Comprehensive Guide on Crypto Rug Pulls And How to Avoid Them

Crypto rug pulls result in significant losses in the international crypto markets. Cryptocurrency rug pulls are prevalent in the international crypto markets, leading to losses worth billions of dollars for digital asset investors.

The information below describes crypto rug pulls, how they function, and how to spot and evade them.

Crypto Rug Pulls Explained

A crypto rug pull is an exit scam that entails a team generating funds from the public and investors by selling a token. Afterward, the team quickly vanishes or quietly shuts down the project, removing the generated funds and leaving victims with valueless tokens.

Rug pulls can be extensively planned, with evil actors exploiting social media influencers and hype-creating initiatives to trick numerous victims. Besides, some schemes utilize trusted, crucial opinion leaders in the social space to acquire trust.

Rug pulls can also happen when the project owners manipulate a specific coin’s or token’s value to trick investors and later drain their investments. Mostly, swindlers use sharp and abrupt rises in the token’s value over a short period to lure victims.

After the price peaks, the token is sold to make a profit, while ‘investors’ are left with significant losses. Rug pulls mostly happen on decentralized trading platforms, allowing swindlers to benefit from their pseudonymity. 

Types of Common Pull Rugs

Rug pulls can generally be classified into soft and hard rug pulls. Soft rug pulls occur over an extended period, while hard ones are more sudden and acute. 

Examples of ordinary rug pulls entail: 

Fake Projects: Scammers develop genuine projects, amass investments, and later vanish with the funds. Investors are left with valueless tokens.

Liquidity Pulls: Malevolent actors take away liquidity from a token pool. Thus, the token’s value plunges due to the absence of sellers and buyers.

Pump and Dump: Swindlers artificially raise a token’s price via coordinated purchasing. Afterward, they sell their holdings at the peak and crash the value.

Team Exit: The project’s team members instantly exit or disappear, leaving investors with a falling token and minimal support. 

How to Identify and Avoid Rug Pulls

Spotting and evading rug pulls entails a combination of vigilance and diligence. One can safeguard themselves via:

Security audits: Trustworthy projects mostly undergo third-party security assessments. One should confirm if the project has been audited, and the audit report must be reviewed for susceptibilities.

Research: Before investing, one should probe the project team’s goals, team, and community. Issues such as the absence of transparency and unknown teams must be considered.

Warning indicators: People must be wary of impractical yields, returns, and coercion to invest fast. In other words, one should trust their instincts and evade Fear of Missing Out (FOMO).

Community engagement entails engaging with the project’s community on forums and social media. A robust and active community can indicate a genuine project. 

Finally, a person should only invest money they can afford to lose. 

Five Largest Crypto Rug Pulls

Thodex

This Turkish cryptocurrency exchange was hacked in 2021 and resulted in the loss of more than $2B. Later, the founder, Faruk Ozer disappeared and was apprehended in Albania in 2022.

OneCoin

This cryptocurrency-founded Ponzi scheme was run by Ruja Ignatova, who claimed experts supported it and had a vast network of distributors. Nevertheless, nothing supported it, and distributors were paid to recruit new investors. Its collapse led to the loss of more than $4B. 

AnubisDAO 

This DeFi initiative was unveiled in 2021 and promised significant returns to investors. However, the developers drained its liquidity pools and vanished.

Uranium Finance

This DeFi project promised to expose investors to uranium mining. However, the developers drained their liquidity pools and vanished, leaving token holders with significant losses.

Squid Game Token

The scam was created in 2021, inspired by ‘Squid Game,’ a famous Netflix series. Nevertheless, this token was a rug pull that involved developers disabling its ability to be sold. Later, they vanished with investors’ money. 

End Thoughts

Cryptocurrency rug pulls are prevalent in the international crypto markets, leading to losses worth billions of dollars for digital asset investors. A crypto rug pull is an exit scam that entails a team generating funds from the public and investors by selling a token.