the RiskOnBlast project allegedly scammed investors for $1.3 million.
For context, Blast was created by the team behind the NFT platform Blur. The project is an Ethereum Layer 2 solution designed to compete with Arbitrum, Optimism, and Starknet.
Similarly, BadBros, a DeFi protocol on the Base blockchain, vanished online after stealing users’ funds using an unaudited smart contract
Schwartz’s insights were an eye-opener for the community, prompting them to reconsider what defines a rug pull. Many in the community agreed with his redefined take on rug pulls.
Why Transparency and Commitment Matter
Schwartz’s comments highlight the need for clear communication and commitment from project teams in the crypto industry. Investors require transparency about project management, realistic timelines, and a promise to follow through.
These elements are crucial for building trust in the crypto world. This is essential as Coinspeaker reported that 2024 was tough for crypto investors, with scams and cyber threats causing a loss of $3.6 billion in total.
Schwartz’s effort to clarify the definition encourages the community to establish clear standards for the industry.
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