Key Takeaways:
- Crypto Rug Pulls are scams in which the project is shut down by developers.
- Scammers utilize the credibility of influencers to loot investors.
- Cautious investment decisions can help investors to be secured from rug pulls.
Crypto Rug Pull: Overview of the Scam
Crypto rug pull is an exit scam in which the developers of a token shut down the project or suddenly disappear after raising money from investors and the public. Thus the tokens purchased by investors become worthless.
Rug pulls are extensively planned events by notorious developers. They leverage social media influencers and hype-generating campaigns to loot more and more victims. Scammers even utilize the credibility of trusted key opinion leaders to attract users. Extremely high yields and exclusive digital goods are also offered to the customers.
The project owners manipulate the value of the token, in the beginning, to deceive investors and loot their investments. Rug pulls are usually preceded by a sharp increase in the price of the token for a short time to attract investors. The tokens are sold by the developers to generate wealth by leaving investors to incur huge loss.
Types of Rug Pulls
Rug pulls can be broadly divided into two categories according to the period required for the exit they are hard Rug pulls and Soft Rug pulls.
Hard Rug Pulls: Hard Rug pulls are a sudden exit strategy in which the investors lose their funds within a short time.
Soft Rug Pulls: Soft Rug pulls happen over some time. The developers will give a false sense of security to the investors and quietly shut down their operations.
Rug pulls can be further classified into:
Liquidity pulls: The liquidity of the token is reduced by malicious actors to reduce the value of the token due to the lack of buyers and sellers.
Fake projects: Scammers create projects that may seem to be legitimate to gather investments and then disappear with the collected funds. The worthless tokens will be left with investors.
Pump and Dump: The price of the token is inflated artificially through coordinated buying. These tokens are sold at their peak to crash the value and generate huge profits.
Team Exit: The developer team suddenly becomes inaccessible or exits leaving its investors with no support and the token collapses.
How to avoid Rug Pulls?
To avoid rug pulls investors must be cautious and diligent. So the precautions that you can take to protect yourself.
Research: Investigate the details like the project team, technology, goals, and community before making any investment decisions. Be cautious about the lack of transparency and unknown developers.
Security Audits: Third-party security audit reports will be available for reputed projects. Verify whether the project has been audited or not. Review the audit report and find out the vulnerabilities present in that report.
Community Engagement: The presence of a strong and engaging community can be considered a credibility factor of the company. Actively engage with the community on social media.
Warning Indications: Beware of the unrealistic returns and yields. Excessive marketing creates pressure to invest quickly. Use your common sense and avoid the fear of missing out.
Most importantly you should only invest the money you can lose. Most of the cryptocurrencies in the market are experimental projects with high risk. If an experimental token gets failed then there is a chance of soft rug pull by the developers.
Biggest crypto Rug pulls in history
Major crypto rug pulls that left a mark in the industry are:
One coin- One coin entered into the market to revolutionize the crypto market. The coin was not supported by anything and the distributors simply recruited new users to the platform. The token collapsed and created a loss of over $ 4 billion to its investors.
Thodex- Thodex crypto was hacked and $2 billion in cryptos were stolen from investors.
AnubisDAO – Anubis DAO was a defi project launched by promising huge returns to investors. But it was a rug pull that caused loss for its developers.
Uranium Finance – Uranium Finance is a project that promises high returns to investors. The project provided exposure to uranium mining. But it was a rug pull.
Squid game token – The token was a scam created in 2021 inspired by the popular Netflix series Squid Game. The developers cheated the investors by disabling the ability of tokens to be sold. Then the team disappeared with the looted money.
Conclusion
There are multiple forms of crypto scams within the ecosystem. Like the theft of physical money, digital money can also be under threat due to scammers. It is mandatory to have relevant information about the scams happening around. This can help you stay away from such occurrences. Always do your research before making any crypto-related investment decisions or transactions.
