How Not To Be Rugged Pool

How Not To Be Rugged Pull?

By Cryptofab | Cointune | 21 Feb 2022

You may have heard about one of the latest rug pulls on Avalanche blockchain: Atom Protocol, which suddenly collapsed with all the hodlers' funds.

How to avoid a rug pull?

First, you need to identify the common signs of a rug pull. We will not invent anything there, those signs are well knowns. I will use a list recently given on by Zoltan Vardai:

  • The project appeared overnight: A good project takes time to be developed, usually a few months. If a new protocol you never heard about before suddenly popped up, it is not a good sign.
  • Anonymous developers: There are many possible reasons why developers may want to stay anonymous. However, it is always a red flag. If it happens, you may check on Discord, Reddit or Twitter to get more information on the anonymous team: are they backed by well-known people? In the other way, a KYC'd team does not guarantee that there will be no rug pull. Look at the example of Atom Protocol... So in any case, check who is behind the project. Even if it is only a pseudonym, if this pseudonym is backed by a leggit team, it will reduce the risk.
  • Low liquidity: A general rule of thumb is that the trading volume should be at least 10% to 40% of the coin’s total market capitalization.
  • Unlocked liquidity: If the liquidity owned by the developers is not locked, then nothing will stop them from withdrawing it suddently.
  • Low TVL (Total Value Locked): The lower the TVL, the bigger the risk of rug pull.
  • Disproportionate tokenomics: If a single wallet or two holds a large amount of the token supply, i.e. 5% of more, selling all at once will be easy.
  • Low effort website and lack of presence on social networks: If the website is still under construction or to be launched soon, you'd better stay away from this project. If on Twitter all the messages about the project are coming from the same one or two person(s), you'd better stay away too.
  • No audits: Although it is a red flag, it does not necessarily mean that there is a risk of rug pull. However, it should increase your level of attention. In the other way, an audit does not remove completely the risk. Please look at the audit report(s) which may contain some useful information.

Once you have looked at all these signs, you can use the following websites to check further:

  • Token Sniffer, which lists all the latest hacks and scams and offers automated audits.
  • Rug Doc, which analyzes the code of DeFi protocols and gives a rating to each of them.
  • The explorer of the utilized blockchain (e.g., Avascan) to search for the token address and check the tokenomics and other useful information.

Below a few referral links to earn more cryptos...

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