What is a Rug Pull in Crypto (And How to Avoid One)

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What is a Rug Pull in Crypto (And How to Avoid One)

What is a “Rug Pull” and How Does It Affect Crypto Markets?

A “Rug Pull” is like a mini-crash in the crypto markets. It’s sudden and unexpected. When this happens, many investors are left scratching their heads wondering why it happened. A rug pull will inevitably lead to some unfortunate consequences but if you can avoid them, then these events can be relatively harmless.

One of the most common causes of a rug pull is when there is an event that triggers fear in investors and causes them to sell off their assets in order to take profits before they get too far down the line.

The market pulls back due to some news or event that makes people feel uneasy about investing in cryptocurrency. This causes panic among the public and they sell their assets leading to a temporary downward trend for crypto markets as a whole.

A “Rug Pull” is when an investor purchases their holdings and then sells them off quickly to make a profit. This is not new for crypto markets because it’s been happening since the beginning of time. It was just an event that received a lot more attention due to the recent market volatility and media hype of cryptocurrency going mainstream.

A “Rug Pull” is when an investor purchases their holdings and then sells them off quickly to make a profit

The rug pull is a term used to describe the sudden, sharp decline in the price of an asset, usually after an increase.

This can be attributed to fear or panic, which typically lasts for a few days before prices return to normal. This phenomenon has been seen across all cryptocurrencies and has affected major markets across the globe.

When it comes to the defi markets, the rug pulling has been responsible for $110 million in losses as of August 2021.

Types of rug pulls

Liquidity scam

A liquidity scam is a type of fraud where the perpetrators sell securities on the promise of liquidity and then fail to deliver, leaving investors stranded with worthless shares.

Liquidity scams are crypto-related and usually present themselves in the form of airdrops or initial coin offerings (ICOs) that advertise that certain cryptocurrencies will be listed on a specific exchange. The perpetrators then ask for money and provide fake promises to investors, including promises made by an exchange which they don’t control.

What to look for, to avoid them

The cryptocurrency market is largely unregulated, so scammers have found it easy to take advantage of buyers who are unaware of how much risk they are taking or how difficult it will be to recover their investments. These scammers often take people’s money with high-profile names in the industry attached to their recovery plan.

A crypto rug pull is a scam that pays out based on cryptocurrency and other investments. The main idea behind the scam is to offer you a portion of your initial investment back in return for joining the company as an affiliate.

The first step to avoid this scam is to know where it originated from. If it sounds too good to be true, chances are it is not true.

The best way to avoid this type of scams is by learning about similar scams and then making sure that your personal data has not been compromised.

Crypto rug pull is a term that refers to the phenomenon of cryptocurrency investors losing money on initial investments due to unexpected price fluctuations.

While it may seem like a small risk, crypto rug pulling can be avoided if you stay up-to-date and educate yourself about your investments and strategies.

The rug pull is a term that describes when someone, usually an individual, pulls the rug out from under the feet of people who are mostly unaware of what’s happening.

A crypto rug pull can be easily avoided by following these general steps:

1. Keep your expectations in check – “think small” to avoid disappointments and regrets.

2. Make sure you have done your research – read books, watch video tutorials, and ask trusted peers for advice on what to expect in crypto space.

3. Don’t invest more than you can afford to lose – remember that investments are always risky and that investing into cryptocurrencies is no exception.

Warning signs for a scam include vague documentation and unclear information from the project. Research it thoroughly before investing to make sure you know who the owners/token holders are as well as other important details.

  • Take a look at the company’s holdings

You need to check what percentage of the tokens are held by developers. A large number means that they have more control over the market cost of the token, which could be a worry of a potential rug pull. Note, however, that there are relatively few holders of these tokens, which means there is not a decentralisation of the token, again a red flag

  • Check the history of the developers

Check out if they have any past developments what did they create, how did they do? What are their credentials, a lot of times these rug pulls are small low cap coins, which have been hyped.

  • Take a look at the project’s code carefully

All decent projects, the source code can easily be found. Skim through it to identify functions that have been flagged as dangerous by independent auditors.

  • Do not invest even if your favourite celeb endorses it

Recently there has been cases of coins been heavily promoted by celebs, such as the ‘save the kids coin‘ This coin was rug pulled by the owners and developers. Before hand they had many celebs promoting the coin which made it come across as legit, and a ‘charity coin’ but in the end it was still a rug pull, be careful. Some of the celebs had pre bought all the coins cheap and sold it as soon as it was released.