The Top 5 Ways To Avoid Crypto Rug Pull Risk
The most recent fraud method is crypto rug pull. Recently, a crypto rug pull report published by CNBC stated “Scammers all over the world swiped $14 billion in rug pull in 2021. Between 2020 and 2021, crypto-related scams increased by 79% and the loss of cryptocurrencies rose 516% from 2020 to $3.2 billion worth of digital money”
Rug pulls or exit scams have become the go-to scam of the crypto and DeFi ecosystem.
But what the heck is a rug pull!
A rug pull is often done by fraudulent developers who create hype around a coin and then abandon the project. The Blockchain-based world of crypto has given the common person a tool to invest and develop their wealth. A rug pull is a fraudulent manipulation in the cryptocurrency market carried out by crypto or DeFi project owners (Developers) stealing investors’ money.
In our most recent article, we discussed how $PumpIT is attempting to make crypto purchasing more seamless for many and help them avoid pump-and-dumps.
So you may be asking “how do I avoid these exit scams?”
Here’s our advice for you on identifying crypto rug pulls and protecting your funds.
- Make sure the liquidity pool is excellent.
Examine the pool’s liquidity with the project. It’s more difficult to convert tokens into cash when a pool’s liquidity is low, which may be due to a lack of developer money. When there is a lack of liquidity, developers can easily manipulate prices as per their preferences.
For example, PancakeSwap has been around for more than two to three years and holds a massive amount of total value locked up in their DeFi ecology, thus they can provide investors with some degree of confidence.
As per many crypto investors, the trading volume of a coin should be at least 10% which may increase up to 40% of the coin’s total market capitalization to make it pass the test of liquidity.
Who remembers the Squid Game token hoax?
- Disproportionate token distribution
You may learn who owns the most tokens in a project and how they disperse via Etherscan or other tools like it. You may discover potential investors by looking at who has the most tokens in a project and how they’re divided.
If any wallet controls 5% or more of the token supply, liquidating all immediately is simple, raising the possibility of price manipulation or a rug pull.
- Insignificant Total Value Locked (TVL) in a token
With the breaking stories in DeFi rug pulls, Twitter is going crazy
Another important indicator of a cryptocurrency or DeFi project’s authenticity is the number of tokens outstanding. This shows the total fund committed to a project. PancakeSwap, for example, has $14B TVL, whereas fraudulent projects may have as few as a few thousand dollars in TVL.
- No audits
The most reputable cryptocurrency projects will have a variety of security reviews or financial transparency reports to ensure their legitimacy. Cardano has been thoroughly validated by several audits and an external source code review to assure its safety.
A project with no third-party audit does not necessarily indicate it is fraudulent; however, it implies that you should do your research before investing in it.
We discussed how investors rush to invest in Meme Coins and how meme coins have made millionaires overnight but that is not always the case.
- Immediate tools for avoiding crypto rug pulls
Always learn about the company’s background. Never believe everything you hear or see, and plan to invest as soon as possible because you’ll receive greater returns.
A rug pull is detected by various online tools, including Token Sniffer. Token Sniffer, for example, includes a database of all the most recent hacks and fraudulent coins.
Another helpful device for detecting exit scammers is the Rug Doctor, which may also be used to find exit scams.
…Now you don’t need to fall prey to high APY tokens.
Other than the information mentioned above, you can also use tools like DappRadar to check how many transactions are happening in a project’s smart contract and whether or not those transactions are actualized.
Try to apply the mindset that “all that glitters is not gold” and make your decision with greater caution!