How to Avoid Rug Pulls, the Latest Cryptocurrency Scam

Most new DeFi projects on major blockchains like Ethereum, Binance Smart Chain or Solana are created and brought to market by well-known developers and executives. We didn’t put this crypto blow up closer to the top of our list because some call what transpired here more of a bank run than a rug pull. 20 hours into the sales of the AnubisDAO tokens – ANKH – all of the liquidity for the tokens was moved to a new wallet, and investors never saw their money again. Scammers are constantly working on new ways to make away with your hard-earned money. Hence, it is your responsibility to educate yourself to better protect your investment. By itself, this factor does not make a project a possible rug-pull scam.

  1. Whether products shown are available to you is subject to individual provider sole approval and discretion in accordance with the eligibility criteria and T&Cs on the provider website.
  2. In other words, investors can’t cash in when the price of this new token pumps.
  3. 20 hours into the sales of the AnubisDAO tokens – ANKH – all of the liquidity for the tokens was moved to a new wallet, and investors never saw their money again.
  4. Crypto.com may not offer certain products, features and/or services on the Crypto.com App in certain jurisdictions due to potential or actual regulatory restrictions.

If you do decide to roll the dice on investing in a high-risk project, you might not want to bet too much. As a rule of thumb, it’s never a good idea to invest more than you are okay to lose. Consider checking the rating for a coin or token with auditing platforms like CertiK or Hacken before jumping into a risky trade.

How to spot a rug pull

Suppose the token you are interested in is a BSC token; visit bscscan.com to find out its contract. If it’s an ERC20 token (Ethereum token), visit etherscan.io and refer to our guide on how to use it. Whether scammers choose to cap sale amounts or rewrite code that wholly reconfigures a native token’s viability, the end goal will always what is omisego be to run with the highest amount possible. Whether products shown are available to you is subject to individual provider sole approval and discretion in accordance with the eligibility criteria and T&Cs on the provider website. This is why it’s all the more important to take a deep breath before buying into the latest hyped-up token.

How Does a Rug Pull Work in Detail?

By considering these preventive measures and tips, you can dodge being the next crypto rug pull victim. The process is referred to as locked liquidity, and it stops project owners from withdrawing any of the assets in the pool, making it impossible to pull out. The longer the liquidity pool remains locked, the fewer the chances of a rug pull.

A more covert tactic involves blocking or limiting a users’ ability to sell coins on a trading platform, which can be manipulated at any point in time. Once an exchange has attracted a substantial amount of traffic, backend fraudsters may amend a project’s code to only grant traders the ability to buy into a platform. Meanwhile, selling of the native token is disabled — either partially or entirely — across all but malicious accounts, bitcoin leads cryptocurrency sell effectively pouring money into the wallets of corrupt developers. Rug pull tactics that specifically manipulate smart contract technology to funnel money one way are virtual traps known as honeypots. DeFi projects often leverage smart contracts, agreements run by computer codes instead of legal systems. While this setup minimizes transaction costs and human errors, it leaves some recourse for bad actors to pull the trigger.

Executing a rug pull often involves exploiting a blockchain’s smart contract functionality. Here, developers may exploit self-executing programs responsible for transaction verification by using nefarious code, literally writing traps into a project’s programming. Read on to learn more about what crypto rug pulls are and how you can take steps to avoid getting “rugged” – colloquial speak for being the victim of a crypto rug pull. In the examples section above, we highlighted the plight of the Squid Game token investors who were able to purchase SQUID but could not sell them. If you encounter a project, and prior investors are expressing frustration about selling tokens, consider it a red flag.

Finder.com compares a wide range of products, providers and services but we don’t provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service. Besides, most crypto projects rely on the legitimacy of their smart contract codes. Before investing in any project, check whether an independent entity has audited it. Projects that have passed auditing often publish their reports to boost investor confidence.

