Investment

Rug Pulls: How Does It Work and How Does This Scam Work?

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The cryptocurrency market has grown quickly, with incredible growth over the past 11 years. While the industry has brought many positive things to investors, as with every other business, however, it also has its downfalls. Many hacks, scams, and attacks have led to billions of dollars of cryptocurrency losses over the past few times, with one of the latest methods of fraud is rug pulls.

This is a common occurrence in the DeFi ecosystem that has become extremely popular in recent years. Unfortunately, DEXs (DEXs) suffer from these attacks due to their design which lets anyone access the platform with no restrictions.

What Are Rug Pulls?

Rug Pull is a scam committed within the crypto-asset market. A developer of crypto assets develops a fake venture and then smuggles away the money he received from investors.

The Defi platform is among the most susceptible to this kind of malicious intent and is so unregulated that it is vulnerable to attacks. As a retail investor, you could risk losing all the funds you have invested or collected through the Defi project. One of these risks could be one of them being the Rug Pull.

This Crypto universe is home to a variety of Smart Contracts, DEFI, DEX, DApps, Blockchain-based Smart Contract projects, which provide new tools to everyday people to invest and expand. The desire for financial freedom has never seemed as real before. The amazing world of crypto is bringing new hope, a new power in the hands of humankind to change their fate.

However, these real promises come risks that could even ruin the dreams of those who don’t be accountable for cryptocurrency investing decisions. Certain bad actors would like to cause you to suffer by pursuing their selfish goals of making quick money. They are unwilling to use this insecure cryptocurrency market to gain an advantage.

How Do Rug Pulls Work?

The DeFi ecosystem allows developers to create their tokens using Ethereum and then put their tokens on DEX. However, certain developers use this privilege to fool customers by creating tokens that have zero or little value and then listing their tokens for sale on the DEX platform.

If they plan to put tokens up in exchange, the team will trade the tokens in exchange against ETH through an exchange. So, investors purchase ETH tokens hoping that they will appreciate them so that they can trade them to get more ETH. But, the team snatched their ETH, went missing, and left the investors with tokens with no worth.

Rug Pull occurs when a single person (or group) takes out the pool of liquidity. This means that traders cannot trade fake tokens.

Strategies to Avoid Traps from Rug Pulls

Pulling Monitor liquidity The most effective method to gain a quick review of the legitimacy of a token is to examine its liquidity. The most authentic projects contain billions or millions in liquidity. Also, check if there is a time limit for betting. Genuine projects will store huge quantities of their tokens over lengthy durations. The tokens locked up cannot be taken directly from liquidity pools, making the project less likely to be a scam.

Value skyrocketing When a project of a modest size increases in value suddenly and you’re worried about changing. The objective is to get the other buyers and you by FOMO. If you notice an item’s value skyrocketing, then find out why.

Do background research. Check the project’s objectives. Do you have a native usage case? Then, take a look at the team behind the project. Are they well-educated? Background? Check their social media profiles and find out what others have to say about the members of the team. Are they popular with their followers, or are they just posting random posts discussing prices? The legitimate projects don’t have anything to hide and need to interact with their customers to earn an excellent reputation and gain the community’s trust.

Conclusion:

It is essential to know yourself thoroughly and stay clear of investing in the latest Defi projects without thinking. Do not just go after your passion for earning huge returns in a short amount of time, and you may even face losses on every asset you own.

These malicious hackers profit from your FOMO and get-rich-quick tendencies to trap you often. Finally, you’ll be able to protect your assets and rest comfortably.

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