There is a lot of fraud in the cryptocurrency market. The main reason for this is the lack of information. If you know fraudulent methods, you protect your investments. One of the most common methods used as fraud is the "Rug Pull". These methods carried out fraud of 10 million dollars in 2021. Compared to 2020, there has been an increase of 80%.
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What is “Rug Pull”… ? How to “Rug Poll”… ? What are the methods of protection from “Rug Pull” … ? We will try to find the answers to these questions together...
What is Rug Pull … ?
Rug Pull is a type of scam in which a cryptocurrency developer introduces and develops a new project to investors and then disappears with tens or even hundreds of millions of dollars. “Rug Pull” is a type of fraud that is frequently encountered by new investors in the crypto money world.
Rug Pull scams are so popular because of the extremely high interest rates or very rapid price movements that the project promised when it first launched. Such projects are also called scams. These projects first issue a token and add liquidity in decentralized exchanges, allowing people to easily access the token. Afterwards, when there is sufficient liquidity in the pools, the project owner can take the money of other investors or reduce the price by more than 99 percent by changing the smart contract of the project or selling it to the tokens it has.
How to Rug Pull … ?
The first Rug Pulls in the cryptocurrency markets were realized by listing the projects that were continuously released between 2015 and 2018 on central exchanges with ICO. However, with the increasing popularity of decentralized exchanges in 2020, fraudsters have reached the masses faster through decentralized exchanges. In decentralized exchanges, you do not need to get permission or approval from any authority to open a liquidity pool and lock tokens.
In liquidity pools managed by smart contracts in decentralized exchanges, smart contracts are usually written by token developers. Scam projects often have maliciously written lines of code in smart contracts. While these codes sometimes do not allow the person who bought the token to sell, sometimes the developer can produce the token as he wishes or withdraw all the liquidity.
A little detail...
Liquidity Reset; Occurs when token developers withdraw all tokens from the liquidity pool. Thus, it removes all the value injected into the project by the investors, bringing the price of the token to zero. It is the most common Rug Pull method.
Blocking Sell Orders; It's a sneaky way for malicious developers to scam investors. In this case, you cannot sell the crypto money back due to malicious coding in the smart contract of the crypto money you purchased. When the price of the cryptocurrency is high enough, the investor who wants to take his profit will encounter a problem when he wants to sell this cryptocurrency, the contract prevents the investor from selling the token.
Dumping; It happens when developers quickly sell the high supply of the token they developed. Doing so lowers the price of the cryptocurrency in question. “Dumping” usually occurs after heavy publicity on social media platforms. The resulting increase and sales are also known as Pump and Dump scams.
What are the Methods to Avoid Rug Pull … ?
- Being wary of unknown, unknown developers...
- Ratio of unlocked liquidities …
- Limitations on sales orders...
- The low number of token holders but the high price of the coin…
- Suspicious yields...
- The fact that the project has not passed inspection …
It is of great importance that smart contracts are audited by independent organizations. With smart contract code controls, it is important for security because any malicious code and important bugs, errors are shared transparently.
Before investing in a token that you have not heard of before on decentralized exchanges, checking whether the codes are audited is an important criterion to avoid the risk of Rug Pull. In order to avoid projects that can rug pull other than smart contract codes, it is important to look at the liquidity in pools, token trading and project developers.
My Last Words; There was a new rug pull event two days ago. TeddyDoge (TEDDY) price has dropped more than 99.94 percent in the last 24 hours, according to Coinbase data. According to blockchain security firm PeckShield, the project is a “Soft Rug Pull”. The firm says that the price of the cryptocurrency was raised by the issuer of the contract and then lowered. Whoever is behind the rug pull has seized 10,000 BNB tokens ($2,591,573). He also stole $2 million worth of Binance USD (BUSD) stablecoin.
Before investing in projects, you should evaluate and examine the projects according to the above-mentioned topics. You have to make your investments by doing your own research, not based on the information given by others or hearsay. As I always say; listen to everyone, decide for yourself...
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