Recently, there were some consciousness scams known as rug pull crypto in the crypto market that have scammed clients out of all of their crypto assets. Pump-and-dump schemes, sometimes known as rug pulls, are a type of pump-and-dump technique.
We educate you about the various kinds of rug-pull scams and how to avoid them.
To begin with, what is a rug pull crypto and how does it occur?
When developers take off the money of investors and abandon the project after a large sum has been allocated to the false crypto or DeFi project, this is known as a rug pull crypto.
These ventures are almost always started by people with malicious intentions.
What Is a Rug Pull crypto, Exactly?
In the cryptocurrency sector, a rug pull crypto is a hostile maneuver in which crypto engineers abandon a project and flee with investors’ assets.
Rug pulls are common in the decentralized finance (DeFi) ecosystem, particularly on decentralized exchanges (DEXs), when malevolent individuals create a token, list it on a DEX, and then couple it with a popular cryptocurrency such as Ethereum.
The founders then remove everything from the liquidity pool, bringing the coin’s price to zero, after a large number of naïve investors switch their ETH for the listed token.
To develop investor trust, the coin’s designers may even create a temporary buzz across Telegram, Twitter, and other social media sites by injecting a large quantity of liquidity into their pool at first.
Rug pulls thrive on DEXs because, unlike centralized cryptocurrency exchanges, DEXs enable users to list tokens for free and without audit. Additionally, creating tokens using open-source blockchain protocols such as Ethereum is simple and costless.
These two factors are exploited by malicious actors.
It’s worth noting that decentralized exchanges like Uniswap use an algorithm to decide the pricing of tokens in a pool based on available balances. Check the liquidity in a pool to avoid being a victim of a rug pull.
This is, however, merely the first step.
You should also check if the token’s pool is locked. The majority of respectable ventures secure pooled money for a set amount of time.
Another sign of a possible rug pull is a coin that skyrockets in value in a matter of hours.
A rug pull crypto currency, for example, can go from 0 to 50X in less than 24 hours.
This ruse is intended to create FOMO, which will encourage more people to buy in the cryptocurrency.
When a project is declared “undruggable,” it signifies that the development team has not contributed a large number of tokens.
A project could be termed undruggable if it lacks the hallmark huge amount of team-held tokens that could be taken in a rug pull crypto or exit scam.
Another approach to consider an undruggable project is if the team relinquishes control of any tokens, such as those obtained during a presale.
Rug pulls crypto are divided into three categories:
Developers build a liquidity pool with their newly-minted scam token and a legitimate cryptocurrency, such as Ripple, in this form of scam.
This liquidity pool is fed with a portion of the cryptocurrency in order to make it tradeable. When traders are convinced of the new cryptocurrency’s value, they begin purchasing it in place of their existing cryptocurrency, which is then locked up in the liquidity pool for a set amount of time.
So when the token’s value climbs, the crooked developer withdraws the whole number of valid cryptocurrencies from the liquidity pool. After that, the deceived investors are left with worthless tokens.
1.The option to sell tokens has been disabled.
Investors in this case buy fake digital currency. However, developers use particular codes that prevent investors from selling their investments back to the exchange. The developer can sell his coins when the currency’s price rises sufficiently, but the investor cannot. The developer then disappears, taking all of the money with him.
Developers who have made money
Here, a wicked developer has designed a project with an unbelievable high-value proposition. A token feature or a soon-to-be-released token is usually included in the project. In reality, the developer generates a worthless token and keeps a large portion of it for himself.
Investors rush in great numbers to buy these tokens as the price of such an asset climbs owing to hype and promises. The developer then slowly drains his shares to avoid being discovered.
Rug pull crypto scam Cryptocurrency for squid games
Within two weeks, the price of Squid tokens increased by an incredible 2,30,000%.
The developers withdrew around $3.4 million from investors on November 1, 2021, and the token plummeted from US$2,861 to US$0.01 in under 5 minutes.
BitConnect
The fraud project, which was a multi-level Ponzi scam, crashed in January 2018. BitConnect made a profit of roughly $2 billion.
How can you spot and prevent these cryptocurrency rug-pull crypto scams?
Rug-pull crypto con artists arise out of nowhere. The majority of these bogus ventures come with a lot of hype about transforming the crypto world. If a project’s developers are unknown, the project should be considered suspect and illegal.
The 24-hour trading volume of a cryptocurrency should be used to determine its liquidity. Because of the token’s incredibly low liquidity, it is easier for the developer to control its price.
The general rule, according to Forkast, is that the trading volume should be at least 10% to 40% of the coin’s total market capitalization.
Cryptocurrency liquidity should be restricted, as this reduces the chance of token theft. Another parameter to check for validity is the total value locked (TVL). Rug pulls are more likely with a lower TVL.
These fraud enterprises have no online presence and no actual community involvement. A project that appears out of nowhere usually has a very brief whitepaper, which is a red flag for a shady project.