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Crypto rug pulls have become a common way for fraudsters to launder millions of dollars. In this type of attack a team pumps their project’s token before disappearing with the funds. Every victim of such scams and hacks are left with a valueless investment. After pumping the price, the malicious actors pull as much value as they can. Later the projects get abandoned and their price drops to zero. Moreover, when we discuss rug pulls, it is significant to know that there are three types of Rug Pulls.
Crypto rug pulls are always unethical
There are three different types of rug pulls including liquidity stealing, limiting sell orders, and dumping. Besides it is also observed that Rug Pulls come in two forms which are known as hard and soft.
Although such crypto-based activities are illegal, these are always unethical. Hard rug pulls are always illegal. However, soft one’s are unethical but some are legal. For instance, if a crypto project promises to donate funds but opts to keep the money instead, the funds become unethical but not illegal.
How to avoid rug pulls?
Users can watch out for a few clear signs before investing their hard earned funds. Notably, experts have listed six different methods to watch out before investing in any project and protect our funds.
Investors should always focus on whether the developers are unknown or known or anonymous. It is very significant to consider the credibility of the individuals behind the projects. Moreover, it is also significant whether the developers or promoters of the projects are known to the crypto industry. We should always be skeptical of new and easily faked social media accounts.
One of the easiest ways to understand whether the project is legit or fraud, is its liquidity. Anyone can check whether the tokens are liquidity locked. Notably, with no liquidity lock on the token supply in place, nothing stops the project creators from running off with the entirety of the liquidity.
Any scammer or fraudster can code a token to restrict the selling ability of certain investors and not others. According to experts, such restrictions are the hallmark signs of a scam project.
The crypto industry is famous for its volatile nature. Many potential projects have noted significant price movements. However, many projects have also seen sudden massive swings. If any token has no liquidity locked, and is booming then the investors should get skeptical.
Now the most significant points are high yields and no external audits. After observing all the aforementioned points, several investors remain skeptical. Indeed, then we can note that if the yields for a new coin seem suspiciously high, it does not mean that the investors would witness a rug pull. However, such identifications show an indication of a ponzi scheme.
