Nobody wants to fall victim to a rug pull, so if a coin is promising extreme rewards, look for the danger signs before you trade.
Research is crucial
All cryptocurrencies carry risk simply because there’s so much we don’t know about how this industry will develop.
However, a rug pull may have price skyrocketing.
How to Avoid Crypto Rug Pull?
If you want to invest in altcoins, you should do some research before buying them. Here are some tips about how to avoid crypto rug pull.
- Read the white paper and project information. Visit the project official sites or use Coincarp.com to search the crypto information.
Find out the founders’ information. In general, some scam projects have a vague description of the project.
- Check the creators’ holding. Check the rich list, find out what percentage of the token supply is controlled by the creators. If the creators have large percentage of the tokens, they can manipulate the market easily.
A few wallet holders also mean more centralized control on the project.
- Luna Yield
Luna Yield was a liquidity farming project on the Solana (SOL) platform. Three days later after its IDO(August 19, 2021), Luna Yield sent the funds, about $10 million that it raised to Tornado Cash so it could not be traced, and then it shut down its website as well as all of its social media accounts, nobody has been able to contact the Luna Yield team since.
OneCoin is the famous Ponzi scheme in the crypto market.
The developers of the project ran away with more than $4 billion from investors.
Liquidity theft rug pulls happen by “project developers” minting a new cryptocurrency and creating a trading pair alongside a prominent token like Ethereum (ETH), Solana (SOL) or a stablecoin.
The scammers will then attract investors to the project by offering a lucrative annual percentage yield (APY). As investors begin depositing the legitimate token into the liquidity pool, the scammers can take all of these “real” coins back from the pool at any time.
Once the rug has been pulled and legitimate crypto is withdrawn, investors are left with nothing but a valueless scam token they can’t even trade.
Limit selling orders
This type of rug pull exploits the way modern crypto tokens are coded. These tokens are programmed with “smart contracts”, which can perform actions automatically without human intervention.
The extraordinary growth of Axie Infinity (AXS) has meant investors are hungry for play-to-earn games. And Netflix recently said its Squid Game show is its most popular ever.
But there were also some warning signs, which are key to know if you want to avoid falling prey to future rug pulls. Here are some red flags to watch out for:
- Its white paper and website were full of errors. If there are typos in the promotional materials, alarm bells should start ringing.
- The founders were anonymous. This made it easy for them to disappear with investors’ money.
- It wasn’t available frommajor cryptocurrency exchanges. With over 13,000 coins on the market, big exchanges only list a fraction of the available coins.
Cryptocurrency, and in particular DeFi, is a relatively new technology that isn’t universally understood. Scammers look to take advantage of the crypto-naive who may not be familiar with navigating the industry.
Rug pulls are a form of theft. They often take the form of new crypto projects offering rates or incentives that are too good to be true.
After the project receives substantial investments, the developers “pull the rug”, shut down operations, and make off with investors’ money.
The crypto industry has a target on its back for these types of scams. Most public businesses have to operate within a strict set of government guidelines, reducing the wriggle-room for fraudulent behaviour. A crypto project, however, is inherently decentralized and lacks the same regulatory oversight as other companies.
When investors believe in the projects’ potential and buy-in, the price goes up. The developers will sell out their shares(do it at once or in a period of time). At last, the investors just hold worthless tokens.
Are Crypto Rug Pulls Illegal?
Because the crypto regulations in different countries are different.
For some countries, the crypto rug pulls consider as financial crimes. However, some countries may not care about the rug pulls. Some crypto rug pulls are obviously, the team issue the token and sell them, then cash out, they run away and the website closed.
However, most of the projects are not that obvious nowadays, when the price rises to a high point, then the big whales sell-off occurs and the value of the coin drops significantly. The developers can manipulate the price again and again.
Defrauding investors isn’t necessarily the project’s intention from the onset, and may instead be a result of failing finances, exploitation from investors or other variables.
Are rug pulls illegal?
Hard rug pulls are illegal. Perpetrators can be prosecuted and face jail time.
Soft rug pulls aren’t illegal, although they are highly unethical. This is because the project’s operation doesn’t necessarily halt once dumped, and the coin may not have been developed with fraud in mind.
Unfortunately, the unregulated nature of the cryptocurrency sector can make it difficult for the law to catch up with scammers of any type.
The biggest crypto rug pulls in crypto history
OneCoin was a stereotypical Ponzi scheme, primarily selling blockchain education courses that came with tokens that could supposedly “mine” the OneCoin cryptocurrency.
It’s still relatively new and unregulated, which is why it’s advisable to only invest money you can afford to lose.
But research is an important tool. Look at the people behind the cryptocurrency. What experience do they have? What other projects have they been involved in? Read the crypto’s whitepaper to understand what problem it plans to solve and how it will do it. Think about how many people the crypto might reach and what real-world value it has.
It’s also good to look on sites like Token Sniffer or Coinopsy to see if the coin is flagged there.
Most of all, try not to see crypto as a get-rich-quick scheme. Invest for the long term and think about projects that have real staying power.
In that case, it’s either gibberish or you simply do not understand the project’s technicalities, and that is fine. You should not be investing in anything you do not understand anyway.
Overbearing returns: This is the most obvious yet easily overlooked. Rug pull projects tend to promise a drastic return on your investment in an impractical short time frame.
Not to say it is impossible to have great returns in crypto investments as most notably seen with Bitcoin; however, the volatility of the crypto market makes it highly unpredictable for anyone to guarantee vast returns in a short time.
Rug pull scams will often have some of the same hallmarks to look out for.
Anything that seems even remotely suspicious or too good to be true is probably worth avoiding. A great resource to use is the Is This Coin A Scam?, which gives cryptocurrencies an overall rating based on their project’s legitimacy.
The growing interest in decentralized finance has created new projects and exciting opportunities for how people use their money. Unfortunately, the unregulated nature of DeFi has made it a haven for scammers trying to rob people of their investments.