Let’s assume you invested in a coin after seeing a tweet proclaiming it to be the next big thing in the crypto space.

Interestingly, after a few moments of your investment, you see a 5x to 10x return. Amazing huh? 😎

However, just when you are about to sell your hot gem for a profit some days later, you realize that the price has plummeted to a penny and a half.

This is sad, isn’t it? But this is how the term “Rug Pull” plays out.

So, in this article, I’ll teach you what you need to do to avoid being rug pulled. Let’s get started!

Post Summary

1. What Is Rug Pull? – An Overview
2. The Different Ways A Rug Pull Can Be Carried Out
3. Top 5 Cryptocurrency Rug Pulls
4. How To Spot And Avoid A Rug Pull
5. Why Is Rug Pull So Common In The Crypto space?
6. Conclusion

Read until the end!

1. What Is Rug Pull? – An Overview

Rug pull is a ruse employed by the creators of a cryptocurrency to swindle investors.

The term cuts across all forms of crypto scams perpetrated by coin developers.

Usually, they will sell acclaimed hot gems coins to unsuspecting crypto enthusiasts, using all forms of marketing strategies to entice them.

But as soon as investors start coming around, they will heap these coins on them, siphon millions of dollars, and abandon their project.

Sadly, this happens with the majority of the newly launched altcoins, and it is especially prominent in the DeFi space.

According to CipherTrace, “DeFi rug pulls accounted for about 99% of all crypto scams in the H2 of 2020.”

Rug Pulls are also known as “Exit Scam”.

They’re something you should keep an eye on if you’re a crypto investor, else you’ll get rekt.

As you scroll down to the section below, I will tell you about the many different ways that rug pulls can be carried out.

The Different Ways A Rug Pull Can Be Carried Out

A Rug pull can be conducted by a coin developer in any of these 3 malicious ways:

Unlocking Liquidity

This happens when a crypto developer pulls out all the liquidity of a coin from a DEx.

You see, for a coin to be traded on a DEx like Pancakeswap or Uniswap, the coin developer must provide liquidity for it.

He accomplishes this by providing a share of two coins to a liquidity pool.

Probably a valued cryptocurrency like BNB, followed by his scam coin.

However, when a large number of investors have swapped their BNB for the scam coin, the developer will cunningly go and withdraw the coin’s liquidity.

This leaves investors rekt with an illiquid asset because new investors will no longer be able to trade the coin.

Selling Their Shares

This can happen in a scenario like this:

Coin developers will hype and pump their shitcoin a few days before its listing on a major exchange.

So, because of this large buzz, many investors will definitely want to buy into the project.

However, when the coin is listed, the developers will quickly sell off their shares, bringing the coin’s value to virtually zero from its pre-launch price.

Worse is, some investors must have bought the coin at its ATH on a less popular exchange, hoping that the coin would shoot up in price as soon as it is listed.

Meanwhile, something tells me that this is what happened to the TLM coin after it was listed on the Binance exchange.

The coin plummeted from its launch price of around $6.7 to approximately $0.2 as of August 13, 2021.

However, we cannot call the TLM coin a rug pull yet because the developers are still actively working on the project.

It’s worth noting that the price decline may happen slowly over time, so you don’t think you’re being rug pulled.

Also, this kind of rug pull can happen in so many forms.

Either as an ICO scam or an exit scam where a nearly established project suddenly abandons its project and runs away with investors’ funds.

Honeypots

This happens when the coin’s developers use a smart contract that allows only their wallet to withdraw a coin.

In other words, you can buy this coin but you will not be able to sell it for profit.

This is similar to what happened with the WDogecoin fraud.

Now that we’ve seen the many strategies for carrying out a rug pull, we’ll look at some of the greatest crypto rug pulls below.

Top 5 Cryptocurrency Rug Pulls

Take a look at them at a glance:

• Truampl (TMPL) – This is a DeFi project that was launched on Uniswap as an imitation of the crypto project Ampleforth.

Sadly, it rug pulled 1800 ETH 3 hours after it launched.

• Turtledex (TTDX) – An acclaimed decentralized storage platform built on the BSC network premiered its IDO on Pancakeswap and Apeswap.

However, it pulled the rug immediately after raising $2.4 million in BNB.

• Compounder Finance (CP3R) – Is a supposedly smart farming protocol on the Ethereum network that rug pulled $11 million in one month of its existence.
• Polywhale Finance (KRILL) – A Yield Farm DeFi protocol on the Polygon network folded after siphoning $1.4 million from the project’s treasury wallet.
• Lv.finance: A presumedly mining project in Ethereum issued a false audit result to lure investors.

It eventually turned out to be a honeypot after investors put their money into it.

Certainly, these scam projects should give you goosebumps.

In fact, it must have convinced you that you should never invest in cryptocurrency.

But you see, you should never think like that because cryptocurrency is the future of finance.

Moreover, there are a plethora of real gem altcoins in the crypto market that can give you a life fortune.

And for this, I will be giving you some real tips on how to spot and avoid a rug pull below.

