With the rise of cryptocurrencies in the world, many people have taken advantage of them. But beyond that, some major scams have occurred. One of the most common scams in recent times has been cryptocurrencies. They have stolen millions of dollars from investors, but people still fall for them.
In this article, we will help you learn about rug pulls and tips to avoid them.
What Are Crypto Rug Pulls?
When developers propose a new cryptocurrency project, its cost is high and they raise money from investors, resulting in higher cryptocurrency prices.
They sell them after getting enough money, leaving investors with losses and a vulnerable experience in investing in cryptocurrencies. This type of scam is known as Crypto Rug Pulls.
“But how do these scammers convince investors to invest in their projects?” , one might ask. Good question! Here are some of the methods used by the scammers.
- Convincing investors successfully by representing themselves professionally.
- Creating a very appealing website, and some even make their social media platforms where they are active and posting stuff related to how great their project will be.
- Making big claims like their token has so much potential that it can be the next bitcoin.
Types of Crypto Rug Pulls
There are many kinds of crypto rug pulls, for example:
The contractor sells his shares – First, the contractor takes his project to market. He creates a huge hype about the token, claiming that it is valuable, but it is empty. As investors invest money, the token appreciates in value and the developer sells his shares and flees.
Inability to sell tokens – Other types of cryptocurrency scams are those in which investors are unable to sell their shares, and these types of scams are pulled out from under the cryptocurrency rug. The developer inserts a code that takes away the investor’s right to sell. But the developer is still able to sell all the claims. So when the price of the cryptocurrency goes up, he runs away with all the money.
Liquidity theft – Liquidity theft is the most anticipated tug-of-war. Developers register an altcoin on a decentralized exchange (DEX) and combine it with better performing cryptocurrencies, such as ethereum (ETH). It has also created a pool of liquidity and increased enthusiasm for the project.
Investors will now be able to exchange their ETH for new tokens in the liquidity pool. When tokens become expensive, the developers will remove all ETHs from the liquidity pool. Investors in the pool now have no way to redeem their worthless tokens.
Examples Of Crypto Rug Pulls
In the recent time, many crypto rug pulls have occurred, including:
The squid game token
The price of these brands rose more than 230,000% in fifteen days, and sellers had no right to sell. It also collapsed within 5 minutes, resulting in a loss to investors of about $3.4 million.
Another scam that has made headlines is OneCoin, considered the biggest scam in the cryptocurrency world. The head of OneCoin was arrested in 2017. But the other founders are still unreachable.
How To Identify Scam Projects?
Here are some signs that you need to watch out for spotting crypto rug pulls.
- If the cryptocurrency developer is anonymous, the chances are high that there’s something wrong.
- The project has huge claims like becoming the next bitcoin or revolutionizing the crypto world.
- The project appearing suddenly can be another sign that it’s a scam. The legit crypto projects have plans and strategies that take time to prepare thoroughly, and they can’t appear overnight.
- Their websites are made with meager effort and have no social media account. In some cases, they may have an account but with a very low following and lack genuine audience engagement. These are the crucial signs indicating the untrustworthiness of the crypto project.
- If the liquidity is unlocked, the high chances are that it’s a scam because unlocked liquidity makes it too easy for developers to withdraw the fund and run away.
Cryptocurrency trading can be fruitful if you invest wisely. Many people today invest their money in cryptocurrencies only to suffer losses. This may be due to a lack of knowledge. This can lead to huge risks, such as investing in scams like cryptocurrencies.
Remember that cryptocurrencies do not have a central authority, so they are not as secure. This gives scammers a lot of leeway. Therefore, before investing, be sure to do first-rate research.