Crypto can be a cruel mistress; one second you think you've stumbled across a great new project, yet to define the financial system, and the next you are left with tokens worth nothing, and it's system liquidity completely drained. Worse? The developers make off like bandits with no trace.
I sincerely hope that those of you who have no idea what I am talking about, will never have to experience this first-hand. However, those of you who have been through something similar, I want you to know you are not alone.
Many institutions from 'The European Business Review' to 'CoinMarketCap' have attempted to bring this issue to light in order to make the community a safer, more educated place. This article will further this attempt and I hope is useful to all of you in one way or another.
Introduction
These are 5 of the most important things you need to know about Rug Pulls and manipulation:
1. It can happen to anyone, anywhere- even billionaires
2. What it "smells" like and some signs of underhanded activity
3. What it "looks" like and the price manipulation on the chart
4. The role of DEX's vs. centralised Crypto exchanges
5. How to avoid the trap
... and a bonus
6. The pigs.
It can happen to anyone
This is the most important realisation. Even those with a wealth of financial knowledge and wealth are not safe. This includes, reportedly, billionaire Mark Cuban.
Dallas Mavericks owner and Shark Tank investor, Mark Cuban was allegedly targeted and "rugged" by a DEFI protocol.
"Live and learn" Cuban told source Decrypt.
This is why its important that you do not feel that you are invincible. Please friends, protect your money well. In the mainstream as well as the decentralised financial world, there are plenty of greedy actors just waiting on the ambitious to make a mistake; and then to steal the fruits of their labour (In (6) we will discuss these pigs).
What it "smells" like
Many scammers pose as advisors, investors, influencers and 'friends'. Spend one week on an altcoin Telegram chat and you will know exactly what I am talking about. You will be added to multiple suspicious and fake group chats, or at other times have overly-confident strangers approaching you as 'friends'.
Others may even appear as wild representatives of Elon Musk asking for crypto in exchange for money. No, I'm not kidding.
Unfortunately, these are still the more tame, less organized versions of the cyber-crime. Rug pulls however involve a much more organized and large criminal base. Entire teams running projects, including some I have had the displeasure of stumbling on in my quest to discover quality projects to actually post on my Crypto Patrol blog, have proven to be malicious and capable of ruining an entire market cap.
That being said, I have also had the pleasure of learning, and understanding why projects such as Baitcoin and Muslim Coins are safe, and how I can more accurately help these teams promote a safer image of themselves, including hosting more AMAs (ask-me-anything sessions).
I will leave the criminal projects unnamed, as they do not deserve a mention on my blog, but in the next section over I will post the chart which reflects a rug-pull situation in an effort to demonstrate what it looks like. Congratulations to you web sleuths who can then do their own research to match the unnamed chart to the Crypto project which is still in full fledge, refuses to answer to criticism, and openly exercises social media suppression. The have aired my messages attempted on 6 different occasions.
What it "looks" like
The said project allowed the purchase of its token in it's back office (next we will talk about the dangers of DEX's), with users being able to exchange their tokens such as BTC, BNB, ETH amongst others for the native token. This token then could not be taken out or put into any wallets. It could not be moved into any exchanges and would sit in the back office without any meaningful purpose. This arrangement should've screamed danger all whilst the price of the token kept mooning as evident from the graph.
Okay let's talk economics:
What's happening here gradually as the price escalates in the first half of the graph, typical to any rug pull, is that investors are paying more and more other currency to the fraudulent team, and they are marketing it better and better showing promises of insane growth. This gets even more investors interested.
Until it's show time.
The team which are the only ones able to transact with the token they have created begin to sell them all on an exchange that no one else has access to. They effectively pull out all of the liquidity in the system, taking all the BTC, BNB and ETH for themselves. The price naturally drops to rock bottom.
During the decline, each and every day, without a single break, the team ruthlessly suppresses all worried investors in their telegram chat as well as Facebook or other social media platforms. Meanwhile, they raise false hope of the currency "bottoming out" at each and every individual day of the decline.
