Arbitrum Has Its First Major Rug Pull As ArbiSwap Steals User Liquidity

The newly-launched ArbiSwap app has recently been accused of committing a deceitful act toward its users. Reports have revealed that the app has allegedly withdrawn over $100,000 from the platform’s liquidity pools. That leaves its users in a state of confusion and distress. 

ArbiSwap Disappears

The act resulted in the native ARBI tokens plunging from $1.5 to a mere fraction of a cent within 24 hours. There is now severe distress among its users and holders.

Further investigation shows that the app’s developers have minted a staggering one billion fake tokens. They then swapped them for USD Coin (USDC), worth nearly 69 ether (ETH). 

This fraudulent act was made possible as the rogue developers had complete control over the project’s liquidity pools. Liquidity pools refer to the token pairs smart contracts hold on decentralized exchanges. Project developers initially seed both sides of a token pair.

Blockchain data from DEXTools shows that there was just $4 million in liquidity on ArbiSwap in European morning hours on Thursday. That is a significant drop from the total locked value (TVL) of $4.4 million the app achieved in February. Unfortunately, that situation will not improve moving forward.

ArbiSwap had initially offered to swap various cryptocurrencies for low fees on its platform. It also advertised giving back 100% of all generated revenue to holders of ARBI. That marketing spiel likely piqued the quick interest for ArbiSwap among users.

Rug Pulls Remain A Key issue In DeFi

The act of withdrawing funds from liquidity pools, followed by a sharp decline in the value of native tokens, is commonly known as a “rug pull.”

This is a scam by developers who launched a working decentralized finance application. After its launch, they carry out social media marketing to popularize it before issuing a token. That token gets listed on a decentralized exchange (DEX).

The most common DEXes for such tokens include Uniswap, PancakeSwap, and SushiSwap. 

After investors have purchased the tokens hoping for a positive return, the developers disappear. They also take all liquidity with them to maximize their profit.

Unfortunately, ArbiSwap has followed this familiar pattern, leaving its users in the lurch. It is the first significant rug pull affecting the Arbitrum ecosystem. However, it remains unclear if more projects will follow suit. 

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