The Latest Scam in DeFi: 'Soft Rugs'
Anyone in DeFi is probably familiar with the rug pull — the scam in which crypto developers abandon a project and vanish with investors’ tokens and funds. Now say hello to the “soft rug.” In this new breed of grift a project’s founders simply dump their tokens and exit a project instead of taking control…
By: Owen Fernau •Byte
Anyone in DeFi is probably familiar with the rug pull — the scam in which crypto developers abandon a project and vanish with investors’ tokens and funds. Now say hello to the “soft rug.”
In this new breed of grift a project’s founders simply dump their tokens and exit a project instead of taking control of users’ assets. It appears to be the new rug of choice in open finance.
Bailing on the Protocol
Soft rugs are “convenient” because they don’t require a hack. The culprits simply dump their tokens and exit the project. A bonus: anonymous developers can avoid damaging their reputations.
This week, DeFi community members are buzzing about a potential soft rug involving Swipe, which developed Venus, the No. 3 protocol on the Binance Smart Chain with $1.44B in total value locked. Two days ago, the founding team announced they were bailing on the protocol. A blog post says “after the shortfall crisis in May, the Swipe team has withdrawn from Venus.” Cascading liquidations caused the shortfall.
The exit led monetsupply.eth, as they go by on Twitter, to call out the team, saying it “looks like flagship binance project VenusProtocol’s core team (Swipe) pull a soft rug. For lending protocols, sound governance isn’t everything, it’s the only thing.”
Venus’ new Global Community Deputy, who goes by Danny, pushed back on the allegations. The deputy told The Defiant the soft rug is “definitely a rumor and only that. They [the Swipe team] handed in all their tokens (which are actually community owned), to the interim council.”
Danny doubled down saying, “they have never used or sold these tokens as they were not theirs to begin with!”
The Venus episode comes on the heels of Polywhale’s developers soft rugging their yield farm project two days ago. Their English Telegram channel is now rather curiously entitled “Polywhale Rugged.” Polycash and Polsa Finance have also apparently been soft rugged in the past week.
It shouldn’t be surprising that DeFi has sustained a flurry of soft rugs. With many tokens down 25% in the last week and a bear market looming, many token holders are getting paper hands.