Beware of Crypto scams- Rug PullsWith the crypto market on a strong run since October of last year and with many dreamers hoping for 100x or even 1000x returns, we must be extremely cautious of scammers.
In this article, I will explain one of the most common types of scams: Rug Pulls.
The term "rug pull" in the cryptocurrency industry refers to the moment when the founding team abruptly abandons the project and sells or removes all liquidity. The term originates from the phrase "pulling the rug out from under someone," meaning the unexpected withdrawal of support.
In 2021 alone, during the previous bull market, rug pulls were responsible for losses of approximately $2.8 billion, a figure close to historical highs and an 81% increase compared to 2020, according to a report by Chainalysis.
The cryptocurrency market is susceptible to such scams due to the lack of regulations from central authorities. Unlike traditional companies subject to strict government control, the decentralized nature of the crypto space allows for complete control by private entities. This makes it vulnerable to exploitation by these entities.
Types of rug pulls:
Liquidity Theft:
Liquidity theft is the most common type of rug pull. It involves a developer listing an altcoin on a decentralized exchange (DEX) where it can be traded with a top currency like Ethereum (ETH). To enable trading, the developer must create a liquidity pool.
The team generates hype around the new project and attracts investors. As more investors join the project, the coin's price rises, attracting others who believe the project is a viable opportunity. As the coin increases in value, the developer withdraws all ETH from the liquidity pool at some point, leaving investors in the pool with no way to exchange their now-worthless tokens.
Technical Manipulation:
Some developers intentionally design tokens with the aim of deceiving investors. Therefore, they will include specific lines of code to limit the ability of retail investors to sell, thereby controlling both demand and supply. Of course, they are the only ones capable of selling, and when the price has appreciated sufficiently, they will sell all the tokens they hold.
Dumping:
This means that developers or promoters who hold a large percentage of the total coins sell off their entire holdings. As new entities invest in the new cryptocurrency, they exchange their valuable cryptocurrencies such as BTC or ETH for the new cryptocurrency. As a result, when the price increases significantly, developers sell off all their tokens, causing the price of the cryptocurrency to plummet.
How to Protect Your Investments from Potential Rug Pulls?
Lack of a Website:
Not all projects start with a website, but many that intend to exist for a long time do. If the developers of the token you want to invest in don't have a personalized domain for their project, this is a clear warning to stay away. There are also fraudulent projects that have websites claiming to be under construction or launching soon.
Check the White Paper:
This is an excellent way to learn about the plans of the project you want to invest in. Check for the existence of such a document, as well as any discrepancies between the white paper and the website. ALSO, VERIFY IF THE TEAM IS AVAILABLE TO PROVIDE INFORMATION ON PLATFORMS SUCH AS REDDIT OR TELEGRAM. If a developer cannot answer basic questions about their project, this raises major red flags.
Anonymous Developers:
While the identity of Satoshi Nakamoto, the developer of Bitcoin, is not known for certain, the fact that a project you want to invest in has anonymous developers should raise concerns. If the developers of a cryptocurrency or DeFi project choose not to associate their names with it and remain in the shadows, they may have reasons for doing so, and it's best to avoid such a project.
Low Liquidity:
Low liquidity of a cryptocurrency means that it is difficult to convert it into fiat currency; therefore, the lower the liquidity, the easier it is for developers to manipulate the price. The best way to check the liquidity of a cryptocurrency is to analyze its trading volume over the past 24 hours. A general rule used by experienced investors is that the trading volume should be more than 10% of the coin's market capitalization.
Locked Liquidity:
To provide trust and enhance the public perception of their legitimacy, developers of serious projects will relinquish control over the liquidity pool by locking it in the blockchain often with a trusted third party. This process is called locked liquidity and prevents developers from trading with tokens from the pool, thereby making it impossible for them to steal or dramatically reduce liquidity. If liquidity is not locked, then nothing prevents developers from withdrawing their funds.
Low Total Locked Value (TLV):
TLV is another reliable measure to verify the legitimacy of a project. This term refers to the total amount invested in a particular project. Serious projects have a TLV of hundreds of millions or even billions of dollars, while newly emerging projects with only tens or hundreds of thousands of dollars in TLV should definitely be avoided.
Token Distribution:
Checking the token distribution of a project on Etherscan or Binance Smart Chain explorer will show who holds the largest amount of tokens and how they are distributed. If a single wallet or two hold more than 5% of the total available, there is a risk that the price may be manipulated.
The Project lacks an Audit Report: The most notable projects will have independent audit reports in the fields of security and financial transparency, guaranteeing their authenticity. A project without an audit report is not necessarily fraudulent, but it means that you should research the project in detail before investing in it.
Losing investments through a rug pull is a common phenomenon; therefore, before investing in a project, it is wise to analyze the project, developers, liquidity, and also the developers' activity on social media platforms.
Additionally, you can opt to use online tools that can detect a potential rug pull. One of these tools is Token Sniffer. This site lists all the latest hacks and scam coins. Rug Doctor is another useful tool for detecting rug pulls. The site analyzes the code of crypto projects, attempting to identify the most common rug pull strategies.
Stay safe and good luck!
Mihai Iacob
Scamcoin
Why the INNOCENT traders always get scammedI received a very important question from a dear member named Bakang. He asked
"Why do people who show the most dedication are the ones who gets scammed most of the time".
