New crypto projects are constantly emerging, particularly in Decentralized Finance (DeFi) and meme coins. However, not all of them have a strong foundation. In fact, some actually result in losses for investors.

The term “rug pull” often arises, which occurs when a project suddenly disappears with funds. However, there is also a more subtle and often unnoticed method called “soft rug,” which occurs slowly without any obvious signs.

The problem is, many investors don’t understand the difference between the two, even though the risks are equally serious.

In this article, you will explore the differences between “soft rug” and “rug pull,” their characteristics, and the risks you need to understand before deciding to invest.

 

What is a Rug Pull?

A rug pull is a scam in the crypto world, where a developer withdraws liquidity, abandons the project, and then causes the token price to plummet.

This typically occurs in DeFi projects or new tokens. Initially, the project is promoted with hype and promises of profits, but after a large number of investors join, the developer quickly flees with the funds, and the token becomes worthless.

What Is a Soft Rug?

A soft rug is a practice often considered detrimental to investors. It usually occurs when a developer slowly releases tokens while the project appears to be still running.

In this case, the team doesn’t immediately flee; there are indications that the developer is selling their own tokens while maintaining the impression that the project is still active. As a result, the token price drops slowly, and investors are often unaware of what is happening.

Because it is subtle and occurs gradually, soft rugs are much harder to detect. Many investors only realize it when the price has already dropped significantly and the project isn’t actually developing as promised.

The Difference Between a Soft Rug and a Rug Pull

While both are detrimental, soft rugs and rug pulls have different patterns and often lead to misunderstandings among investors. Here are some of the differences.

1. How It Occurs

A rug pull occurs suddenly, usually when a developer immediately withdraws liquidity and disappears. A soft rug occurs gradually, as developers slowly sell their tokens while the project appears to still be active.

2. Speed ??of Impact

A rug pull has an immediate impact, as the token price can plummet within a short period of time. Meanwhile, a soft rug occurs slowly, with the price dropping little by little without being noticed.

3. Transparency

A rug pull is generally obvious because it occurs suddenly and prominently. On the other hand, a soft rug is often disguised because the project appears to be operating normally from the outside.

4. Intention and Method

A rug pull indicates a direct intention to flee with investor funds. A soft rug is more covert, as the developer appears to continue supporting the project while secretly profiting from it.

 

Why Are Soft Rugs Harder to Detect?

Unlike rug pulls, which are clearly visible, soft rugs often operate “silently,” so many investors don’t realize it until it’s too late. Here are some reasons why soft rugs are harder to detect.

1. The Project Appears Still Active

The website, social media, and team communications usually remain active. The developer still appears “present,” even though their actual involvement has diminished.

2. Gradual Token Sales

The developer doesn’t sell all of their assets immediately, but instead dumps them gradually. As a result, the price drop appears normal and unsuspicious at first.

3. Unclear Roadmap

The project continually promises updates or developments, but never actually materializes. Investors are left waiting in uncertainty, while the token’s value slowly declines.

 

Characteristics of Rug Pulls and Soft Rugs

Despite their different forms, rug pulls and soft rugs share several characteristics that can be recognized early on, including the following.

1. Unlocked Liquidity

If liquidity is unlocked, developers can easily withdraw funds at any time. This is a major loophole for rug pulls.

2. Anonymous Team

Unclear team identities create minimal transparency for projects. This makes it difficult for investors to assess credibility, increasing the risk of fraud.

3. Declining Developer Activity

Initially active, then gradually decreasing updates. This could be a sign of project abandonment, which often occurs with soft rug pulls.

4. Unusual Price Movements

Prices rise rapidly due to hype (pump), then drop sharply when a large number of tokens are sold (dump) or the token is not supported by fundamentals. This pattern often occurs before or during a fraud.

 

Impact on Crypto Investors

Both rug pulls and soft rugs have a direct impact on investors, not only financially, but also on how they view the market. Here are some of the impacts on crypto investors.

1. Financial Losses

Investors can lose their capital quickly during a rug pull, or have it slowly eroded during a soft rug. In many cases, the tokens held become worthless.

2. Loss of Trust

The experience of losses makes investors more skeptical of new projects, especially in DeFi or tokens with an unclear track record.

3. Market Volatility

Instances like these contribute to unstable price movements. When many projects experience problems, market sentiment can be disrupted, impacting the broader ecosystem.

