Checking the token allocation on blockchain explorers will help you know who holds the most significant amount of coins and how coins are allocated. If a few wallets hold big amounts of the coin supply, dumping the tokens quickly is easy, amplifying the risks of price manipulations and rug pulls. The project attracted a lot of interest at its height leading to a meteoric rise of 40,000% rise at its peak. However, Squid Game token was a classic rug pull scam with multiple red flags, including the inability to sell these assets. In cryptocurrency, typically, early adopters and project developers could opt to prop out the liquidity of their platform’s native token to make it easier for their communities to get access to it. The developers take up the responsibility of providing liquidity and maintaining a pool.

Besides, it unearths the tell-tale indicators of rug pulls to help you avoid falling prey. Please note that the availability of the products and services on the Crypto.com App is subject to jurisdictional limitations. Crypto.com may not offer certain products, features and/or services on the Crypto.com App in certain jurisdictions due to potential or actual regulatory restrictions. The purpose of this website is solely to display information regarding the products and services available on the Crypto.com App.

Pulling the rug out from you, its hopeful investor – you may also know this as a pump and dump scheme, or shilling. In contrast to a project that simply tanked, api wikipedia a rug pull doesn’t set out to create anything. If you are new to the space, it may be best to dip your toes by buying some Bitcoin (BTC) or Ether (ETH).

However, this doesn’t imply rug pulls, and other crypto scams cannot be mitigated with a restrained investment strategy and due diligence. Let’s see how rug pulls work before diving into how to identify a rug pull. A rug pull scam involves project creators suddenly withdrawing funds, leaving investors with worthless tokens and significant financial losses. Thus, cryptocurrency trading research and caution are vital to avoid falling victim to such scams. A common practice for most upcoming crypto projects are to lock the tokens allocated to the team to prevent dumping or even theft from the team members or hackers. If a project’s smart contract launches without the provision of a locking mechanism for the tokens, that is a red flag.

1. Once the exchange becomes abuzz with trading activity, the scammers will partially or entirely disable functionality.
2. Instead, OneCoin was a classic multi-level marketing company selling courses on cryptocurrency investing and trading with incentives for buyers to introduce more buyers.
3. Many or all of the products featured here are from our partners who compensate us.
4. Certain characteristics of the DeFi space, such as the convenience of issuing and listing new coins, have made it easier for bad actors to scam investors than before.
5. The team raised close to $60 million in less than 24 hours by selling the project’s native ANKH tokens for 13,597 ETH.
6. Here, anyone can create a project with a promised use case, and if you think it has value, you can buy-in.

It claimed to have links with official Pokémon partners TopDeck, offering recolored versions of Pokémons. They offered play-to-earn games, real-world travel, comics, and even a secret Netflix project. All these were topped off with 15 Legendary card NFTs that promised to generate their holders fixed income monthly for the rest of their lives. The team started to distance themselves from the project shortly after launch, offering only sporadic updates, and it ended in a $6.3 million rug pull. Past performance is not a guarantee or predictor of future performance.

Liquidity Stealing

Finder.com is an independent comparison platform and information service that aims to provide you with information to help you make better decisions. We may receive payment from our affiliates for featured placement of their products or services. We may also receive payment if you click on certain links posted on our site. Frank Corva is a cryptocurrency writer and analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career with a mission of educating the world about this burgeoning sector of finance. He worked in Ghana and Venezuela before earning a degree in applied linguistics at Teachers College, Columbia University.

Conclusion — How to Stay Safe in the Crypto Space

To entice investors to lock their assets and act as liquidity providers (LPs), DEXs charge trading fees on transactions. LPs are awarded a certain percentage of the trading fees in return for providing liquidity. Also known as “pump-and-dump” schemes, these rug pulls operate off of fabricated public hype, often fueled by social media.

How Does a Rug Pull Work in Detail?

This is because decentralized entities have little to no adherence to regulatory provisions. Therefore, they encourage anonymity and pseudonymity amongst project developers and users alike. In this guide, you will learn about cryptocurrency-related rug pull scams.

There is little stopping the developers from taking their tokens and dumping them in the market as soon as they are able to. This feature ensures that owners are unable to send the tokens to trading platforms for selling. Some are just unethical, while others are schemes to defraud investors.

This means that they are less volatile than cryptos that have just come to market. If a new crypto token has a very low market cap, keep in mind that selling the token for cash may be very difficult. Most victims of this rug pull believe it was the developers who drained the funds and not hackers. In April 2021, the CEO of Turkish crypto exchange Thodex, Faruk Fatih ​​Özer, declared that users’ funds were safe after the exchange experienced a cyber attack. More often than not, it is impossible to recover as it depends on the kind of rug pull.

We’ll delve into what they are and why you should be knowledgeable about them to avoid becoming a victim. Also, we’ll highlight a few noteworthy examples of crypto rug pulls that have hit mainstream headlines to show and prove the consequences of such schemes. Rug pulls how to become a forex broker in 2022 a guide on starting forex brokerage firm accounted for almost 35% of the cryptocurrency scam revenue in 2021. Luckily, there are multiple red flags you can watch out for to identify potential rug pulls. Furthermore, you can use the tips discussed in this article to stay safe online and avoid rug pulls.

In 2021, approximately $60 million was invested in the initial coin offering (ICO) for AnubisDAO. In March 2016, authorities in various countries started investigating the company, which saw Ignatova vanish into thin air, leaving her brother Konstantin Ignatov in charge. Learn how to apply machine learning techniques to develop, test and implement crypto algorithmic trading strategies. Here are a few things to look out for when scoping out your next purchase to protect yourself from the next big scam.

You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction.

Sometimes crypto rug pulls happen in the decentralized finance (DeFi) space. An NFT rug pull is a scam in which creators of a non-fungible token (NFT) project suddenly withdraw liquidity. These scams cause financial losses for investors, as creators abandon the project, leaving NFT holders with worthless assets. A crypto rug pull is a deceptive maneuver in the cryptocurrency space where developers abandon a project, taking investor funds.

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He also taught writing and entertainment business courses in Japan and worked with UNICEF in Namibia before returning to the US to teach at universities in New York City. Earlier in his career, he spent years working as a publicist and graphic designer for record labels like Warner Music Group and Triple Crown Records. During that time, he was also a music journalist whose writing and photography was in published in Alternative Press, Spin and other outlets. These platforms give ratings to the quality of smart contracts and exchanges to help give you a heads up when something may be fishy.