Now, I have given an indepth answer with certain reasons and a book I wrote, because of how important this topic is...
Please read it and share it to your friends, family and groups. You just might be helping them avoid being scammed themselves.
Here is my answer:
Thank you for your question and it is a very common problem in society.
There are many reasons why innocent people tend to fall for scams when it comes to the stock market and other high promising schemes.
Reason #1: Humans are just too trusting
Humans have a tendency of trusting the fellow man and believing in the greater good of them. They read about how they’ll make fortunes with them using secretive and insider information – and they make you feel a part of something.
Then as soon as they have your money, they leave you and head over to the next victim like a snake in the grass.
Reason #2: Hot next thing
Every scammer tries to outwit another scammer’s intention. They see what one scammer is offering and they make even more false promises, lies and tendencies.
Then the innocent person is lured in because they don’t want to MISS this ‘once in a life time opportunity’. This has been happening for thousands of years, and human nature is unlikely to change.
Reason #3: Being persuaded by top marketers
The biggest type of scammer is the loudest, most charismatic and they show off things that they don’t have. Or the money they do have it’s from the people who have been scammed.
This is where you read the loudest promos, false and misleading information and advertising.
Also, my favourite is where people read FAKE testimonials with life stories on how something changed their lives…
Reason #4: Fear, Greed and Ego
Most people who are scammed fall for the two big sins of life. Fear and Greed. They fear to miss out on these opportunities and fear that it will never come again.
They have greed where once they’re lured in, they believe in it and deposit a lot more money having this undeniable faith they will be rewarded.
EGO is the one that is hardly spoken about but I think it’s equal to fear and greed.
Ego is where they refuse to believe it’s a scam. They believe they made the right choice joining them and where they want to prove to everyone, he/she was right and they were wrong.
Reason #5: Lack of education
The first way people are scammed is when they don’t have the starting education and understanding of the true and real principles that come with the venture they’re in. They think, because they have money they will win.
But when you dig into the actual principles and education, you’ll realise that there is and has never been a get rich quick way into anything. Everything requires risk and probabilities to achieve some kind of reward in the medium to long term.
Other reasons!
There are other reasons like feeling desperate to do something, acting urgently without thought, being persuaded by others and believe wrong and false information on a website.
It is up to you and me and all of us to better educate ourselves, avoid any scams and to choose the right people to trust and learn from…
Hope this helps and feel free to share this to spread awareness to fellow traders.
Trade well, live free.
Timon
MATI Trader (Trader since 2003)
Crypto101 - How to spot a scam 👀Hi Traders, Investors and Speculators 📉📈
Ev here. Been trading crypto since 2017 and later got into stocks. I have 3 board exams on financial markets and studied economics from a top tier university for a year.
Hundreds if not thousands of new cryptocurrencies launch monthly. All with big promises of use case, flashing tech and a stock-standard wide mouthed YouTube guy telling you how high it will moon. With these new tokens and coins also comes many initial coin offerings (ICOs) that are often scams. The demand for these have grown, even despite the fact that many people get rugpulled. This mostly unregulated market makes for a perfect place to scam innocent people out of their money, with little consequences to the thieves. When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Digital currencies have quickly risen to prominence in the portfolios of many retail and institutional investors. At the same time, people are still shocked when something like the recent LUNAUSDT / TERRA happens.
Let's discuss a few ways to navigate this wild west market:
- Research the team. Perhaps the single most important success factor for any ICO or cryptocurrency is the developers and administrative team behind the project. The cryptocurrency space is dominated by major names, with superstar developers like Ethereum ETHUSDT founder Vitalik Buterin capable of making or breaking new projects simply by having their names listed on a development team. For that reason, it's increasingly common for scammers to invent fake founders and biographies for their projects.
- Check the whitepaper. The whitepaper should lay out the background, goals, strategy, concerns, and timeline for implementation for any blockchain-related project. Whitepapers can be incredibly revealing: companies that have a flashy website may reveal they lack a fundamentally sound concept. On the other hand, a company with a website containing spelling errors may have a whitepaper that indicates a rock-solid concept and a carefully conceived implementation plan.
- It it sounds too good to be true, it probably is. The idea of getting rich quick on an investment in a hot new project sure is tempting. Keep an eye out as you look for new investment opportunities in the ICO and cryptocurrency spaces. Remember that projects sounding too good to be true , likely are. Spend time scrutinizing every detail, and assume that the absence of a piece of crucial information may be an attempt to hide an unsound model or concept. Look for outside sources to verify the legitimacy of any project before making an investment. Ask questions that you can't already find the answers to.
Now, the project on the chart - BURGERUSDT . BurgerCities crypto was developed on the BNB Chain ecosystem and is now linked to MetaFi . People compete for rewards on the BurgerCities platform. BurgerCities transitioned from being a DeFi product available on the BNB chain as Burgerswap to integrating DeFi and NFT into a more expansive metaverse space, producing uniform and standardized Web3 behavioral metaverse universe. Being a metaverse-oriented project, BurgerCities supports the NFT concept making it possible for users to earn returns through gameplay.
Don't get me wrong; I am not stating that Burger coin is a scam - I am merely pointing out that you should always do your due diligence research on new coins / projects, and be extra cautious when the coin / token has a funny name.
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