New York Lawmakers to Make Rug Pulls in Crypto a Crime
Godfrey Benjamin Apr 25, 2022 09:20
The State of New York may soon make a move to christen “Rug Pulls” in the digital currency ecosystem an offence, should a bill dubbed Senate Bill S8839 be passed into law.
The State of New York may soon make a move to christen “Rug Pulls” in the digital currency ecosystem as an offence, which could come as a bill, dubbed Senate Bill S8839 when it is passed into law.
The Bill was introduced by Senator Kevin Thomas and alongside an accompanying Assembly Bill A8820 filed at the State’s Assembly by Clyde Vanel seeks to “create the crime of virtual token fraud,” and introduce appropriate penalties for the instituted crimes.
The evolution of cryptocurrencies has introduced a lot of non-traditional crimes of which rug pulls are now a prominent one associated with Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs). This kind of scam involves the main developers behind a project abandoning them before the promises made to their community are fulfilled at all.
Defining the Context of Rug Pulls
Per the text of the Bill sponsored by Senator Kevin,
"ILLEGAL RUG PULLS:
1. A DEVELOPER, WHETHER NATURAL OR OTHERWISE, IS GUILTY OF ILLEGAL RUG PULLS WHEN SUCH DEVELOPER DEVELOPS A CLASS OF VIRTUAL TOKENS AND SELLS MORE THAN TEN PERCENT OF SUCH TOKENS WITHIN FIVE YEARS FROM THE DATE OF THE LAST SALE OF SUCH TOKENS.
2. THIS SECTION SHALL NOT APPLY TO NON-FUNGIBLE TOKENS WHERE A DEVELOPER HAS CREATED LESS THAN ONE HUNDRED NON-FUNGIBLE TOKENS THAT ARE REGARDED AS PART OF THE SAME SERIES OR CLASS OF NON-FUNGIBLE TOKENS OR WHERE SUCH NON-FUNGIBLE TOKENS REGARDED AS PART OF THE SAME SERIES OR CLASS ARE VALUED AT LESS THAN TWENTY THOUSAND DOLLARS AT THE TIME THE RUG PULL OCCURS."
With the two Bills now forwarded to both Chamber’s Codes Committee, a 30-day grace period will be scheduled for the new laws to be implemented if passed into law.
Rug pulls are not uncommon in the digital currency world. While many are not documented, a related one was recorded with the SushiSwap decentralized Exchange initially developed by a developer known as Chef Nomi. Back in September 2020, Nomi abandoned the project when he converted his SUSHI tokens to Ethereum.
Consequently, FTX CEO Sam Bankman-Fried took over the project and revived it, but not after the token had suffered a massive plunge.
Image source: Shutterstock