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rug pull

5 Ways to spot a rug pull

A rug pull occurs when the creator of a project suddenly abandons it once a lot of funds have been invested in it, leaving investors in huge losses. The rug pulls usually pop out of nowhere and it is hard for a layperson to spot a rug pull.

According to the reports, rug pulls took away about $US2. 8 billion in 2021. It usually happens on decentralized finance( DeFi) platforms where developers come with a new project, pair it with a leading cryptocurrency, and then just disappear without leaving any clue. Here we will discuss how you can spot a rug pull.

The chart below shows the total yearly cryptocurrency value received by scammers from 2017 to 2021.

Rug pull
Source: Chainalysis

How to spot a rug pull:

Rug pulls are everywhere and with a strong investment strategy and due diligence, you can avoid these scams.

  1. Unknown Developers:

Today, Most successful cryptocurrencies like Bitcoin and BNB have a team of well-known developers. Unlike this, when a project with an anonymous developer comes out of nowhere and does not want to reveal his identity it is already a red flag and you should avoid investing in it.

  1. Check Auditing Websites:

There are a number of websites that list the latest hacks and scams coin like bscheck.eu, tokensniffer where you can easily check if a specific token is audited or not. It is not necessary that a project without an audit is a scam but you should check the project thoroughly to make sure your investment is in safe hands.

  1. Check Distribution

The token distribution can easily be checked on a website like Etherscan. If a large amount of the token supply is present in a few wallets, and selling all at once is easy, it means that whales could dump their tokens and crash its price. So we can say that if the token supply is more distributed, the safer it is for your investments.

  1. Check Liquidity:

The best way to check the liquidity of a coin is to check its 24 hours trading volume. High liquidity means the token can easily be converted into cash and vice versa. So, you should not invest a large amount of money in a project until you know it has high liquidity and if and when you can convert your token into cash.

  1. Check social media presence:

The rug pulls always stay in shadows and do not want to reveal their identity. And to check if a project is worth investing in or not, check its social media pages and website. If the website says like “Launching soon” or has social media accounts that lack genuine community engagement, it is a red flag.

Rug pulls are becoming more and more common in crypto specifically DeFi and DEXs as the blockchain industry is growing. Losses from these scams are almost never recovered. So just don’t invest in something you don’t understand and never rush into investing in something that looks over-rewarding.

About mnmansha

MN Mansha is a cryptocurrency expert, trader, and content writer with extensive experience in covering everything related to digital assets — from price analysis to Blockchain disruption. Mansha authored 100+ stories for NewsBSC.com and other fintech media outlets and he's actively writing more every day. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets.

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