Rug Pulls in Blockchain-Based NFT Markets: Detection Techniques and Risk Mitigation Strategies

Abstract

The rapidly evolving NFT (Non-Fungible Tokens) ecosystem has brought about a wealth of opportunities for investors and creators alike. However, the allure of this burgeoning market has also attracted a host of malicious actors, who have exploited vulnerabilities to perpetrate rug pull incidents, a form of exit scam where project developers abruptly abandon their project, absconding with investors' funds. To safeguard oneself against these pernicious schemes, it is crucial to understand the mechanisms underlying rug pulls, as well as the strategies for detecting and avoiding them. In this paper, we discuss the anatomy of an NFT rug-pull and a detailed investigation and study on how these rug-pulls are executed. In this study, we have made an attempt to investigate the common signs along with the cautionary steps to identify and avoid them. Finally, we have also designed and proposed an effective mitigation strategy for a rug pull with deterministic mathematical modelling.