Summary of this article
Rug pulls steal investor funds, leaving tokens worthless quickly.
Scammers vanish suddenly, exploiting hype in crypto or DeFi.
High promises often hide risky, short-lived schemes.
As the use of digital assets, such as cryptocurrencies, as well as digital and non-fungible tokens (NFTs) grows, crypto scams are also on the rise. From fake exchanges to misleading or misrepresented offerings, many scams appear legitimate that causes investors to suffer losses. The rug pull is one such scam that has become increasingly common, where scammers collect funds through a token and then disappear without warning.
What is Rug Pull in Crypto
A rug pull is a crypto scam where creators attract investors and then suddenly abandon the scheme after enough money has been collected. They withdraw the funds, leaving investors with worthless tokens and no way to recover their losses. Rug pulls are most often seen in decentralised finance (DeFi) and newly-launched tokens.
These frauds can take many various forms including draining liquidity pools, boosting prices before selling off substantial holdings or introducing malicious code into smart contracts to take over assets.
5 Warning Signs of a Rug Pull
Here are five warning signs of a rug pull
1. Unprotected Liquidity: If the money investors put into a token isn’t locked, the people issuing the token can take all the funds and disappear at any moment. Legitimate projects usually lock liquidity for months or years to keep the funds safe, giving investors a sense of security. Without a lock, your investment can vanish instantly.
2. Selling Restrictions: Some tokens are designed in a way that selling them after purchase is very difficult or even impossible. Purchasing a small amount and attempting to sell it instantly is an easy method of checking. Scammers sometimes utilise this to trap money so it is a major red flag if you are subject to severe restrictions or are unable to sell at all.
3. Unrealistic Returns: If a cryptocurrency opportunity promises assured or extraordinarily high profits immediately, it’s often too good to be true. Scammers utilise these claims to bait investors. Cryptocurrency is highly volatile, and no legitimate project can guarantee huge, risk-free profits. Usually, bigger promises mean a higher chance of losing money.
4. Anonymous or Hidden Team: It’s a red flag when the token’s creators hide their identity or are unable to give proof of their experience. Real projects often disclose who runs the platform including their history and previous work. Anonymous teams are unsafe because scammers can vanish without trace.
5. No Roadmap or Real Use: A cryptocurrency project can be a scam if it lacks a clear strategy or useful application. Reputable projects usually disclose their objectives, roadmap, and token usage. Without a clear goal, a token is probably a short-term scheme that leaves investors with worthless tokens.