How To Spot And Avoid A Rug Pull

These are my top 5 strategies to spot a rug pull:

1. Conduct Background Research

As a crypto investor, you should never invest in a project that you think is fascinating without first doing your research.

So, the first way to begin your research is to ask yourself a few questions:

• Are the founders legit and can I verify their identities?
• Does the project have an official website and active social media presence?
• Is there a whitepaper for the project, and if there is, does it make any sense?
• What is the coin’s use case?

The truth is, you should never worry about investing your money into a project with a shady background.

If you can’t come up with strong answers to these questions, you’re already one step closer to spotting a potential rug pull.

2. Few Wallet Holders

This can easily be done by using a blockchain explorer.

For instance, if the coin you want to invest in is a BSC token:

• Go to BSC Scan, paste the token’s contract address, and click on the search icon.
• Go to the “Token Tracker” area and click the link there.
• Scroll down and select “Holders” and you will be able to see all the wallets that are currently holding the coin.

You shouldn’t feel too safe investing in a coin if the bulk of it is held in one or a few wallets.

3. Exchange Listing

The next thing you may want to check out for is where the coin is actually being traded.

If the coin is listed on a centralized exchange, then you will have to ensure that it is not traded on a fake exchange.

Note that you also need to be careful about coins that are only traded on a DEx.

The reason is that these coins are more likely to be rug pulls, and I will tell you why in the next section.

Finally, do not be too quick to invest in a coin as soon as it gets listed.

Before investing, take your time to monitor the movement or the direction of the market.

4. Check That The Liquidity Pool Is Locked

A coin’s liquidity pool is everything in a DEx because whatever happens to it affects traders.

So, before you delve into trading a coin that is listed on a DEx, you will need to make sure that the coin’s liquidity pool is locked.

Locked liquidity guarantees a trader that the liquidity pool is intact and will not be maliciously removed by the developer.

To check that a coin’s liquidity pool is actually locked, you can copy the coin’s contract address and paste it into sites like:

• Unicrypt
• Team.finance
• CryptEx
• Dxsale

5. Hype And Too Good To Be True Reward

These kinds of projects are known as pump and dump schemes.

Do not be in a haste to invest in a coin just because it is being hyped by social media influencers.

Also, do not jump into buying a coin because it increased by 5X or 10X in a day. Likewise, a DeFi project that promises up to 500% APY should be avoided.

This is because it could be a ploy used by the developers to lure you and other investors into the project before pulling the rug.

Citing the TLM token this time again:

Investors were told that a relatively large number of tokens had already been staked for the coin prior to its launch.

This misled investors into thinking there was a lot of interest in the coin, coupled with its pre-listing on the Binance exchange.

However, as I previously stated, the coin’s price has dropped dramatically since its listing on Binance.

Remember that we can’t still call this project a rug pull for now because it is still active and there is no evidence of the developers running away with investors’ money.

But why is rug pull so common in the cryptocurrency space, and why isn’t there a way to punish people that engage in it? You may ask.

I have provided an answer below… Keep reading!

Why Is Rug Pull So Common In The Crypto space?

“Rug pull” is common in cryptocurrency because it is an ecosystem that thrives on decentralization.

No particular financial body monitors the activities that go on within the space.

And because cryptocurrency is barely regulated, a con artist can comfortably carry out a rug pull since there is no law to punish him.

Again, crypto is all about anonymity, with a wallet address being the only means to track a transaction.

This, therefore, gives these scammers a sense of security knowing that their personal identity could not be traced.

Well, it is true that a crypto exchange could pin down these scammers by locking the siphoned money whenever it hits their exchange,

However, a well-grounded scammer could still manoeuvre his way, ensuring that an exchange could not trace his transactions.

Probably by using a cryptocurrency mixer.

Moving on, the DEx exchange provides an ample opportunity for any scammer to conduct nefarious activities.

The reason is that there is no intermediary to conduct a background check on the project before listing.

So, anyone can virtually list a scam coin, add liquidity to its trading pair, deceive uninformed investors, manipulate the market and steal people’s money.

But you do not need to worry about being rug pulled since I have given you the strategies that will help you to spot and avoid them.

I still have something for you in the next section. You may want to see it by scrolling down.

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Conclusion

Rug pull or no rug pull, the crypto market has come to stay and it will continue to thrive.

I believe it will only be a matter of time before these con artists stop getting lucky with their schemes.

Of course, they will not succeed for long because people are becoming aware of their deceptions.

Gladly, you have become one of the people that will never fall for rug pull by reading this article.

This is where I would like to have your opinion.

Did you fall for a rug pull and what project was that?

Are there other strategies for spotting a rug pull that I did not mention here?

Put your thoughts in the comment section to chitchat with me.

 Finally, share this post and save others from rug pulls. Cheers!

Also Read:

• 10 Crypto Trading Mistakes That Can Wreck You And How To Avoid Them
• Is It A 1000X Moonshot Coin Or A ShitCoin? This Will Save Your Money!
• 10 Most Exciting Defi Projects And Their Coins To Invest In For 2021
• Top Coins To Buy For Higher Rewards In The Second Half Of 2021
• 8 Tips On How To Spot DeFi Scams (Don’t Waste Your Money)