# Rug Pull Should Be Stopped By [ADAM](https://paragraph.com/@adam-5) · 2022-03-16 --- TL;DR: 5600% increase in rug pull frauds from 2020 to 2021, according to Chainalysis. Rug pull doesn’t just cause financial losses to investors, but also deter the confidence of new users thus **hindering the growth of the blockchain industry in general**. ![](https://storage.googleapis.com/papyrus_images/92cf68f1195486c051a4ffd8405124fc9841ef795eba2c8c4274a426fa29ddf5.jpg) **What is Rug Pull?** --------------------- (If you know what is Rug Pull, skip to next paragraph) In short, rug pull is a theft where crypto developers abandon a project and run away with investors’ funds. Where it happens on any kinds of blockchain projects including DeFi projects, token selling, NFT artworks, etc. Rug pull happens in the crypto world due to loose regulations on project operations, unlike traditional companies with strict laws and regulations. Nonetheless, the world embraces the development of decentralization and web3. Rather than going back to the traditional world, we seek solutions to rug pulls. **How serious is Rug Pulls right now?** --------------------------------------- As a result, in 2021 alone, cryptocurrency investors lost US$2.8 billion to rug pull according to [Chainalysis](https://www.coindesk.com/markets/2021/12/17/defi-rug-pull-scams-pulled-in-28b-this-year-chainalysis/). Accounting for 37% of all cryptocurrency scams revenue compared to just 1% in 2020. Some prominent cases would be [Squid Game coin](https://www.bbc.com/news/business-59129466) that scammed an estimated US$3.38 million and AnubisDAO for US$58 million. Below are the Top 15 rug pulls by cryptocurrency value stolen. ![](https://storage.googleapis.com/papyrus_images/9d8fa92d62bea654a2dd2fb24a2ffa141667a7f2e6bdacc06228096c918d2f22.png) chainalysis.com Rug Pulls is not just about money. ---------------------------------- The damages brought by rug pulls: --------------------------------- 1. \*\*Time and money wasted \*\*Blockchain and crypto world is beating with the clock everyday with high speed developments happening around the world. The time and money deployed to this specific segment is so crucial to determine the future of the internet and Web 3.0. On one hand, rug pull makes investors suffer financially which we can assume no one wishes to happen. On the other hand, **the opportunity cost of investors that they could have invested** in other projects that bring positive developments to the ecosystem. 2. \*\*Created a barrier for new crypto users \*\*“Crypto is full of scam.” That’s a statement we usually hear when we talk to non-crypto users. Although the statement might be overly biassed to us, the traditional media focused on projecting the scammy side of crypto, leading to a general perception of an untrustworthy asset class. The increasing amount of rug pulls just intensifies the situation, which further **horrifies news crypto users or institutions to participate in crypto** and blockchain activities. 3. \*\*Slowing down mass adoption of blockchain \*\*This is a result of setting barriers for new crypto users or taking the faith on blockchain away from rug pull victims. Generally in blockchain and crypto communities, we are bullish about the future of blockchain technology covering different aspects of life, thus creating projects to push this vision forward.Currently, different projects have to **put extra cost in convincing users and investors that they are not scammers**. No matter if it’s creating extra educational content or other methods to boost confidence, there’s a cost added to the sector. Resulting in slowing down the mass adoption of blockchain technology. ![](https://storage.googleapis.com/papyrus_images/b680c732f6aa73efef369461433e0019b8845ca1a0258427740947392355aa1b.jpg) Current solutions are not truly trustless! ------------------------------------------ The blockchain communities now use the following methods to prevent rug pulls: 1. **DYORDo Your Own Research** Investors and participants should do background checks of the project themselves. The research should include project liquidity, project team, community and engagement, etc. 2. \*\*Mult-sig \*\*Assets raised or gathered for the project will store in a multi-sig wallet that requires few parties’ confirmation to move the assets. 3. \*\*Smart Contract Audit \*\*Project smart contract will be audited by third parties to ensure no malicious codes that favour the team to rug pull. 4. \*\*KYC \*\*The project team member is verified by a third party KYC service. However, these methods are still based on human trust which is flawful. As you can imagine, DYOR is a self-driven actions that less informed users are at risk; **mult-sig would only required few people consensus to rug pull**; the lack of standard in smart contract auditing; Atom Protocol, a DeFi project on Avalanche, [rug pulled despite the team did KYC](https://watcher.guru/news/we-cant-do-anything-atom-protocol-rug-pull-shocks-crypto-community). All in all, only a trustless system can stop rug pull at its root. ![](https://storage.googleapis.com/papyrus_images/700ad7ecf6df4ad44309d1e13a6b57818924923f3409f1c779811046dc45f08a.gif) A trustless DAO Wallet by ADAM ------------------------------ > ADAM acts as a governance layer to control the outflow of shared assets, in an investment DAO, a project DAO, a DeFi DAO and so on. ADAM is dedicated to building solid DAO member protections. On ADAM, the in and out transactions of DAO assets are controlled with DAO Wallet by DAO Executor. By default, no outflow transactions are allowed to be executed by DAO Executor through DAO Wallet. Only when DAO Members vote and grant Budget Approval to the DAO Executor, DAO Wallet can do restricted outflow transactions. The Budget Approval proposal includes where and what DAO asset can deploy along other restrictions. By such, an extra layer of governance is added on top of a mere mult-sig, creating a trustless ecosystem. ADAM also takes a step further by creating segregated smart contract accounts for each DAO Member to host and protect their assets. While most DAOs set up outside ADAM are a commingled pool of assets, ADAM keeps each member a segregated account. From a legal perspective, each Member’s account is a managed/discretionary account that does not require audit too. Better fitting the needs of institutional asset managers. > In sum, ADAM stops rug pull by creating a trustless environment for DAOs. To know more, follow our [Twitter](https://twitter.com/ADAMDAOofficial). --- *Originally published on [ADAM](https://paragraph.com/@adam-5/rug-pull-should-be-stopped)*