Cryptocurrency has captured the world’s attention after the pandemic, and notorious scammers have taken notice too. With the rising popularity of altcoins and meme tokens, there will be an upsurge of new crypto scams taking place on Telegram.
What is a Scam?
Scam, rug pull, you name it. They’re everywhere: Telegram chats, groups, fake communities. But what exactly is a rug pull? The next level.
They happen when developers create a token paired with a valuable cryptocurrency, list the token on decentralized exchanges (DEXs), and then pull out all the funds.
In simple words, a crypto rug pull occurs when the developers abandon a project after cashing out investors’ capital.
Consider the recent “Squid Game” scam where the developers created a ‘Play-to-earn’ SQUID token, drew in buyers, inflated the prices and made off with $3.38 million, according to Gizmodo.
How to spot a Rug Pull?
Though seasoned scammers create the Rug pulls, it is easy to spot them if the investor pays close attention to the following signs.
Low liquidity means it is difficult to convert the tokens to cash as the developer had limited funds to create the token. It is easier for the developer to manipulate the token’s price when the liquidity is lower. The best way to check liquidity is by looking at 24hr trading volume, which should be at least 20% to 40% of the coin’s total market cap.
Low TVL(Total Value Locked)
TVL refers to the total amount invested in a particular project and is a reliable metric to check the project’s authenticity. A legitimate project will have a few billion invested, whereas a scam project might have a few hundred dollars.
How to avoid a Rug Pull?
Here are some tips to avoid Rug pulls and exit scams
Read the Documentation
Every project should typically have a whitepaper, which provides investors with information like the concept, purpose and technology behind the project. A well-drafted whitepaper provides legitimacy and a professional outlook to the project. A poorly written or copied whitepaper is repulsive and considered a red flag.
Follow Social Media Channels
A scam token might usually have an essential, low-traffic website and social media channels that were created recently. At the same time, the most successful projects will have an active presence, investor outreach and community engagement. There will be active updates on platforms like Twitter, Telegram and Discord channels.
For Instance, CrypTalk is an encrypted messenger that verifies projects legitimacy and keeps investors in a safe place with access to KYC, charts, audits, reports, market cap, and bring exposure to valuable projects.
There are online tools that can detect a rug pull, like Token Sniffer and RugDoc. For a high level of scam detection, Etherscan or Binance Smart Chain explorer can help users evaluate the project’s legitimacy. However, navigating through different apps is time-consuming and information is always limited.
With the Crypto industry growing bigger and garnering a lot of attention, rug pulls have become prevalent in DeFi and, to some extent, in NFTs. Most of these scams are well planned, marketed intensively and executed brilliantly.
By following the tips, conducting due diligence and conceptual research analysis on prospective projects, you can decrease the chances of being Rug pulled. Be an intelligent investor, not a greedy one!