 

How to Avoid Rug Pulls and Soft Rugs

To reduce risk, you need to be more selective before entering a crypto project. Here are some ways to avoid rug pulls and soft rugs.

1. Check Liquidity

Ensure liquidity is locked to prevent developers from withdrawing investor funds at will.

2. Audit Smart Contracts

Check whether the project has been audited. Audits help identify any loopholes or risks in the code used.

3. Research the Team and Project

Find out who is behind the project, including their identity and track record. Transparent projects are usually more trustworthy.

4. Avoid FOMO

Don’t jump on hype or promises of high returns. Always do your research before deciding to invest.

 

Examples of Rug Pulls in Crypto

Rug pulls often follow a similar pattern. Projects are typically heavily promoted, build hype, and then attract a large number of investors.

After funds are raised, developers can suddenly disappear, close access, or transfer funds to another wallet. As a result, investors cannot withdraw assets, and the token’s value plummets.

In essence, the project looks promising at the start, but it ends once the funds are raised.

 

Do All Failed Projects Include Soft Rugs?

Not all failed projects can be considered soft rug pulls. It’s important to distinguish between business failure and actions intended to harm investors.

In many cases, crypto projects can fail due to other factors, such as an unviable business model, lack of adoption, technical issues, or changing market conditions. These are inherent risks in investing, especially in new projects.

Meanwhile, a soft rug pull refers to a situation where there are indications of malicious intent from the developer, even if it’s done in a subtle way.

Therefore, not every price drop or project that stops developing can be immediately considered a scam.

 

Conclusion

So, that was an interesting discussion about the differences and risks of soft rug pulls and rug pulls, which you can read more about in the INDODAX Academy crypto academy.

In conclusion, rug pulls and soft rug pulls are not just terms, but real risks that are part of the dynamics of the crypto market, especially in new, untested projects.

Both are detrimental, but they operate in different ways: one occurs quickly and prominently, while the other is slow and often goes unnoticed.

For investors, understanding this difference isn’t just about gaining knowledge, but also about reading the situation. Not every price drop means a scam, but not every project that looks “okay” is truly safe.

This is where many investment decisions become less simple than they appear on the surface.

Ultimately, a more critical and unhurried approach makes the difference. Research, evaluation, and the ability to spot subtle signs are often more valuable than simply chasing momentum.

In a fast-moving market like crypto, calm decisions are often the best protection.

In addition to gaining in-depth insights through various popular crypto education articles, you can also broaden your horizons through a collection of tutorials and choose from a variety of popular articles that suit your interests.

Besides updating your knowledge, you can also directly monitor digital asset prices on Indodax Market and stay up-to-date with the latest crypto news. For a more personalized trading experience, explore Indodax’s OTC trading service. Don’t forget to activate notifications so you don’t miss out on important information about blockchain, crypto assets, and other trading opportunities.

You can also follow our latest news via Google News  for faster and more reliable access to information. For an easy and secure trading experience, download the best crypto app from INDODAX on the App Store or Google Play Store.

Maximize your crypto assets with the INDODAX Earn feature, a practical way to earn passive income from your stored assets. Register now with INDODAX and easily complete KYC to start trading crypto more safely, conveniently, and reliably!

Indodax Official Contact
Customer Service Number: (021) 5065 8888 | Support Email: [email protected]

Also follow us on social media here: Instagram, X, Youtube & Telegram

 

FAQ

1. What is a rug pull in crypto?
   A rug pull is a scam where a developer abandons a project and takes investor funds with them.
2. What is a soft rug?
   A soft rug is a gradual decline in a project’s value due to the developer’s actions.
3. What is the main difference between a soft rug and a rug pull?
   A rug pull occurs suddenly, while a soft rug occurs slowly.
4. Is a soft rug a scam?
   In some cases, it can be, but it often falls into a gray area.
5. How can you avoid a rug pull?
   By researching the project, checking liquidity, and avoiding impulsive decisions.

All forms of crypto asset transactions carry risks and the potential for loss. Always invest based on your own research to minimize the risk of loss of your crypto assets (Do Your Own Research/ DYOR). The information contained in this publication is provided in a general, non-obligatory manner and is for informational purposes only. This publication is not intended to be, and should not be construed as, an offer, recommendation, solicitation or advice to buy or sell any investment product and should not be transmitted, disclosed, copied or relied upon by any person for any purpose.

Author:  Boy