Many investors, especially the younger ones - but not only them - are eager to recoup their losses, start investing in rotten tokens, which usually promise a lot and deliver nothing.
As this is a normal movement in the financial world: asset recomposition, there is a blow that affects precisely those who work with day trade or with quick gains. Usually these traders are used to detecting and working with pumd-dump movements.
But therein lies the danger: the rug pull gople.
Rug pulls occur in the decentralized finance (DeFi) ecosystem, especially in decentralized exchanges (DEXs), where malicious individuals create a token and list it in a DEX, then pair it with a leading cryptocurrency like Ethereum.
Basically, after the launch of the token - already designed to fail, as the objective is not to distribute income to investors, but only to its creators, the "developers" abandon the project and flee with the investors' funds.
Normally, the gains of those who entered at the moment of false leverage are fabulous, as long as they manage to exit before the token falls to zero.
But for most small investors, or those in urgent need of recovery, exit is when the damage is already established.
The scam mechanism is simple: when a significant amount of unsuspecting investors exchange their ETH for the listed token, the creators withdraw everything from the liquidity pool, bringing the currency price to zero.
Coin makers may even create temporary hype around Telegram, Twitter and other social media platforms and initially inject a substantial amount of liquidity into their pool to cultivate investor confidence.
Unlike centralized exchange networks, this type of scam is very successful on DEXs because these types of exchanges allow users to list tokens for free and without auditing, unlike centralized cryptocurrency exchanges.
Also, creating tokens on open source blockchain protocols like Ethereum is easy and free. Without regulation and auditing, the bad guys use these two features of the Ethereum network to deliver the scam.
The first protective move is to observe the trading volume in more than a day, a week, for example.
On trading sites and applications, most use an algorithm that estimates the price against a portfolio of demands and offers, which algorithmically determine the prices of tokens in a pool, depending on available balances.
A simple liquidity check on a pool will give you clues about the token's intent. Of course, again, it must be checked within a minimum period of one week, at the very least.
You should also check the token pool for a lock. The most reputable projects block joint liquidity for a certain period to provide security and guarantee the financial sustainability of the asset.
Always be wary, too, of token prices skyrocketing: currency soaring in a matter of hours. For example, a coin moving from 0 to 100X in 24 hours.
The purpose of this trick is to boost the FOMO that drives more people to invest in the token. In fact, advertising here is the soul of deception: everywhere, for 24 hours there will be news, a lot, about the rise of a certain asset, extreme gains, security through some crazy new algorithm that determines the return.
Most of the time, when the token is serious and has a real and honest purpose, it takes months to gain investors' interest.
In addition, a third item that can be checked is the trading book and behavior graph: most malicious tokens have large temporal gaps between offers and demands almost at zero and suddenly, within 24 hours, a unbelievable demand.
In other words, expand the graph to 1 month and check the asset's behavior. If it's in peak form, with, before that, very low turnover, with no reliable market motivator - no outside news other than just blogs - then you're being trapped.
Observation, study, patience and resilience save people from traps.
Of course, the greater the risk, the greater the opportunity for gain. However, it is precisely because of this rule that deceivers exist and, unfortunately, by participating in a rug pull to earn money, you may be helping to deceive others!
Do you want this?
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