Cryptocurrency has captured the world’s attention after the pandemic, and notorious scammers have taken notice too. Telegram is set to see an increase in crypto-scams due to altcoins’ popularity and meme tokens.
Is it a Scam or Not?
Fraud, scam, rug pulling, etc. They’re everywhere: Telegram chats, groups, fake communities. However, what is the definition of a rug pull? This is the next level.
Developers create tokens that are paired with valuable cryptos, then list them on DEXs and pull all of the money out.
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 do you spot a Rug Pull.
Although rug pulls are often perpetrated by seasoned fraudsters, investors can spot these signs easily if they pay close attention to these indicators.
Due to low liquidity, the developers had to make the tokens in cash. 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.
Television Limit (Total Value Locked), Low
TVL refers to the total amount invested in a particular project and is a reliable metric to check the project’s authenticity. An authentic project may have several billions invested. A scam project could have only a handful of hundred.
How do you prevent a rug pull?
These tips will help you avoid rug pullings and exit scams
Check out the Documentation
Whitepapers are essential for every project. They provide investors information such as the idea, purpose and technology. The whitepaper should be well written and reflect professionalism. Unprofessionally written or copied whitepapers are a red flag.
Follow social media channels
An essential website, social media platform and channels may be all that are needed for a scam token. The most popular projects have an active presence and will engage with investors. You will receive regular updates via platforms such as Telegram, Discord and Twitter.
CrypTalk, for instance, is an encrypted messaging system that verifies the legitimacy of projects and provides investors with secure access to KYC and charts as well as audits and reports. It also exposes them to worthwhile projects.
Use of Tools
TokenSniffer and RugDoc can help you detect a rug-pull. For a high level of scam detection, Etherscan or Binance Smart Chain explorer can help users evaluate the project’s legitimacy. Navigation through various apps takes time and can lead to limited information.
Rug pulls are becoming more common in DeFi, and NFTs, as the Crypto market grows and attracts a lot of attention. Many of these frauds are meticulously planned and executed well.
You can reduce the chance of getting Rug pulled by following these tips and conducting thorough research on potential projects. Do not be greedy!