Now this is usually where the scam ends. The liquidity is taken from the exchanges and the token is worthless. The bandits make off, without a sign.
"When liquidity flows into the project and the price grows, developers then pull all the liquidity they can, crushing the capital of those left holding the bags in the end."- (European Business Review, 2021).
Ooh but not these bandits/ greedy pigs. Rather, this is a special type of scam. They promise that eventually, at a future indefinite and arbitrary date, their DEX will be ready as well as eventually investors will be able to take out 1% of their tokens a month, but adjusted daily. Alternatively, the investor can take out a 30th of 1% of their funds a day (a miniscule three thousandth).
And if you forget to take your currency out? Too bad, it doesn't aggregate the balance to the next day.
Now all of this is without the consideration that the liquidity is drained from the system and those tokens cannot actually be traded for anything at all.
This project has clearly transcended from the realms of rug pulls to something even more manipulative and sinister. Because they'll do it again and again until the crop of investors is drained. This is essentially what they rather tongue-in-cheek state in the telegram chat: "Be ready for bigger and wilder fluctuations once we open larger withdrawals starting September 1st".
Who's going to stop them? Sadly, they WILL get away with this. BUT not with YOUR money now you have this knowledge.
If in the future the coin is still worth something, they will easily play it off as a longer term vision actualised. But these pigs have played around with the early hopefuls money already leading to multiple thousands of dollars worth of losses.
DEX's vs. Centralised Crypto Exchanges
I think we'll all agree that Blockchain is awesome and so is the Crypto developments happening at a very fast pace at present. Unfortunately though, with decentralised technology there are notable issues.
"Rug pulls thrive on DEXs because these types of exchanges allow users to list tokens for free and without audit, unlike in centralized cryptocurrency exchanges. Furthermore, creating tokens on open source blockchain protocols like Ethereum is easy and free. Malicious actors use these two factors to their advantage. "- (CMC, 2021)
This definitely isn't to make out all DEXs as fraudulent. A lot of them such as the one to be developed by Muslim Coins are fully audited by a secure launchpad such as spaceseed.finance, and their teams are doxxed. This means that the team's information is transparent and readily accessible for investors.
How to avoid the trap
Hopefully the information provided up till now will prove useful. Additionally, you may take further steps to keep your money safe from the greedy pigs:
1. Check the liquidity in a pool
2. Check if the liquidity is locked for a certain period of time (increases reliability)
3. Check if the project excessively markets using investors FOMO
4. Check if the project silences, suppresses and censors questions. Submit your own questions and don't be afraid to be sceptical.
5. Try to go through centralised exchanges (not always easy due to regulation easily targeting these exchanges)
6. Above all, look out for AMAs where the team is ready to show themselves to the public and answer their questions
Remember these are just my tips. Many of you very clever people might even have better suggestions I'd love to hear in the comments.
Let's defeat the Pigs
The crooks are pigs (said out of anger as much as it is said for the next bit...). How on earth have I made the concept of the Pigs from George Orwell (my favourite author by the way) relevant to this financial disaster?
Simple, figurately speaking, remember that much like the Pigs who came to manipulate and rule over all the animals of Animal Farm (DeFI), responsible for a revolution of overthrowing the farmers (banks), these crooks and criminals are given too much power.
With great power, comes great responsibility. Those that misuse it, need to be dealt with by us, as a community. We need to decide how we are going to take our power back from these pigs and set rules for our Crypto community which are safe, and beneficial for the majority of us early adopters.
I don't know how many of you recognize the power you, and you alone, as an agent in society posses. You can spread the word and take positive action as I hope I have done today in an attempt to pass on the information.
Tell your friends and family about it and move Crypto into the mainstream.
If you enjoyed this article make sure to give me a follow. Stay safe, stay vigilant <3
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