Since USDT, ETH, and BNB are actively traded in almost all marketplaces, it is easy to transfer to other wallets and “distance” from the source. This withdraws all roll your own javascript runtime the pooled assets, leaving the pool empty and LPs with nothing but distress. Since its invention, the cryptocurrency space has experienced tremendous growth.

NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. GitHub is the code base for most crypto projects, typically showcasing their development activities.

Up your Web3 game

In a series of transactions, the owner withdrew funds for project-based expenses, like paying artists, marketing, creating the much-hyped fighting game, and more. The founder also took down the project’s website and social media pages as part of the game. “This isn’t a crypto-only phenomenon. This is a people phenomenon. Crypto is just the latest way to do it,” says Adam Blumberg, a Houston-based financial planner specializing in cryptocurrencies. But digital currencies have become a hot target of rug pulls because of weak fundraising guidelines and emphasis on decentralizing finance. Non-Fungible Tokens (NFTs), which offer digital ownership rights of art and other creative works, have also been heavily involved in rug pulls.

Usually, malicious developers may offer high rates via DeFi services as a means to lure their rug pull victims in. To add more nuance to how these rug pulls occur, we’ll discuss the three main ways developers carry out these underhanded schemes. Sometimes the head of a crypto exchange claims an exchange has been hacked before making off with the assets stored on the exchange wallets. Auditing is essential, especially when done by an external and independent security firm. The fate of any investment in cryptocurrency or blockchain projects rests on the integrity of the project’s computer code.

Their aim is to lure swaths of eager crypto investors, enlisted to balloon the value of a shiny new token tied to a trending, up-and-coming project. At the optimal time, developers unload their shares and jump ship, plummeting the token’s value for remaining investors caught off guard. If the project is a scam, the team responsible for maintaining the pool would then withdraw from the pool, leaving investors with worthless tokens. These include decentralized finance (DeFi)  protocols and decentralized exchanges (DEXes) instead of more centralized properties.

Projects can fail due to technical glitches or business blunders, even without malicious intent. Learn about how Solana compares to Ethereum in decentralized finance, and why, in spite of Ethereum’s dominance, Solana remains a chain to watch. This website is using a security service to protect itself from online attacks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.

If a rug pull was executed by an anonymous team, it makes it harder to recover funds. However, if the promoter is arrested, they could pay back their spoils. The promoters ended up with a horde of about $3.38 million and deleted their online presence, including all their social media pages and website. Following their exit, the token’s price plummeted by 99.99% before being delisted from the popular crypto analytics website CoinMarketCap. OneCoin represents one of the largest cryptocurrency-related Ponzi schemes in the history of the nascent industry. Founded in 2014 by Bulgarian Ruja Ignatova, the project purported to be a cryptocurrency company with a coin that could be mined and used for payments like Bitcoin.

If you are buying a coin that isn’t listed on top exchanges like Coinbase, Kraken, or Binance.US, consider the fact that you may be buying a very risky asset. If the price of a new token with a low market cap has quickly “gone to the moon” – crypto speak for rose rapidly – chances are it will come back down just as quickly. A good indicator of a crypto’s liquidity is its 24-hour trading volume. AnubisDAO was a fork of OlympusDAO, a cryptocurrency backed by bond sales and liquidity provider fees. In other words, investors can’t cash in when the price of this new token pumps.

Typically, a rug pull begins with the creation of a new cryptocurrency token that gets listed on a decentralized exchange and paired with a coin from a leading platform, such as Ethereum. Fraudsters then utilize the marketing powers of social media, launching a buzz-worthy, hype-filled promotional campaign across a myriad of channels to bait a community of investors. These scams often dangle empty promises of too-good-to-be-true yields or assign membership in the likes of a Ponzi scheme. With enough traction, a platform’s reach increases alongside its token’s value. Once the price peaks, the core development team dumps its share of the tokens, making its way out with the treasury of investor funds. Rug pulls are common with decentralized finance (DeFi) since anyone can create their application.

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