What is a rug pull scam?
Rug pull is all about launching a new cryptocurrency project and creating hype around its cryptocurrency. Criminals spread false information to inflate the price of their new cryptocurrency.
Once the liquidity reaches a certain amount, they sell all their tokens in a DEX type Swap Where is it Exchange of pancakes and abandon the project. This leaves investors unfortunate with purchased tokens that are worth next to nothing.
A recent uplifting story recounts the experience of several investors who bought a cryptocurrency called Squid game (SQUID). The value of the SQUID shot up and then collapsed. The developers reportedly resold their tokens taking the equivalent of $ 3 million from investors.
A class action was filed in January, accusing her Kim Kardashian and boxer Floyd Mayweather of having artificially inflated the price of Ethereum Max, a cryptocurrency that took advantage of its success from Ethereum. It looks like the developers have taken a shot at the carpet.
How to avoid falling into the carpet trap?
Criminals often take advantage of the emotional aspect of trading. They make investors believe that they are about to miss out on a great opportunity to get rich. If we only think about earnings, we risk making mistakes.
But taking a step back, we can easily analyze the project in question. You should inquire about the following points.
- The goal: is there a real platform that will be developed, what problems are the developers trying to solve?
- The background of the developers: are they well known or have they participated in other projects?
- The community: Are they interested in the platform or are they just trying to get rich?
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By asking yourself these questions, you will be able to filter out perhaps 95% of the carpet hits. But that’s not enough!
Apply risk management (crypto money management)
Instead of investing all your capital in one project, you should limit your stake per project. For example, you will invest 1 to 5% of your investment capital per project. Therefore, even if you come across a rug pull, you won’t lose much of your capital at once.
At the same time, to familiarize yourself with the different projects and platforms, you can bet on a small amount of less than 10 euros as proof.