What do "guaranteed yield" and "rug pull" actually look like?
The attacks in the last two lessons steal access. This one takes a different route: it persuades you to hand assets over voluntarily, which requires no exploit at all.
Where crypto returns actually come from
Four sources account for almost everything a retail platform can plausibly be paying, and knowing them turns most claims into arithmetic. Professional desks add basis and funding trades, market-making and options premia — none of which is what a fixed daily percentage is advertising.
- Lending. Someone borrows your asset and pays interest. Their default is your loss.
- Staking. You lock a chain's native coin to help produce blocks and receive protocol rewards. Downtime costs a little; provable misbehaviour triggers slashing, which destroys part of the stake.
- Providing liquidity. You supply two assets to a trading pool and earn a share of trading fees. When the two prices diverge, the pool rebalances against you — the well-documented effect called impermanent loss, which is entirely permanent if you withdraw.
- New token emissions. The protocol prints its own token and pays you in it. Real, and dilutive: the yield is denominated in something being created faster because of you.
Each source is real, each is variable, and not one of them can be guaranteed — because in every case the payer can fail. So a fixed, high, guaranteed number is a claim about something whose defining feature is that it cannot be fixed.
Do the compounding arithmetic
Advertised daily returns look modest and are not.
- 0.5% per day: 1.005³⁶⁵ = 6.17× a year. $1,000 becomes $6,170.
- 1% per day: 1.01³⁶⁵ = 37.8× a year. $1,000 becomes $37,800. Over two years, roughly 1,400×.
No lending book, fee stream or staking reward produces that. When a promised return has no describable source, the source is the deposits of the people who arrived after you — which works until arrivals slow, and then does not.
Rug pulls: four documented mechanics
A rug pull is when the people who created a token remove its value on purpose. The methods are specific:
- Liquidity removal. The team seeds a trading pool with their token plus a real asset. Buying pushes the price up. The team then withdraws the pooled reserve, leaving a token that cannot be sold at any price.
- Honeypot code. The contract permits buying and blocks selling for everyone except allowlisted addresses. The chart rises beautifully because nobody can exit.
- A hidden mint function. The contract retains an owner-only power to create unlimited new tokens. Supply is a promise in marketing and a variable in the code.
- Unlocked allocations. A large team allocation with no vesting sits in one address and is sold into whatever demand appears.
All four are visible in the contract source before anything happens, which is why "have you read the contract, or its audit?" is a real question and not a pose.
Custodial failures follow one pattern
On the custodial side, the collapses are matters of public record: Mt. Gox (2014), Celsius and Voyager (both halting withdrawals in 2022), and FTX (November 2022). The recurring structure is the same each time — customer assets were pooled and used, and the balance shown in the app was a claim against a company rather than an asset held for the customer. The number on the screen was accurate right up until the company could not honour it.
This lesson describes patterns and history. It names no current product as safe or unsafe, endorses no exchange, wallet or token, and offers no view on whether any asset should be held. Crypto assets are highly volatile and losses are common — including total losses, which have happened repeatedly to people who did nothing careless at all.
Try it now
- Compute what 0.3% per day compounds to over a year. (1.003³⁶⁵ ≈ 2.98×.) Then write one sentence naming who would have to pay it and out of what revenue. If the sentence cannot be finished, that is the finding.
- Five years of Bitcoin is below. Measure the largest peak-to-trough decline in that window. The asset most often described as the conservative end of this market has fallen by more than half more than once — and a product promising 0.3% a day is being offered on top of that.
- For any yield offer you ever encounter, apply the four-source test from the top of this lesson: lending, staking, fees, or emissions. If it is none of them, it does not have a fifth.