With the rise of cryptocurrency globally, many people have benefited from it. But, apart from that, some big scams have also taken place. One of the most common scams in recent times is crypto rug pulls. They have stolen millions of dollars from investors, and yet, people still fall for them.
In this article, we will help you learn about rug pulls and tips to avoid them.
When a developer comes out with a new crypto project that requires substantial investment, they collect the funds from the investors, resulting in the high price of the cryptocurrency. If they sell it after gaining sufficient funds; it leaves investors at a loss and a vulnerable experience in crypto investments. This kind of scam is known as Crypto Rug Pulls.
Here are a few methods scammers use:
There are many kinds of crypto rug pulls, for example:
The developer sells their shares – First, the developer steps into the market with his project. They create a vast hype regarding the token and claim it to be valuable, but it is hollow. When investors put their money in it, the token rises, and the developer sells out their shares and runs away.
Disability to sell tokens – Some other types of crypto rug pull scams are where investors can’t sell their shares. The developers enter some codes that steal investors’ right to sell. But the developer is still able to sell all the claims. Hence, when the cryptocurrency price rises, he takes out all the funds and runs away.
Stealing liquidity – Stealing liquidity is the most expected rug pull. A developer lists an altcoin on a decentralized exchange (DEX) and pairs it with a top-performing cryptocurrency like Ethereum (ETH). He also builds a liquidity pool and creates hype about the project.
The investors will now swap their ETH with the new tokens at the liquidity pool. The developer draws all the ETH from the liquidity pool once the token becomes pricey. Now the investors in the pool have no way to trade with their valueless tokens.
In the recent time, many crypto rug pulls have occurred, including:
It lifted the price of tokens by more than 230,000% within two weeks, and the sellers didn’t have the right to sell. It crashed immensely within 5 minutes, and investors lost around 3.4 million US dollars.
Another rug-pull scam was the OneCoin. It is considered the biggest scam in the crypto world. It stole around 25 billion US dollars from investors. The leader of OneCoin was arrested back in 2017. But other founders are still out of reach.
Here are some signs that you need to watch out for spotting crypto rug pulls.
Cryptocurrency trading can be fruitful if we invest mindfully. Many people nowadays put money in any cryptocurrency and encounter loss. This probably happens because of the lack of knowledge. It can lead to huge risks, such as investing in scams like crypto rug pulls.
Remember that cryptocurrencies have no central authority, resulting in less cryptocurrency security. This gives a big room for scammers to fool people. So, before investing, make sure to do your top-quality research.
Rug pulls are always unethical but not necessarily illegal. Hard rug pulls are always illegal, but soft rug pulls are unethical but not illegal. For instance, if a crypto project promises to donate the coins to a charity but instead keeps them to itself, this is unethical but not illegal.
Rug pulls refers to a situation where the creator of a cryptocurrency pulls the rug from underneath an individual’s feet. Liquidity stealing, dumping, and limiting sell orders are some of the major types of rug pulls.
When things look too good to be true, it is a sign to dig deeper and research rigorously before investing. Signs like only listed on DEXs with few people owning the majority of the crypto, and low liquidity could be an indication of a rug pull.
