Before we dive deeper, we must first know a rug pull. A rug-pull is a scam where the person or group of developers will make false promises or statements to get people to invest. They’ll make a promise or statement to get people to invest their money, goods, or time before revealing it’s all been a trick.
Rug pulls are usually seen on social media platforms, where a person will share a post, promising some return for those who invest. The person shares this post to get more followers on their account, and then they can use that following to promote other scams.
Before you decide to invest in cryptocurrencies, it is essential that you first learn about the risks and disadvantages that come with investing in this volatile asset class. The high volatility of cryptocurrency markets poses a direct risk to the investor, while the lack of regulation surrounding them makes them an easy target for fraudsters.
Rug Pull Prevention Tips Before Investing in Crypto Markets
The most important thing about rug pull is to spot it early. It can be hard to distinguish rug pull from a real investment, but if you take your time to research and analyze, you may save yourself from future losses. Look out for these signs when you’re considering buying a new token:
Low liquidity
One easy way to tell if a cryptocurrency is a scam or not is by checking if it has a liquidity lock. Legitimate tokens have a lot of liquidity and a significant number that can’t use until a specific date. Real tokens have overall liquidity in the tens of millions (sometimes billions) of dollars and a considerable number of tokens locked for a certain time. If the token supply isn’t locked, nothing stops the creators from running off with everything.
Unknown developers
When considering new cryptocurrency initiatives, investors need to consider the credibility of the people behind the project. Is there a clear and transparent team of developers and promoters? Have they proven themselves in the industry before, and do they appear to be capable of delivering on their promises? If not, then there’s a high chance it is a crypto scam.
Too many promotions
Rug pulls aren’t created with any practical implementation goal like many other scams. As a result, they rely heavily on marketing to attract an initial group of investors and begin driving up the price. These frequently entail extensive use of social media and so-called cryptocurrency “influencers” on platforms like Facebook, YouTube, Instagram, and TikTok.
Skyrocketing price movement
A sudden and drastic price increase for new coins should be regarded cautiously. These substantial spikes in prices of newly hyped Defi tokens are common signs that the coin is about to crash shortly after. Sadly, this will often prove to be true during times of low liquidity.
No external audit
Due to the high number of crypto scams, it is now standard to undergo a formal code audit before adopting a new cryptocurrency. If a cryptocurrency project you’re looking into investing in doesn’t have an audit, this could indicate that the developers are hiding something like adding a bug they can later use to steal your funds.
However, any investor should make sure they verify the results of an audit by a third party. Any code vulnerabilities need to be found and fixed by an independent source before signing in to invest.
Conclusion
Although it’s tempting to invest in any new digital currency that comes along, these are worth taking some time to research first. To properly do so, you can conduct research or consult with experts who have experience in the field. There’s no perfect cryptocurrency out there, so it might take some time before you find the right one. But do not fret as it is up to you to make decisions.
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