> For the complete documentation index, see [llms.txt](https://vantec.gitbook.io/norug/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://vantec.gitbook.io/norug/foundations/tokenomics-covenants.md).

# Tokenomics Covenants

## What is a Rug Pull ?

The term “rug pull” comes from the phrase “pulling the rug out from underneath.” Many of these illegal schemes appear legitimate and enticing until the minds behind the project decide to suddenly drain investor funds. The emerging DeFi space is prone to rug pull scams because of the lack of intermediaries involved in transactions and the potential for massive returns. Additionally, many new cryptocurrency projects start out in the same place – a new, attractive token will emerge and investors will pour money into the project hoping that it rises in value – making these types of scams even more difficult to detect early on.

## How are we solving this issue ?

Based on our experience and extensive research, it is really easy to differentiate whether the project is a scam or a legitimate one by looking at its tokenomics. It has been observed that with 50% or more tokens being offered in crowd sale is a much safer bet of being a long term value-adding project. There are obviously exceptions but we think this is a much safer approach for investors as well as for projects (improving their credibility and attracting more traction). Below are the specifications for each token that is being offered through NoRug.

#### Max Supply 

The creator has to declare the `Max Supply` for the token that is being offered. Tokens cannot have 'Unlimited Supply' as it leads to uncertainty and increased risk of vulnerabilities/scams. The minimum Max Supply has to be 100.

#### Restriction on Whitelist & Creator Supply

We limit that the sum of Whitelist supply and Creator's supply is less than or equal to 50% of the supply. This ensures that at least 50% of the supply is being offered through token sale to new investors. Foundation DAO, Community DAO, etc such provisions for the project can be included in Whitelist addresses.

The Creator supply cannot be less than 10% and supply for each Whitelist cannot be more than 20%. This is to make sure that there is enough at stake for them as well and acting in a malicious way would lead to a loss to them as well.

#### Limitation on Participation in Token Sale

The supply that remains after the whitelist's and creator's supply would be at least 50%, out of which 50% would be available for participants to buy. The remaining 50% would be reserved for adding liquidity to the DEX.

A participant in the token sale can only purchase 0.5% of the `Max Supply`. This is to ensure that there is even distribution of tokens amongst investors so there is no centralization or price controlling actor post sale.

#### Lockin Periods

There is a long lockin period for the whitelists and creators to ensure that they don't pull the rug under you. During the period of lockin, public investors can track the growth and development of the project so as to confirm whether it is a scam or not.

* Creator's Lockin - 6 Months
* Whitelist Lockin - 3 Months